Tax Fraud Blotter: Model fraud

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Bighorn to the big house; rotten apple; in Dutch; and other highlights of recent tax cases.

San Dimas, Calif.: Preparer Ismael Michael Padilla, 41, has pleaded guilty to engaging in a scheme to defraud the IRS of millions of dollars through the submission of fraudulent income tax returns.

Padilla, who operated under the name RMD Financial Services, pleaded guilty to two counts of aiding and assisting in the preparation and presentation of a false return.

According to the plea agreement, beginning in January 2008 and continuing until at least April 2016, Padilla submitted more than 1,100 false income tax returns to the IRS, each claiming refunds based on fabricated itemized deductions. Padilla filed these false returns in the names of his clients without their knowledge or consent.

The false refunds were never received by Padilla's clients but were instead diverted by Padilla into bank accounts under his ownership and control. To deceive his clients, Padilla would typically prepare two different sets of returns for the same year: an initial return to provide to the client and a second to file with IRS. In the IRS copies, Padilla would claim false and inflated itemized deductions for items such as mortgage interest, decreasing the reported tax liability and inflating any claimed refund. The client copies did not include the fraudulent deductions.

In total, Padilla received some $5,241,787 in false federal refunds.

He faces a maximum of six years in federal prison when sentenced on May 10. Padilla may also be ordered to pay restitution of $4,342,352.

Red River, N.M.: Businessman Robert Baños, 46, has been sentenced to 15 months in prison to be followed by a year of supervised release for filing false returns.

Baños is the owner and operator of the Old Tymer’s Café and Bighorn Sports and Rental. His indictment in April 2016 charged him with violating the federal tax laws during five tax years — 2009 through 2013 — by filing returns that failed to report his true income. During each of those tax years, Baños falsely reported that he had a negative income in the individual federal income tax returns he filed.

He admitted that during tax years 2009 through 2013, he underreported his businesses’ true income to a preparer. Baños also acknowledged signing those tax returns, under penalty of perjury, which he knew to be materially false for the purpose of evading federal income taxes.

He was also ordered to pay $182,771 in restitution to the IRS, which covers the amount involved in the criminal activity charged in the indictment as opposed to the amount involved in the crime of conviction.

Minneapolis: Three defendants have been sentenced for their involvement in a years-long, multi-million-dollar health care fraud and tax conspiracy.

Thurlee Belfrey, 52, Roylee Belfrey, 52, and Lanore Belfrey, 43, each entered guilty pleas in September.

According to the pleas and court documents, brothers Thurlee and Roylee Belfrey ran multiple health care businesses that received funds from the Medicaid and Medicare programs funded by the federal government and the State of Minnesota. In 2003, following an investigation by the Minnesota Attorney General’s Office into Royal Health Care, a business they started together in the 1990s, Thurlee Belfrey was convicted of felony theft by false representation.

Based on his conviction, in 2004 the Minnesota Department of Human Services and the U.S. Department of Health and Human Services excluded Thurlee Belfrey indefinitely from participating in state and federal health care programs, with no right to seek reinstatement for up to 20 years.

Despite this, and as he admitted in his guilty plea, Thurlee Belfrey conspired with his wife Lanore Belfrey to incorporate a new health care company, Model Health Care, to continue the business operations and conceal Thurlee Belfrey’s involvement. Lanore Belfrey was named the owner of Model and intentionally failed to disclose her husband’s involvement in managing the business.

Government payment records show Model received more than $18 million from Medicaid that would not have been paid but for misrepresentations about Thurlee Belfrey’s involvement in the businesses. According to the investigation, the couple received millions of dollars from Model during the scheme.

While Thurlee Belfrey ran Model, Roylee Belfrey operated several health care businesses as well. According to the guilty pleas, between 2007 and 2013 Thurlee and Roylee Belfrey deducted and collected money from their employees’ wages, ostensibly for the payment of federal payroll taxes and FICA taxes. They intentionally failed to pay the withheld taxes over many years and instead used the money for other purposes, including attempts to develop a reality show based on their lives, high-end housing, a Caribbean cruise, luxury retail purchases and thousands of dollars in cash withdrawals.

In total, Thurlee and Roylee Belfrey admitted deducting and stealing more than $3,960,000 in withheld taxes between 2007 and 2014.

Las Vegas: Preparer Ofelia Ronquillo, 62, has pleaded guilty to filing fraudulent returns.

According to documents and information provided to the court, from 2009 through 2015 Ronquillo prepared fraudulent income tax returns for clients through a business known as A.R. Financial LLC and later AJRC Tax Services. Ronquillo included false items on her clients’ returns, including bogus charitable contributions, capital losses and such unreimbursed employee expenses as meals and transportation expenses, as well as claimed inflated and undeserved refunds.

Ronquillo admitted that she caused a tax loss of more than $2.7 million.

Sentencing is May 17. Ronquillo faces a maximum of three years in prison for each count, as well as a period of supervised release, restitution and monetary penalties.

Johnson Creek, Wis.: Thomas G. Paine, 64, former corporate officer of a produce vendor, has pleaded guilty to tax evasion.

According to the indictment and information provided to the court, Paine was the vice president and treasurer of G.W. Paine Inc., which sold fresh fruit and other produce under the business name Tree Ripe Citrus Company. Paine was responsible for the finance and tax aspects of the business but failed to file corporate returns for tax years 2010 through 2012 and concealed the income of the business from the IRS by structuring cash bank deposits in amounts less than $10,000 to evade bank-reporting requirements.

Paine admitted to causing a tax loss of $250,000 to $550,000.

Sentencing is May 8, when Paine faces a maximum of five years in prison, a period of supervised release, restitution and monetary penalties.

South Bend, Ind.: Federico Avendano, 53, of the Netherlands, has been sentenced to four years in prison and been ordered to pay $605,468.81 restitution after filing fraudulent federal returns.

According to case documents, in April and September of 2011 Avendano used the ITIN of another person to commit wire fraud by filing fraudulent returns with the IRS. He obtained the ITINs while working as a preparer in South Bend, then used those numbers to file returns without the taxpayers’ knowledge.

The returns contained false information about the taxpayers’ employment and falsely claimed they were entitled to refunds that were to be deposited into bank accounts that Avendano controlled.

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