Some of our favorite recent tax fraud cases.
St. Paul, Minn.: Former Tax Court judge Diane L. Kroupa, 61, has pleaded guilty to conspiring to defraud the U.S.
According to the plea agreement and testimony, Kroupa, appointed to the U.S. Tax Court in 2003 and indicted in April, was during the time in question in the case married to Robert E. Fackler, a self-employed lobbyist and political consultant who owned and operated the business Grassroots Consulting. From 2004 to 2013, she and Fackler owned a home in Plymouth, Minn., and, from 2007 to 2013, also leased a residence in Easton, Md., where Kroupa lived while a Tax Court judge in Washington, D.C.
Between 2002 and 2012, the couple conspired to obstruct the IRS from accurately determining their joint income taxes. As part of the conspiracy, Kroupa and Fackler worked together each year to compile numerous personal expenses for inclusion as supposed “business expenses” for Grassroots Consulting in their joint tax return.
Those expenses included rent and utilities for the Maryland home; utilities, upkeep and renovation expenses of the Minnesota home; pilates classes; spa and massage fees; jewelry and personal clothing; wine club fees; Chinese language tutoring; music lessons; personal computers; and expenses for vacations to Alaska, Australia, the Bahamas, China, England, Greece, Hawaii, Mexico and Thailand.
From 2004 through 2010, the defendants fraudulently deducted at least $500,000 of personal expenses as purported Schedule C expenses. At times, Kroupa prepared and provided to Fackler summaries of personal expenses falsely described according to business expense categories. On other occasions, she compiled and provided to their tax preparer the fraudulent personal expenses.
Kroupa made a series of other false claims on their returns, including failing to report some $44,520 that she received from a 2010 land sale in South Dakota. Kroupa also falsely claimed financial insolvency to avoid paying tax on $33,031 on cancellation of indebtedness income that she and her husband received. The couple concealed documents from their preparer and an IRS tax compliance officer during an audit for their 2004 and 2005 tax returns, according to the plea agreement and Kroupa’s testimony at the plea hearing.
During a second audit in 2012, Kroupa and Fackler caused false and misleading documents to be delivered to an IRS employee to convince that employee that certain personal expenses were actually business expenses of Grassroots Consulting.
After the IRS requested documents pertaining to their returns, the couple removed certain items from their personal tax files before giving them to their preparer because the documents could reveal they had illegally deducted numerous personal expenses. During the audit, Kroupa also falsely denied receiving money from the 2010 land sale.
When they learned the 2012 audit might progress into a criminal investigation, Kroupa told Fackler to lie to the IRS about her involvement in preparing the portion of their returns related to Grassroots Consulting.
Between 2004 and 2010, the couple also purposely understated their taxable income by approximately $1 million and purposely understated the amount of tax they owed by at least $450,000.
Mount Vernon, N.Y.: Preparer Samuel Gentle, 59, owner of the prep businesses GenGen and GenGen Financial, has been sentenced to 51 months in prison for obstructing the IRS and preparing false and fraudulent individual income tax returns for his clients.
From 2010 through 2014, Gentle, who was found guilty in July, operated a “large and thriving” prep business that prepared and submitted to the IRS, on average, 3,200 returns each year. These returns contained a pattern of false and fraudulently inflated deductions for business expenses and gifts to charity. Numerous clients of Gentle testified that they had not provided him with any information to support the false or inflated deductions.
As part of the investigation, an undercover IRS agent posed as Gentle’s client. During the operation, the agent provided Gentle with no records that he could have used to support any deductions. But, consistent with his pattern, Gentle included false and fraudulent deductions for business expenses and gifts to charity on the return he prepared for the undercover agent.
Gentle also failed to report on his own personal and business returns nearly half of the $1 million in receipts that he received for his prep services from 2010 through 2014. He spread the receipts across eight bank accounts at five banks and failed to issue required IRS forms to himself or his employees.
Gentle’s crimes cost the IRS more than $550,000.
In addition to the prison term, Gentle was sentenced to one year of supervised release and ordered to pay a $125,000 fine and to pay the IRS more than $295,000 in back taxes.
Lawton, Okla.: Preparer Ricky Costello Williams has been sentenced to 30 months in prison and a year of supervised release, and been ordered to pay $240,361 restitution for tax fraud.
For a number of years, Williams prepared returns for others under the business name W&B Financial. An IRS investigation determined that in 2010 and 2011, he knowingly prepared returns with fraudulent deductions and falsified credits to illegally obtain refunds.
Williams was previously convicted of preparing false returns in North and South Carolina.
In February, Williams pled guilty to assisting in the preparation of a fraudulent federal return; he has been in custody since May based on a violation of his conditions of release.
Chaparral, N.M.: Preparer Maria Ramirez, 62, has been sentenced to five years of probation and ordered to pay nearly $25,000 in restitution in a tax fraud case, according to published reports. News outlets said she was accused of preparing false returns and failing to report or pay gross receipts tax on her prep business, and that she pleaded guilty to 29 counts of tax fraud.
Authorities reportedly said that Ramirez failed to report or pay gross receipts tax on her business for six filing periods and filed at least 29 false personal income tax returns for her clients.
Johnson City, N.Y.: Preparer Heather Sweet, 36, has been sentenced to a three-year conditional discharge and been ordered to pay $12,000 restitution to New York State for preparing and filing fraudulent personal income tax returns.
Sweet pleaded guilty in June to a felony for filing false income tax returns with the New York State Tax Department. The returns reported false Schedule C income and claimed refundable credits that weren’t owed. Investigation showed that Sweet filed the returns for numerous friends and relatives for tax years 2008 through 2011 while she was employed by a professional prep firm.
The Tax Department will also bill Sweet $30,000 in preparer penalties.
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