D.A. IOU; broken LINX; fraudster to the stars; and other highlights of recent tax cases.
Huntington, New York: Business owner Warren J. Krotz, 62, has pleaded guilty to tax evasion.
Krotz owned and operated W. Krotz Enterprises Inc., a professional painting business, and admitted to evading both his individual and employment tax liabilities. From around 2010 through 2016, he cashed some $6 million in checks at various check-cashing facilities. These checks were gross receipts of WKEI, but Krotz did not report the amounts on the company’s corporate income tax returns.
He admitted to paying some $2 million in wages to employees in cash. Krotz did not withhold and pay over some $300,000 in federal employment taxes. He also admitted to receiving some $3 million in income that he did not report on his personal returns and to causing a tax loss to the IRS of some $1 million.
Sentencing is Sept. 25, when Krotz faces a maximum of five years in prison, as well as restitution and monetary penalties.
Rochester, New York: Preparer Sedat Kaya, 64, of Greece, New York, who was convicted of aiding and abetting in the preparation and filing of false returns, has been sentenced to three years of probation and ordered to pay $55,681 in restitution to the United States Treasury.
Kaya owned and operated Seneca Tax Services since approximately 2004 and prepared returns for hundreds of clients. IRS investigation revealed that from 2012 to 2017 he falsified information on the returns of clients by including false or inflated expenses, defrauding the U.S. for a total of more than $55,681.
Grand Blanc, Michigan: Jeremiah Cheff, who previously operated adult foster care homes, has been convicted of payroll tax fraud, obstructing the IRS and failure to file returns.
Cheff owned and controlled the financial and business operations of 16 foster care homes that cared for individuals with mental illnesses and developmental and physical disabilities. From September 2010 through September 2014, Cheff withheld payroll taxes from employees’ paychecks but failed to timely file payroll tax returns and failed to pay over the withheld funds to the IRS.
A jury found Cheff guilty of 60 counts of payroll tax fraud. He was also convicted of corruptly endeavoring to obstruct the administration of internal revenue laws and failing to timely file his individual income tax returns for 2013 to 2015. After the IRS attempted to collect unpaid payroll taxes, Cheff sent an $80,000 false financial instrument to the IRS and falsely claimed to a revenue officer that he had paid the taxes due.
Sentencing is Sept. 3. Cheff faces a maximum of five years in prison for each payroll tax fraud count, three years in prison for the corrupt endeavor to obstruct count and a year in prison for each of the failure to file counts. Cheff will also face a term of supervised release and monetary penalties.
Binghamton, New York: Kareem Young, 40, has been convicted of filing a fraudulent claim with the IRS.
Young filed a 2013 U.S. individual return claiming income of $6,125,000 and federal tax withholdings of $6,125,000. Young’s return also sought a refund of $6,125,000. His actual income for 2013 was $3,127.36.
Young fabricated withholdings, claiming withholding credits from the local county district attorney. His return was reviewed and the IRS sent Young correspondence telling him to file a corrected return. He failed to do so and persisted in trying to get a refund of $6,125,000. The IRS never issued a refund.
Evidence showed that Young learned of this scheme while in state prison, and that the scheme involved falsely claiming credits from the district attorney’s office that prosecuted the prisoner.
Sentencing is Sept. 24, when Young faces up to five years in prison.
Rochester, New York: Jason Guck, 43, of Victor, New York, who was convicted of conspiracy to commit wire fraud and filing a false return for the year 2012, has been sentenced to seven months in prison.
In 2001, Guck, Craig Jerabeck and Jeb Tyler started 5LINX Enterprise, a multi-level-marketing company that offered utility and telecommunications services, health insurance, nutritional supplements and business services. Jerabeck was president and CEO, Guck was a vice president and secretary and Tyler was vice president.
In June 2006 and July 2006, Guck, Tyler and Jerabeck sold 5LINX stock for $5.5 million to three investment companies. Guck admitted that from about May 2010 to April 2016, 5LINX sold and distributed products for a Florida vendor. Guck, along with Tyler and Jerabeck and without the knowledge of the investors, board or other stockholders, conspired and agreed to cause the Florida vendor to pay them personally or companies they owned some $2,310,510, which their stockholders agreements prohibited them from receiving.
Guck also solely owned YaYa Holdings Corp. and provided false information on YaYa Holdings’ federal returns for the fiscal years ending July 31, 2012, and 2013, and failed to file corporate returns for the fiscal years ending July 31, 2014, and 2015. In addition, for fiscal years ending July 31, 2012, and 2013, Guck failed to report income the corporation received from 5LINX. Also, for the fiscal years ending July 31, 2014, and 2015, the corporation had income that Guck should have reported on corporate returns. The false returns and failure to file returns resulted in a tax loss of some $778,718.
In addition, Guck will forfeit various assets previously seized by the government, totaling approximately $53,000. Jerabeck and Tyler were previously convicted and sentenced to 14 months in prison.
Raleigh, North Carolina: Garvey Imhotep has pleaded guilty to conspiracy to defraud the U.S.
Imhotep conspired with others to file false returns for the tax years 2011 through 2014 for clients of Tax Kings, Two Brothers Tax Service and Taxes Done Right. Imhotep and his co-conspirators filed returns claiming false education expenses and other fraudulent items to increase refunds. Imhotep used PTINs associated with others to conceal his involvement and avoid detection by the IRS.
Sentencing is in October, when Imhotep faces a maximum of five years in prison. He also faces monetary penalties, supervised release and restitution.
Columbus, Ohio: Celebrity business manager Kevin R. Foster, 43, of Montclair, New Jersey, has been sentenced to 89 months in prison and ordered to pay more than $7.9 million in restitution for crimes related to a $7.9 million scheme to defraud clients.
This case stems from the prior prosecution of Thomas E. Jackson and Preston J. Harrison, who collected some $9 million from investors under false pretenses to start and market the sports beverage “OXYwater.” Foster served as an officer or controller of Imperial Integrative Health Research & Development, LLC in Westerville, Ohio, with Jackson and Harrison.
Foster induced his client Shaffer Smith — better known as R&B singer Ne-Yo — to invest $2 million into OXYwater under false representations. Unknown to Smith, Foster invested an additional $1.5 million of their money into the product and fraudulently took out $1.4 million in lines of credit under Smith’s name by forging his signature. Foster also defrauded a second celebrity client, Brian McKnight.
Foster withdrew more money from his victims’ accounts than they had authorized and used some of it to keep his company afloat. Foster also used the stolen funds to enjoy a lifestyle with luxury cars, a personal driver, extravagant suits and jewelry and tickets to professional football and basketball. Foster diverted funds until Imperial went into receivership.
Foster failed to report on his 2012 and 2013 tax returns the millions that he stole; he also claimed millions in bogus deductions. His restitution includes more than $1.4 million to the IRS.
Montgomery, Alabama: Former preparer Laquanda Gilmore Garrott, 39, has been convicted on 10 counts of filing a false federal income tax return.
From 2011 through 2015, Garrott operated the prep business L&G Associates and put false information on her clients’ returns to inflate refunds and her fees. Garrott falsely claimed that one client lost more than $30,000 on a side lawn-care business even though she knew the client did not operate such a business. During 2014 and 2015, Garrott prepared more than 1,500 returns and collected more than $370,000 in fees.
Garrott faces up to three years in prison on each count, fines and an order of restitution.
