Mysterious ways; penalty kick; please, Mr. Postman; and other highlights of recent tax cases.
Charlotte, North Carolina: Former NASCAR team owner Ronald Devine, of Burke, Virginia, has pleaded guilty to failure to pay payroll taxes.
Devine was the owner and president of BK Racing, which operated a NASCAR racing team and owned two NASCAR charters. He controlled BK's financial affairs, including authorizing the filing and payment of its trust fund taxes.
Beginning in 2012, Devine caused BK to fail to account for and pay hundreds of thousands of dollars in payroll taxes. Between 2012 and 2017, instead of using the funds held in trust to pay for payroll taxes, Devine transferred more than $2 million to other businesses and entities that he owned and controlled, and used some of the funds to pay for BK's expenses.
The charge of failure to truthfully account for and pay over trust fund taxes carries a maximum of five years in prison and a $250,000 fine.
Paramus, New Jersey: CPA Ofer Gabbay has pleaded guilty to conspiring to defraud the U.S. by promoting fraudulent tax shelters to high-income clients.
Between 2018 and 2019, he conspired with others, including Jack Fisher, James Sinnott and their assistant Kate Joy to promote fraudulent syndicated conservation easement tax shelters to their clients. Gabbay and others instructed clients to backdate checks, agreements and other documents to support the unwarranted deductions. Gabbay then prepared false returns for participating clients.
Fisher and Sinnott have been sentenced for their roles in the scheme. Joy remains a fugitive.
Gabbay faces a maximum of five years in prison as well as a period of supervised release, restitution and monetary penalties.
Lanham, Maryland: Tax preparer Funso Posi Timothy, 60, has pleaded guilty to and was convicted of two counts of filing false returns.
Timothy owned and operated the tax prep business Romaft Taxes from his residence. For 2021, he filed Maryland returns that included false information to unlawfully inflate refunds and evade taxes.
Timothy was sentenced to three years in prison, all suspended for five years of supervised probation. He was also ordered to pay $18,422 in restitution and is prohibited from filing returns for others while he is on probation.
Dallas: Business owner Heaven Marie Diaz, 57, has been convicted of failing to pay over employment taxes withheld from her employees.
Diaz was the owner and CEO of Pursuit of Excellence, a staffing company. From 2015 to 2017, she withheld payroll taxes from employees' paychecks but failed to remit more than $3 million to the IRS.
Former employees and her former accountant testified that they repeatedly warned her about her obligation to pay employment taxes, yet Diaz continued to withhold the taxes and kept the funds in her company's bank accounts. She used the money for such personal expenses as international travel, luxury goods and the $10,000 monthly rent on a home.
Diaz tried to convince the jury that these items were business expenditures, including her rent, which she claimed qualified as a business expense because she threw murder mystery parties as an opportunity to network.
Sentencing will be in September. Diaz faces up to 25 years in prison.
Miami: Business owner Suresh Gajwani has pleaded guilty to making a false and fraudulent statement to the IRS.
In October 2019, Gajwani owned a company that held stocks and options that had substantially appreciated by tens of millions of dollars. In anticipation of the tax on those gains, he sought to take advantage of an incentive under Puerto Rico Act 60 by which bona fide residents of Puerto Rico could apply for an exemption from federal taxes on certain capital gains realized after the individual became a Puerto Rican resident. Gajwani did not become a resident of Puerto Rico until the following January, which was after the stock portfolio had accrued built-in gains.
Gajwani was advised by an accountant and attorney to convert his company to an S corp to take advantage of the Puerto Rico exemption. He was also advised by an attorney that built-in gains for U.S. residents accrued prior to becoming a resident of Puerto Rico could be exempt from federal taxes.
In January 2020, Gajwani submitted a false document to the IRS that claimed that the company had intended to convert as of Jan. 1, 2019. Gajwani knew that he did not intend to treat the company as an S corporation as of that date and that the real reason for the submission of the paperwork to the IRS was to avoid capital gains. The IRS granted Gajwani's request.
In 2019, Gajwani's company had a portfolio with some $30 million in built-in gains. Had the IRS not allowed Gajwani's company to convert to an S corp retroactively, the company would have owed some $7 million in capital gains for 2019.
Sentencing is Aug. 30. Gajwani faces up to three years in prison; he has agreed to repay some $15.3 million in restitution to the IRS.
Hoboken, New Jersey: Pantaleo "Leo" Pellegrini, the former Hoboken director of Health and Human Services and director of the Department of Environmental Services, has been sentenced to two years in prison for embezzling from the City of Hoboken and for filing a false return.
Pellegrini, owner and president of a private soccer club, had municipal responsibilities related to public recreational facilities, including soccer fields that could be reserved for a fee paid to the City of Hoboken. Pellegrini diverted some $223,500 in payments intended for the City of Hoboken to bank accounts he controlled. He also embezzled from the city by submitting some $234,432.60 in personal expenses that the city unknowingly paid.
He did not report the embezzled money on his personal returns and avoided some $119,972.60 in taxes. He used the money on personal expenses including meals, entertainment and gambling.
Pellegrini, who previously pleaded guilty, was ordered to pay $439,972.60 in restitution to the City of Hoboken and $119,464 in restitution to the IRS, as well as to forfeit $439,972.60. He was also ordered to a term of supervised release.
Glastonbury, Connecticut: Ernesto Rodriguez Jr., formerly of East Hartford, Connecticut, and currently residing in Tampa, Florida, has pleaded guilty to a charge related to his theft of a U.S. Treasury check from the mail while working for the U.S. Postal Service.
In 2021, Rodriguez, a mail carrier in Glastonbury, was asked by an acquaintance to intercept federal refund checks that would be mailed to addresses on his mail route; he would be paid some $100 for each check. Rodriguez was provided with approximately 10 names and addresses for checks he was supposed to take from the mail.
In October 2021, Rodriguez stole a U.S. Treasury refund check for $4,943.17 from the mail before it was delivered to an address on his route. Also that month, he deposited the check into his wife's bank account and later transferred $4,500 from his wife's account to his own bank account and subsequently spent the money for personal use.
He resigned from the Postal Service on Oct. 23, 2021, and told law enforcement that he only stole one check as part of this scheme.
Rodriguez pleaded guilty to theft of public money, an offense that carries a maximum of 10 years. Sentencing is Sept. 24.
