Tax Fraud Blotter: The usual Noncents
Where grass is not greener; MS KO; brother’s keeper; and other highlights of recent tax cases.
The usual Noncents
Kansas City, Missouri: Preparer Azareia Derseh, 39, has been sentenced to 18 months in prison and been ordered to pay $108,621 in restitution to the IRS for a scheme to file false returns.
His brother and co-defendant, Ananeia Derseh, 42, pleaded guilty to the same offense and awaits sentencing. Co-defendant Quashanda King, 39, also pleaded guilty to the same offense and has been sentenced to three years of probation.
Azareia Derseh, who pleaded guilty last year, owned and operated a tax prep business under the names Instant Tax Service and Speedy Tax Service, at various locations. Ananeia managed one of the offices and King another office. Azareia and Ananeia Derseh and King each admitted they prepared federal income tax returns for clients containing materially false and fraudulent items.
They prepared returns for at least 37 individuals resulting in at least 47 false income tax returns for tax years 2012, 2013 and 2014. The returns included false Schedule C information claiming a modest income to maximize the Earned Income Tax Credit, resulting in a higher refund and higher fees. The Dersehes and King included higher fees to prepare returns than what the clients were originally quoted.
Most clients had $669 to $1,437 in fees deducted from their refund. The typical client was a very low wage earner with less than $3,000 in W-2 wages. There was no meaningful review of the completed return, and, sometimes the client did not get a copy of the return.
Piqua, Ohio: A federal court has permanently enjoined Mary E. Shade, d.b.a. MS Tax, from owning or operating a tax prep business and preparing returns for others.
The complaint alleges that Shade routinely understates clients’ tax liabilities by fabricating itemized deductions, creating false Schedules C with inflated or fraudulent business losses, and reporting false credits.
The complaint alleges that, over the course of the years 2012 through 2019, Shade filed over 5,500 returns and repeatedly understated clients’ tax liabilities.
Beaumont, Texas: Dick Brocato Jr., 68, and his wife, Judith L. Brocato, 65, owners of a lawn-service company, have been convicted of federal tax violations.
The Brocatos were found guilty of conspiracy in the collection of income tax and of making and submitting false returns on both their personal and business for 2012 through 2014. The couple owned Superior Lawn Service, which was operated as an S corporation. The Brocatos were the sole shareholders of the company, with Judith Brocato as corporate president, maintaining the books and records and signing the corporate returns.
The Brocatos conspired to defraud the United States for the purpose of impeding, impairing and obstructing the lawful government functions of the Internal Revenue Service in the ascertainment, computation, assessment and collection of federal income and other taxes for years 2012, 2013 and 2014.
As part of that conspiracy, they filed false corporate and personal income tax returns for years 2012, 2013 and 2014. The Brocatos underreported income from numerous customers of the company after having the checks cashed, rather than depositing the checks into the company accounts. They then failed to report the cash income amount on the various tax returns. The underreported income amounted to $503,281 in 2012, $687,534 in 2013 and $513,498 in 2014.
The Brocatos each face up to five years in prison.
Annapolis, Maryland: Preparer Michelle L. Swink, 44, has been convicted on two counts of filing false returns.
She was sentenced to five years in prison, all but one weekend suspended, and to five years of probation. Swink is prohibited from acting as a tax preparer and is required to pay $72,000 in restitution to Maryland.
From 2015 to 2017, Swink owned and operated the prep business Noncents, where she prepared and filed state income tax returns, for a fee, on behalf of clients. Many of the Maryland returns Swink filed included false information that improperly increased state tax refunds collectively by some $72,000.
Martinsburg, West Virginia: Juan David Moreno, 33, of Miramar, Florida, has admitted to wire fraud and identity theft through use of a computer in connection with fraudulently accessing the IRS eAuthentication system from January 2015 to February 2017.
Moreno obtained personal ID information of taxpayers without their knowledge to access the system and obtain income tax transcripts. He then filed returns and directed that refunds in the amount of at least $86,525 be deposited in an account in Florida without the taxpayers’ knowledge.
Moreno faces up to 20 years in prison and a fine of up to $250,000 for the wire fraud, and two years in prison for the aggravated ID theft.
Media, Pennsylvania: Payroll company owner Myles Hannigan, 48, of Newtown Square, Pennsylvania, has been sentenced to 52 months in prison and a year of supervised release and been ordered to pay $3,270,566 in restitution for filing false tax information with the IRS on behalf of his clients.
He pleaded guilty last summer to obstructing the due administration of the IRS and to 17 counts of preparing materially false income tax returns in connection with owning and operating Payroll Professionals Inc., a third-party payroll processor. PPI’s clients were small and midsized businesses.
From January 2012 to December 2016, Hannigan prepared and submitted 941s that falsely reported information to the IRS. In particular, Hannigan reported depositing more money to pay tax debt than he had actually sent to the IRS, causing 35 of PPI’s client companies to collectively underpay the IRS $3,270,566.89. Hannigan hid his behavior by presenting bogus documents that purported to be confirmation of payments he had made to the IRS and by redirecting IRS correspondence to his business address.
Ocala, Florida: A federal court has barred Philip Mott Harris II and his business, 24/7 Tax Services, from preparing federal returns for others and owning or operating a tax prep business.
The court also ordered that Harris and 24/7 disgorge $544,874.56, representing what they received for the preparation of returns.
The government alleged that the defendants prepared returns that reported fabricated businesses and related business income and expenses, claimed improper filing status and reported false household help income.
Walpole, Massachusetts: Stephen L. Petrucci, 57, has been sentenced to a year and a day in prison and a year of supervised release in connection with failing to report income from his landscaping business to the IRS.
Petrucci, who pleaded guilty last year, owed more than $630,000 in federal income taxes after he failed to report some $1.8 million in income from his landscaping business for tax years 2012 through 2017. He used accounts at three banks or directly cashed customer checks without first depositing them. He also maintained two sets of books: one to track business receipts deposited into his corporate account and one to track gross business receipts. He further withheld information concerning his gross business receipts from his preparers.
He was also fined $10,000 and must pay $633,327 in restitution to the IRS.