Tax Fraud Blotter: Form and dysfunction

Accounting

Keep it in the black; employment shuffle; distrust; and other highlights of recent tax cases.

New York: Jordan Sudberg has pleaded guilty to tax evasion for 2015 through 2017 in connection with false deductions.

The deductions were part of a scheme involving hundreds of business checks purporting to be payments for business services, which he provided in exchange for cash to a black market money exchange network.

From at least 2015 through 2017, Sudberg schemed to evade a substantial portion of his personal income taxes. He owned two S corps through which he operated a medical practice, specializing in pain management, at locations in Manhattan, Long Island and Queens, New York. Sudberg issued hundreds of checks made payable to various companies and falsely purporting to be payments for business services.

In fact, those companies had not performed any business services for Sudberg’s corporations. Sudberg received cash equal to the value of the checks minus a small fee. He falsely reported to the IRS that the checks were for legitimate business expenses and claimed deductions in the amount of the checks.

His tax evasion helped support an unlicensed money services network operated by a number of conspirators. This network permitted individuals to exchange cash for business checks like those provided by Sudberg, generating a false and nominally legitimate source of funds, including for the laundering of narcotics money.

Sentencing is Feb. 23. Sudberg pleaded guilty to one count of tax evasion, which carries a maximum of five years in prison. He has agreed to pay $551,660 in restitution to the IRS and to forfeit an additional $243,257.

Hampton, Virginia: Tax preparer Karl Burden-El Bey, a.k.a. Carl L. Burden, 66, has been sentenced to 38 months in prison for preparing false returns on behalf of clients, theft of government funds and failing to file his own federal income tax returns.

From at least 2013 through 2019, Burden-El Bey created false returns for clients of his tax prep business. On clients’ returns, Burden-El Bey claimed false dependent information, residential energy credits, gifts to charity, deductions and child and dependent care expenses to inflate federal refunds. He often concealed his involvement by not signing such false returns as the preparer. He also stole $5,000 by directing without authorization a portion of one client’s refund into his personal bank account.

From 2013 through 2017, Burden-El Bey also failed to file his own individual federal income tax returns.

He was also ordered to serve three years of supervised release and pay some $5,000 in restitution to the United States.

Chesapeake, Virginia: Business owner Shane August has pleaded guilty to defrauding the IRS out of more than $1.2 million in taxes.

From 2013 through 2017, August owned and operated a home-healthcare business. He defrauded the IRS by, among other things, hiding personal bank accounts, using undisclosed accounts to conduct business, maintaining a cash lifestyle to avoid the IRS, making false statements about his ability to pay, lying to IRS agents and diverting large sums of money to pay for personal expenses.

August withheld employment taxes from some 60 of his employees and failed to consistently pay more than $900,000 of those withholdings to the IRS. Each year, he provided fraudulent employment tax forms to his employees, who filed their own taxes and mistakenly believed that the amounts withheld from their wages had been paid to Social Security.

Additionally, between 2014 and 2017, August reported personal income to the IRS of more than $900,000 but failed to pay taxes on this income and now owes more than $288,000 in personal income tax. Instead of paying his taxes, August used large sums of money to pay for personal expenses such as a building contract on a home and a luxury vehicle lease.

Sentencing is March 24. He faces a maximum of five years in prison.

Jefferson Parish, Louisiana: Construction company employee Randall Lackey has pleaded guilty to conspiracy to defraud the IRS.

From 2011 to April 2018, Lackey conspired to defraud the IRS by concealing his own income and the income of others. He worked as an employee for two commercial construction companies, SES Construction Consulting Group and Global Technical Solutions. To hide his income, Lackey had his SES and GTS wages paid to R&O Renovations and Reconstructions, a company he owned.

For the 2012 through 2017 tax years, Lackey filed no corporate income tax returns for R&O or personal federal income tax returns. Lackey’s conspirators falsely classified Lackey as a contractor of SES and GTS rather than an employee. As a result, Lackey had no taxes withheld from his paycheck and SES and GTS avoided paying employment taxes on his wages. Lackey and other members of the conspiracy also hired workers who lacked proper documentation and were not authorized to work in the U.S., then paid them in cash.

Sentencing is March 16. He faces up to five years in prison, as well as a period of supervised release, restitution and monetary penalties. Other members of the conspiracy all previously pleaded guilty to conspiracy to defraud the IRS; they face sentencing early in 2022.

Belle Glade, Florida: Tax preparer Fred Pickett Jr., 54, has been convicted for preparing false returns for his clients.

Pickett owned and operated a tax prep business that he used to prepare false individual income tax returns. From 2013 to 2016, he created returns for some of his clients claiming they owned fictitious businesses that lost tens of thousands of dollars each year.

Pickett was convicted of 22 counts of aiding and assisting the preparation of false returns. Sentencing is March 8 when he faces up to three years in prison for each count.

Milledgeville, Georgia: Iran V. Backstrom, a.k.a. Shariyf Noble, has pleaded guilty to conspiring to defraud the U.S. by promoting a nationwide tax fraud to more than 200 participants in at least 19 states. He also pleaded guilty to helping others prepare and file false returns for individuals recruited to the scheme.

Backstrom was the main promoter of the scheme, which involved recruiting clients and preparing false returns on their behalf by convincing them that their mortgages and other debts entitled them to tax refunds. Between 2014 and 2016, Backstrom and his conspirators held seminars across the county to publicize the scheme.

He helped prepare and file returns for the participants, which collectively sought more than $25 million in federal refunds. These tax returns falsely claimed that banks and other financial institutions had withheld large amounts of income tax from the participants, entitling the clients to a refund. The financial institutions had not paid any income to or withheld any taxes from these individuals.

To make the refund claims appear legitimate, Backstrom and his conspirators filed tax documents with the IRS that matched the withholding information listed on the returns, making them appear as if they had been issued by the banks.

Backstrom admitted he gave orders to others as part of the scheme. Several of his conspirators previously pleaded guilty for their roles in the scheme. Backstrom also admitted that he and his conspirators concealed their roles in the scheme by, among other things, indicating the false tax returns had been “self-prepared,” submitting false IRS forms designed to appear as if they were created by the participants’ financial institutions and coaching participants on how to conceal the scheme from the IRS.

Backstrom further admitted he and his conspirators charged participants some $10,000 to $15,000 in fees for preparation of each return. Although Backstrom personally received about $1 million for his role in the scheme, he did not file tax returns for the years 2014, 2015 and 2016 to report this income.

He faces a maximum of five years in prison for conspiring to defraud the U.S. and three years in prison for each of the seven counts of aiding and assisting in the preparation and filing of a false return. He also faces a period of supervised release, restitution and monetary penalties.

This was the third such case in recent weeks.

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