Tax Fraud Blotter: ‘No legitimate purpose’
Shadow preparer; an unusual exit strategy; a Jag, a Benz and a sentence; and other highlights of recent tax cases.
Kansas City, Kan.: Preparer Alfred Reece, 58, formerly of Overland Park, Kan., has pleaded guilty to aiding and assisting in the preparation and presentation of false income tax returns.
According to documents filed with the court, Reece owned and operated a prep business and from approximately 2013 through 2015 prepared federal returns for individuals, claiming false business income and losses, medical and dental expense deductions, job-related expenses, charitable donations and other fraudulent items. Reece also concealed himself as the preparer on these fraudulent returns by falsely claiming that they were self-prepared.
He admitted causing a tax loss of $550,000 to $1.5 million.
Sentencing is Jan. 17, when Reece faces a maximum of three years in prison on each count, as well as a period of supervised release, restitution and monetary penalties.
St. George, Utah: Financial advisor Henry Brock has pleaded guilty to tax evasion, securities fraud and wire fraud in connection with his role in selling fraudulent tax-avoidance and investment strategies.
According to documents and information provided to the court, Brock founded a financial services company in 2009 and served as its president from 2009 through 2017. He marketed and sold a fraudulent tax scheme, called “IRA Exit Strategy,” to potential investors. Brock promised investors that he could provide a way for them to avoid paying taxes on IRA withdrawals, which would otherwise be subject to IRS penalties and taxes.
To implement his scheme, Brock caused his business to issue tax forms to his clients, falsely representing that they were investors in his business who incurred losses thus, offsetting clients’ tax liabilities. He caused clients to file fraudulent income tax returns claiming a total of approximately $3.8 million in bogus business losses and resulting in a tax loss of more than $1.1 million.
During this period, Brock fraudulently raised over $10.8 million in investments by making false representations to investors regarding the “IRA Exit Strategy,” the financial condition of his company and other matters. On one occasion, Brock also transferred $196,323 of a client’s investment funds and used the money for his own personal and business expenses.
Sentencing is March 5. Brock faces a maximum of five years in prison for tax evasion, 20 years for securities fraud and 20 years for wire fraud. He also faces a period of supervised release, restitution and monetary penalties.
Yucaipa, Calif.: Preparer Mervyn Gucilatar, 46, has been sentenced to eight months in prison for fraudulent returns for both his clients and himself that claimed false business losses.
Gucilatar, who operated his tax prep business under the name JM Tax Solutions, pleaded guilty in February to one count of aiding and assisting in the preparation of a false return and one count of making and subscribing to a false return.
According to the plea agreement, while working with another unidentified return preparer, Gucilatar prepared returns that claimed partnership losses to which his clients were not entitled. The false partnership losses related to a limited liability corporation that was created with no legitimate purpose. The fraudulent returns included personal expenses and fictitious expenses for the partnerships that had no business purpose other than to create a loss. The false losses to the partnerships were passed through to the personal returns of Gucilatar’s clients, reducing their income tax liability.
Gucilatar prepared at least 35 sets of fraudulent partnership and individual income tax returns on behalf of clients, resulting in a tax loss of $678,873 for the 2012 tax year.
Prior to working with the unidentified preparer, Gucilatar was his client. Using the other return preparer, Gucilatar filed amended 2009, 2010 and 2011 returns that used the same LLC scheme and claimed false partnership losses. Gucilatar also filed a fraudulent 2012 tax return using the LLC scheme on his own behalf, which created an additional tax loss.
The tax loss associated with the 2009-2012 returns filed in the name of Gucilatar and his wife totals $95,882.
In the plea agreement, Gucilatar agreed to the entry of a civil injunction that will bar him for life from aiding in the preparation of returns for anyone other than himself and his wife. He will also be barred from representing other individuals before the IRS.
He was also ordered to pay $573,440 restitution to the IRS.
Kansas City, Mo.: Preparer Quashanda King, 36, has pleaded guilty to filing false tax returns.
King pleaded guilty to assisting in the preparation and filing of a false and fraudulent tax return.
She was a long-time employee of Instant Tax Service as a preparer, and managed its office in Kansas City. The typical client typically had less than $3,000 in W-2 wages. When they walked into one of the two offices, they were assigned a preparer who input their W-2 wages, dependents, and other identifying information into the appropriate field of their e-filed returns. King admitted that preparers would insert completely fabricated Schedule C activity showing the client carried out a business at a modest profit, often inflating the gross receipts of activities such as “doing hair” or “babysitting” to maximize refundable credits.
The evidence suggests that in most of these cases the clients were not really earning any income from braiding hair or from babysitting.
King admitted that she assisted in the filing of seven fraudulent tax returns, resulting in a loss to the government of $26,187. She is subject to up to three years in prison without parole.
Boynton Beach, Fla.: Resident David R. Andre, 41, has been sentenced to 30 months in prison for endeavoring to obstruct internal revenue laws and theft of government funds.
According to court documents, from 2010 to 2015 Andre, who pleaded guilty in June, filed fraudulent personal federal tax returns that sought more than $5.6 million in undeserved refunds. As a result of these returns, which falsely reported income earned and income tax withheld, the IRS paid Andre more than $485,000 in refunds. He used the funds to purchase his residence and multiple vehicles, including a Jaguar and Mercedes Benz.
In late 2012, the IRS began trying to collect the taxes Andre owed and placed a lien on his residence. Days after the lien was recorded, Andre filed a form with the IRS that claimed he was making a substantial payment; the IRS released the lien. After Andre did not make the payment, the IRS re-filed the lien.
In 2015, Andre also made false statements to IRS agents and told them that he purchased his residence with money he inherited, did not recall receiving any large refunds from the IRS and had not filed a tax return since 2008.
He was also sentenced to three years of supervised release and ordered to forfeit $137,582.70 to the U.S. and pay $485,298.96 restitution to the IRS.