Snake oil; how to succeed in business; don't bet on it; and other highlights of recent tax cases.
Sicklerville, New Jersey: Chung "Alex" Lam has been sentenced to 40 months in prison for conspiring to defraud the IRS by concealing cash wages paid to employees.
In 2018, Lam pleaded guilty to failing to pay over federal payroll taxes; he received an 18-month prison sentence, which he served during parts of 2019 and 2020. Prior to serving that sentence and upon his release from custody, Lam conspired with the owners of various temporary staffing companies to defraud the IRS.
The companies provided temporary workers to businesses and as part of their agreements were responsible for collecting and paying over to the IRS the payroll taxes. Lam received checks that were payments to the companies for labor provided by their employees. Between the first quarter of 2018 and the second quarter of 2023, Lam used a commercial check casher to negotiate more than $4 million of such checks. He kept some of the cash for personal use and caused the rest to be provided to co-conspirators to pay the temporary workers in cash. Payroll taxes were not collected or paid. Lam also filed false individual income tax returns that omitted the income he earned from his role in the conspiracy.
He admitted that the conspiracy caused a tax loss of some $628,351.
He was also sentenced to three years of supervised release.
Kerrville, Texas: Jason Smith has pleaded guilty to filing false federal returns.
Smith was an independent distributor for a multilevel marketing business that sold, among other things, essential oils and aromatherapy products. He created an entity, Live Young Now International Ministries, and directed the MLM business to pay his compensation to that entity. Smith maintained control over Live Young's bank accounts and used those funds to pay personal expenses including his mortgage, automobiles, a motorcycle, a tractor and an airplane.
Although he received tax forms from the MLM business reporting his compensation as more than $1.4 million for both 2018 and 2019, he did not provide those forms to his tax preparer and falsely told his preparer that he did not have any such forms.
Smith reported earning only $43 from the MLM for the years, causing a federal tax loss of more than $1.5 million.
He faces up to three years in prison for each count of filing a false return, as well as a period of supervised release, restitution and monetary penalties.
Wilmington, Delaware: Tax preparer Jady Solano, 43, has been sentenced to 80 months in prison for leading a scheme that resulted in more than $9.1 million in bogus Paycheck Protection Program loans to more than 60 businesses nationwide.
Solano used his tax expertise to prepare fraudulent applications for the loans, preparing applications for shell companies that, in fact, had no operations or employees. Solano falsely claimed that the companies had substantial payrolls, sometimes more than $1 million annually. He also created false documents, including tax forms and bank statements, to support the applications.
In total, Solano prepared 62 fraudulent applications, resulting in more than $9.1 million in wrongful loan disbursements. (None of the loans were ever repaid.) He personally received nearly $1.4 million through the scheme, all of which he must repay to the federal government.
Seven other members of Solano's scheme have been charged. One has pleaded guilty.
Boston: Steven Ware, of Yonkers, New York, has pleaded guilty in connection with a scheme to steal an $810,000 tax refund by impersonating a corporate exec in Connecticut.
In December 2023, Ware opened bank accounts in the name of a Connecticut investment company and one of its executives at a credit union in Tyngsborough, Massachusetts. When opening the account, Ware identified himself as the executive, using that person's full name, date of birth, Social Security number and other documents. Shortly after opening the account, Ware returned to the credit union pretending to be the exec and deposited a Treasury check payable to the company and the executive for $810,337. Once the check cleared, a debit card was used to withdraw money from the account to buy goods at various retailers in New York, New Hampshire and Massachusetts.
Ware returned to the Tyngsborough credit union several times over the following days and weeks pretending to be the executive and wired more than $634,000 of the stolen money.
Ware pleaded guilty to one count of bank fraud and two counts of aggravated ID theft. The charge of bank fraud provides for a sentence of up to 30 years in prison, five years of supervised release and a fine of up to $1 million. The charges of aggravated ID theft each provide for two years in prison, in addition to any sentence imposed for bank fraud, a year of supervised release and a fine of up to $250,000. Sentencing is Oct. 8.
Attleboro, Massachusetts: Cedric Cromwell, the former chair of the Mashpee Wampanoag Tribe and former president of the tribe's Gaming Authority, has pleaded guilty to failing to report more than $177,000 in income on his federal income tax returns for 2014 to 2017.
Most of the income was related to the First Light Resort and Casino, which the tribe's Gaming Authority is building in Taunton, Massachusetts.
In March 2021, a federal grand jury indicted Cromwell on the tax charges and charges that he extorted an architecture and design firm that had a contract to serve as the Gaming Authority's "owner's representative" for the casino project. The trial court severed the tax counts from the extortion counts, which went to trial in the spring of 2022. On May 5, 2022, a federal jury convicted Cromwell of three counts of extortion and one of conspiracy to commit extortion. The trial court dismissed the jury's convictions, but the First Circuit Court of Appeals reinstated them on Sept. 27. Cromwell filed a petition with the U.S. Supreme Court, which declined to hear his appeal.
His unreported income included $57,549 that he extorted from the architecture and design firm. He also failed to report $45,023 that he received from the initial architect on the casino project. Finally, he failed to report $74,821 from one or more companies that developed and supplied forest carbon offsets.
Filing a false return provides for up to three years in prison, a year of supervised release and a fine of $100,000. The charges of extortion and conspiring to commit extortion each provide for up to 20 years in prison, three years of supervised release and a fine of $250,000.
Cromwell pleaded guilty to four counts of filing a false return. Sentencing is Nov. 5, when the judge will impose sentence on both Cromwell's tax convictions and his reinstated extortion convictions.
Danville, Virginia: Julia Ann McKinnis, the former majority owner and operator of a home health care business who failed to pay more than $600,000 in employment taxes, has been sentenced to three years of probation.
In 2007, McKinnis began operating Angel Wings Home Health. Since at least 2010, McKinnis has been the administrator and 90% owner of Angel Wings. In 2011, the IRS began investigating Angel Wings' failure to properly report and pay employment taxes. The investigation concluded in 2016, and Angel Wings entered into an installment agreement to pay the taxes.
From the third quarter of 2018 through the fourth quarter of 2021, Angel Wings substantially understated its employee wages to the IRS and again failed to report and pay the employment taxes owed.
McKinnis was also ordered to perform 300 hours of community service.
