Tax Fraud Blotter: Tea time, again
Surety you can’t be serious; Take Your Daughter to the Scam Day; God and tile work; and other highlights of recent tax cases.
Federal Way, Wash.: Former preparer Kwangbae Kim, 63, faces a second 37-month prison term, followed by three years of supervised release, for preparing false returns after serving more than two years in prison for her first conviction.
From 2011 to 2016, Kim, operator of the prep service Tea and Tax, engaged in a scheme to file false income tax returns, mirroring a scheme that got her a 27-month prison term in 2003.
According to case records, in 2003 Kim prepared returns for clients with false and fraudulent business expenses. After an IRS investigation began and agents contacted some of Kim’s clients, she orchestrated cover stories, had clients rehearse stories, and gave them falsified documentation to try to make the fraudulent expense deductions look legitimate.
The tax loss in the 2003 case was $430,000.
After the prison sentence, Kim again prepared returns with false and fictitious expense deductions. Between 2011 and 2016, she prepared more than 30 false returns resulting in a tax loss of at least $113,000. To try to hide her conduct, Kim used other people’s PTINs and also applied for a PTIN in the name of a relative who did not prepare taxes and did not know about the PTIN. As in the 2003 case, when the IRS started asking clients about their deductions, Kim encouraged them to lie to the IRS and provide false and misleading documents.
While Kim did not directly profit from the increased refunds enjoyed by her clients, the refunds may have increased her profit by encouraging others to use her business. Of the $113,000 tax loss, Kim’s clients have paid most of the loss after their returns were audited. She was ordered to pay restitution of the remaining $29,478.
Leawood, Kans.: Attorney David Mandelbaum has admitted that he concealed his assets and income to keep the IRS from collecting more than $132,000 in taxes he owed.
Mandelbaum pleaded guilty to one count of tax evasion, admitting that he owed more than $132,000 from the 2005, 2006, 2007, 2009 and 2010 tax years.
He concealed assets and income from the IRS by setting up bank accounts under other identities and making false statements. He also kept personal money in a trust account that was supposed to include only funds belonging to clients.
Sentencing is Oct. 29, when he faces up to three years in federal prison and a fine of up to $250,000. He agreed to pay restitution of slightly more than $202,000, which includes penalties and interest.
Orlando, Fla.: A federal court has entered a permanent injunction against Herve Erilus and Herve Erilus LLC, barring them from preparing federal returns for others and owning or operating a prep business.
The court also ordered that Erilus and Herve Erilus LLC disgorge $107,895.34, representing the gains for preparation of returns.
The court found that Erilus and Herve Erilus LLC, an entity through which Erilus owns and operates a prep store d.b.a. Travelers Tax Center, prepared returns that included fraudulent claims for the Earned Income Tax Credit, often based on bogus dependents, fabricated business income and expenses or false filing statuses. The court also determined that Erilus and Herve Erilus LLC systematically and repeatedly prepared returns that falsely claimed education credits and self-employed business income or expenses.
Monroe, N.C.: Billy Darryl Floyd has been sentenced to 18 months in prison for attempting to interfere with the due administration of the internal revenue laws.
According to court documents, between 2007 and 2011 Floyd committed acts to obstruct and impede the IRS, including filing income tax returns that falsely reported that his income was zero. He also submitted fictitious “Surety Bonds” to the IRS to satisfy his outstanding tax liability and disrupted the IRS sale of property seized from him to satisfy his outstanding tax liabilities by threatening IRS employees conducting the sale and threatening to sue the buyer of the property. At the sale, Floyd falsely told potential buyers that the sale was illegal and that they would not receive good title to the property. These actions caused IRS personnel to halt the public sale of this property.
Floyd caused a tax loss of approximately $170,471.
He was also ordered to serve a year of supervised release and to pay $170,471 in restitution to the IRS.
Baltimore: Tynisha Martin Kadiri, 40, president of a tax prep service, has been sentenced to four years in prison to be followed by a year of supervised release for assisting in the filing of false income tax returns and for failing to file corporate tax returns.
Evidence showed that Kadiri, who owned three prep businesses, filed false and fraudulent returns for clients. The returns included phony business receipts and losses, and false or fictitious businesses, all to inflate refunds. Evidence also proved that she did not file federal corporate income tax returns for her businesses for tax years 2014 and 2015.
She was also ordered to pay $90,895 in restitution.
Jacksonville, Fla.: Preparer Elizabeth M. Jordan has been sentenced to 21 months in prison for aiding and assisting others with the filing of fraudulent returns. Also sentenced was Jordan’s daughter, Dolores A. Youmans, to five years of probation for the same offense.
Each was also ordered to pay restitution to the IRS: $176,379 for Jordan, $96,769 for Youmans.
According to court documents, Jordan owned and operated a prep business that she started in 2011 and where she, Youmans and others prepared individual income tax returns for clients. They reported false information, including false deductions, false claims for education and other credits, and false claims of business expenses to reduce tax liabilities or inflate refunds for clients.
Bakersfield, Calif.: Michael Galloway, 63, owner of a Catholic website, has been sentenced to 21 months in prison for tax evasion.
According to court documents, Galloway generated revenue by selling advertising and hosting to faith-based businesses via his site, Catholic Online. For tax years 2003 through 2006, Galloway improperly deducted personal expenses as business expenses, including his homeowner’s association fees for his personal residence, car payments and insurance, utilities and cable service for his personal residence, tile work and personal legal fees.
For the four charged years, Galloway reported an income of $13,241 (2003); $28,846 (2004); $-60,438 (2005); and $23,053 (2006). During this time the defendant owned a 4,600 square-foot residence on a golf course in Bakersfield that he had purchased for $850,000. For the four years in question, these figures amounted to a claim by the defendant that he earned only $4,702 and yet was able to make $320,420 in mortgage payments.
He underreported his and his spouse’s taxable income during those years by at least $671,755, resulting in an additional tax due of more than $102,000. The jury also found that he falsely claimed to IRS agents during a 2010 interview that he made his mortgage payments from cash that he had saved over 40 years.
New Richmond, Wis.: Stephanie M. Johnson, 40, has been sentenced to 30 months in prison for mail fraud and willful failure to pay payroll taxes.
Johnson, formerly co-owner of Paradigm Service Inc., which operated homes for disabled adults, pleaded guilty on May 15.
She was responsible for all financial aspects of PSI and for withholding payroll taxes, yet caused PSI to fail to properly file and pay taxes from the fourth quarter 2008 through the fourth quarter 2017, resulting in a tax loss of $822,054.46 in withheld employee taxes and $447,784.26 in employer tax contributions. She also stole $300,601.12 in PSI funds for her personal benefit, including meals and entertainment.
Johnson was also ordered to pay $300,601.12 restitution to PSI’s other former co-owner and more than $1.2 million to the IRS.