Tax Fraud Blotter: Misadventure capital
Nominees down under; 22 years of inaccurate returns; shell games; and other highlights of recent tax cases.
Orono, Minn.: Businessman Scott Phillip Flynn, 55, has pleaded guilty to one count of conspiracy to defraud the U.S. and one count of filing a false return.
According to his plea and documents filed in court, between 2005 and 2015 Flynn evaded millions of dollars in income taxes by fraudulently hiding millions of shares of stock that he obtained for himself, his father and entities they controlled (collectively, the “Flynn Group”). In 2006 and 2008, Flynn assisted two privately held Wisconsin-based companies, Tower Tech Systems and Advanced Fiberglass Technologies, become publicly traded through stock-for-stock “reverse merger” transactions. As compensation, millions of shares of publicly traded stock in the resulting public companies were transferred to “Integritas Inc.” and “Diversified Equities Partners,” both part of the Flynn Group.
Flynn, who exercised control over the stock, which had considerable value, was required to but did not report receipt of the shares of stock as income on his individual income tax returns or on the tax returns of members of the Flynn Group.
To conceal his control and ownership of the stock and evade income taxes, Flynn caused a portion of the stock to be put in the names of Australian nominees recruited by Flynn’s co-conspirator, Steven Miotti. The Australian nominees, who never actually owned or controlled the stock, were directed to open brokerage accounts in the U.S. to receive the shares, but Flynn possessed their login and password data so he could maintain control of the accounts and the shares of stock.
During the conspiracy, when Flynn needed money he caused the Australian nominees to sell shares of stock and transfer the proceeds to entities in the U.S. that he controlled, which in turn made payments to Flynn or on his behalf. These sales generated millions of dollars in capital gains income, which he purposely failed to report to the IRS.
For example, in 2007 Flynn received some $2.7 million of the proceeds from the Australian nominees to buy a house in Orono, which was considered income to Flynn. That year, in a return that he later acknowledged was materially false, Flynn reported only $26,136 of total income.
Throughout the scheme, Flynn concealed tens of millions of dollars in income and capital gains from the IRS and intentionally evaded the assessment of at least $3.5 million in income taxes.
Newington, Conn.: Insurance salesman Terry DiMartino has been sentenced to 70 months in prison for tax fraud.
He was convicted after a jury trial in March 2016 of one count of corruptly interfering with the due administration of the internal revenue laws, two counts of filing false returns and five counts of willfully failing to file returns.
DiMartino was a salesman for numerous insurance companies. Despite earning millions of dollars in insurance commissions over the last decade, he did not file accurate returns or pay taxes owed. According to evidence, DiMartino mailed false documents to the IRS, including three false returns for the 2007 tax year, one of which requested a fraudulent $14 million refund. He also sent false and threatening correspondence to the IRS in an attempt to defeat assessment, collection and investigative efforts, and he sent false and threatening correspondence to insurance companies that sought to cooperate with the IRS collection. DiMartino further set up nominee entities to hide and conceal assets to prevent the IRS from collecting on his tax liabilities.
DiMartino has not filed an accurate individual income tax return since the 1996 tax year.
He was also ordered to serve a year of supervised release and to pay $658,547.62 in restitution to the IRS.
Elmwood Park, N.J.: Jason Crespo, 35, has admitted to conspiring to file false federal returns for shell companies, resulting in $191,953 in fraudulent refunds.
He admitted to one count of conspiring with Jose Crespo, his father, to defraud the IRS by filing false corporate returns and cashing the refund checks.
According to the case documents and statements in court, between 2010 and 2012 the Crespos filed numerous false Forms 1120 for fake businesses. In one instance they filed a federal corporate return for 2008 for Jason Cleaning Service Corp. that claimed a fuel excise tax credit of $14,556 and a resulting refund of $10,592. In fact, Jason Cleaning Service was a shell company and the fuel excise tax credit and other return numbers were false.
Jose Crespo pleaded guilty on September 11 to engaging in the tax credit scheme and another tax fraud, both of which claimed fraudulent refunds from the IRS of approximately $1.5 million. Jose Crespo was sentenced in December to three years in prison. Marilyn Crespo, Jose’s wife, pleaded guilty on March 1 to engaging in the scheme and causing a loss to the IRS of $286,742. She was sentenced on June 27 to a year and a day in prison.
The filing a false return count carries a maximum of three years in prison and a potential $250,000 fine, or twice the gross gain or loss from the offense. Jason Crespo’s sentencing is October 4.
Walnut Creek, Calif.: CPA Marc Howard Berger has been convicted on three counts of aiding and abetting the filing of a false return.
The jury found that Berger willfully assisted in the preparation of three false 1040s for co-defendant G. Steven Burrill for 2011, 2012 and 2013. Berger, 67, was a partner with Top 100 Firm Burr Pilger Mayer; his client, Burrill, was the owner and CEO of Burrill & Co., Burrill Capital and a number of related entities. Through the entities, Burrill managed venture capital funds, including Burrill Life Sciences Capital Fund III, a $283 million investment fund focused on the life sciences industry.
Between December 2007 and September 2013, Burrill transferred more than $18 million from the fund to his management companies in excess of the management fees that were due and allowable under the agreements that governed the fund.
Berger prepared and filed false income tax returns for Burrill that failed to report more than $18 million in income, resulting in unpaid taxes of more than $4.7 million. With Berger’s assistance, Burrill paid no individual income taxes for the years 2009 through 2013.
The maximum for each count is three years in prison and a fine of $100,000.