Tax Fraud Blotter: Trouble in Paradise
Off by $24 million; hard lessons; authentic fake; and other highlights of recent tax cases.
New York: Accountant Salvatore Arena, 47, of Queens, New York, has pleaded guilty to defrauding clients out of more than $780,000.
Arena purported to offer prep and payment of taxes. Instead of making payments on behalf of those clients, he diverted client funds for his own use. Arena executed this fraud in two ways: first by diverting pre-payments of taxes to his own tax account and later claiming illegitimate refunds; and second by stealing tax payments clients had wired into a bank account controlled by Arena.
He defrauded numerous victims from January 2014 through March 2019, and agreed to forfeit $789,195.35 and to pay restitution. He pled guilty to one count each of mail fraud, money laundering and wire fraud, each of which carries a maximum of 20 years in prison. Sentencing is Dec. 13.
New Rochelle, New York: Keith Borge, 63, of Valley Cottage, New York, and former controller of the College of New Rochelle, has been sentenced to three years in prison for failing to pay millions in payroll taxes and for securities fraud.
From the third quarter of 2014 through the second quarter of 2016, Borge failed to pay over more than $20 million in combined federal and state payroll taxes and contributions. He also made false entries in the college’s books to conceal its actual financial condition; financial statements for the fiscal year ending June 30, 2015, reported the college had net assets of $25 million, an overstatement by at least $24 million.
Borge, who pleaded guilty in March, was also sentenced to three years of supervised release and ordered to pay a fine of $25,000.
Keasbey, New Jersey: Preparer David Patterson, 38, has been sentenced to 29 months in prison for filing a false return for two clients and failing to file a return.
Patterson, who previously pleaded guilty, owned and operated the tax preparation service D&D Tax Service. He admitted to preparing a fradulent return for two clients for tax year 2012, on which he falsified medical and dental expenses, gifts to charity and unreimbursed employee expenses. Patterson admitted that at times he split portions of his clients’ tax refunds into bank accounts he maintained or controlled and that he failed to file an individual income tax return for himself and pay federal income taxes for calendar 2013.
Patterson was also sentenced to a year of supervised release and ordered to pay $290,321 in restitution to the U.S. He is also not permitted to run a tax prep business until the end of his supervised release.
Raleigh, North Carolina: Treyton Lee Thomas, 63, has been sentenced to 262 months in prison for wire fraud and five years in prison for income tax evasion, to run concurrently.
Thomas, who represented himself as a Harvard-educated investment advisor, was charged with defrauding his father’s used car warranty company, several of its customers, his wife and his father-in-law. Thomas claimed he was investing their money in U.S. Treasury bills when instead, through an online brokerage firm, he used these funds to conduct risky trades in the commodities and futures markets. To conceal this fraud, Thomas provided the victims and various financial institutions with false information and fabricated bank and brokerage statements.
He was also charged with using the same false information and fabricated statements to defraud financial institutions out of approximately $1.9 million dollars and with spending more than $1.6 million to pay personal expenses.
Thomas was also charged with six counts of income tax evasion for 2010 through 2015 and two counts of failing to disclose his interest in and authority over foreign bank accounts. He failed to file 1040s or pay taxes for two decades.
He was ordered to pay some $7.3 million in restitution to the victims and to forfeit an additional $7.3 million to the U.S.
Oakland, California: Brandon Jones, 44, has been sentenced to three years in prison and three years of supervised release and been ordered to pay $109,394.79 in restitution for conspiracy to file false claims.
Jones admitted that he conspired to file 94 fraudulent federal returns, each of which sought a refund. He also admitted that to file the returns he obtained personal ID information from individuals who were transient, homeless or incarcerated with him in 2011 and 2012.
Jones was indicted on charges of conspiracy to file false claims, theft of government property and aggravated ID theft. Jones pleaded guilty to the conspiracy count and the remaining counts were dismissed at sentencing.
Sacramento, California: Attorney Stephen J. Dougan, 57, has been sentenced to three years in prison and one year of supervised release for corruptly endeavoring to impede internal revenue laws.
During an IRS audit of his 2006 and 2007 returns, Dougan made false statements, including falsely representing that he was redacting checks to protect client confidentiality when in fact he also redacted his own name from checks he wrote to himself; withheld documents from the IRS; and provided documents that substantially underrepresented his income in 2006 and 2007.
He also made false statements and provided false and misleading documents to the IRS to substantiate various business expenses he claimed on Schedule C of his 2006 return, including submitting a false advertising invoice and falsely claiming that his personal divorce attorney was his assistant or paralegal.
Ville Platte, Louisiana: Myra Griffin Fontenot, 43, owner of the Nukura’s Step-by-Step Learning Center and of X-press Tax Service, has been sentenced to 14 months in prison and a year of supervised release for filing a false return and failing to pay more than $200,000 in taxes.
Fontenot, who pleaded guilty in May, failed to file unemployment tax returns at NLC, failed to report the majority of her income and claimed a great amount of expenses on personal tax returns for tax years 2012 to 2014. She failed to pay $213,958.96 during the course of the scheme.
Fontenot was also ordered to pay $213,958.96 in restitution, in addition to $28,624.36 in interest.
Paradise Valley, Arizona: John Chandler Propstra, 47, has been sentenced to 21 months in prison and three years of supervised release, and been ordered to pay more than $700,000 restitution to the IRS, after pleading guilty to tax evasion.
Propstra owned and operated several professional employment organizations that contracted with small-business owners to provide payroll services. Propstra, through his companies, collected federal employment taxes from his clients. Instead of paying the taxes over to the IRS, he kept a significant portion of the taxes for his personal use. Also, for tax years 2010 and 2011, he failed to pay over to the IRS $710,819.05 in employment taxes due from his companies.
Newton, Massachusetts: Accountant Jeffrey Kellem, 49, has pleaded guilty to four counts of wire fraud and one count of filing a false return.
Kellem used his position as an accountant for an elderly client and the estate of a deceased client to steal some $1.6 million. Kellem transferred his clients’ funds, without their authorization, to bank accounts he opened and controlled. He also avoided paying taxes totaling more than $150,000.
Sentencing is Dec. 5. The charge of wire fraud carries a sentence of up to 20 years in prison, three years of supervised release, a fine of $250,000 or twice the gross gain or loss, whichever is greater, and forfeiture. Filing a false return carries a sentence of up to three years in prison, one year of supervised release, and a fine of $250,000 or twice the gross gain or loss, whichever is greater.
Martinsburg, West Virginia: Clinton Jean-Pierre, 28, of Miami, has admitted to identity theft through use of a computer.
Jean-Pierre admitted to accessing the IRS eAuthentication system in December 2017. To pass security protocols, Jean-Pierre admitted that he fraudulently “ported” an unknowing person’s cellular telephone number to his own phone to obtain the security code to create an unauthorized taxpayer account. Jean-Pierre admitted that he then accessed a taxpayer’s return information.
He faces two years for the ID theft count and up to five additional years and a fine of up to $250,000 for the accessing a computer count.