Tax Fraud Blotter: Jail time 4You


Seven digits short; Miami vice; nice going, Ace; and other highlights of recent tax cases.

Cambridge, Ohio: Contractor Daniel L. Speedy has pleaded guilty to one count of filing a false income tax return.

From about January 2011 through July 2015, Speedy was contracted by a local county development corporation to provide services through his company, Monster Management. During his time as contractor, Speedy controlled various financial aspects of the company and willfully failed to accurately report all the income he earned from various sources, including the development corporation, on his 1040s for tax years 2011 through 2015.

For example, on his 2014 return Speedy reported $60,786 in total income when he should have reported at least $1,116,671.02. The omitted income included but was not limited to rental income, oil and natural gas royalties, income from over payments on real estate sales and gains on sales of real estate.

The tax loss totaled at least $444,934.25 for tax years 2011 through 2015.

Filing a false income tax return carries a maximum of three years in prison and a fine of up to $250,000.

Hammond, Louisiana: A federal court has permanently enjoined tax preparer Kenisha Callahan from preparing federal income tax returns for others and from owning or operating any tax prep business in the future.

Callahan consented to entry of the injunction.

The civil complaint alleged that she reported fabricated income or losses and false filing statuses to maximize clients’ Earned Income Tax Credits. The complaint also alleged that Callahan lowered some clients’ tax liabilities by falsely claiming unreimbursed employee business expenses and charitable gifts.

The order requires that Callahan send notice of the injunction to her prior clients and permits the government to conduct post-judgment discovery to monitor her compliance.

Baltimore: Online merchant James Bender has been sentenced to a year and a day in prison, six months of home detention and three years of supervised release for federal conspiracy and tax fraud.

From 2014 through August 2019, Bender controlled three eBay accounts: HiddenGemFurniture, EddiesAffordableGear and AffordableGoodies4You. The latter two offered sports-related merchandise for sale, including jerseys and shirts. Bender also used, operated and controlled related PayPal accounts.

He admitted that beginning in 2014 he agreed to allow a friend and co-defendant, Saurabh Chawla, and a relative of Chawla’s to sell through the accounts. Chawla’s eBay account had been suspended due to security concerns. Bender and Chawla repeatedly deceived online platforms as well as the manufacturers and distributors as to the source of the goods and merchandise being sold.

More than $3 million worth of this loot had been stolen, including more than $125,000 worth of iPods from a New Mexico school district that were intended for underprivileged children. In 2018, Chawla and Bender sold more than $550,000 of goods and merchandise that had been stolen from a Delaware FedEx facility. As part of his participation in the fraud, Bender received more than $10,000 per year from the eBay sales.

Bender further admitted that he filed returns for tax years 2014 through 2018 that falsely inflated the gross receipts and cost of goods sold. In each of these years he reported as his gross receipts amounts that had actually been generated by Chawla’s sales through his eBay stores and reported as his cost of goods sold the difference between gross receipts and the amount Chawla paid him for the use of his eBay stores. As a result, Bender engaged in significant misstatements on his returns for each year; he also subscribed to additional false information on his returns, including overstating his postage expenses.

He failed to pay the U.S. an additional $36,518 in taxes due and owing for those tax years.

As part of the conspiracy, Chawla purchased stolen Apple products from conspirator Kristy Stock from 2012 to 2018. Stock was a New Mexico public school employee responsible for overseeing a program to provide Apple iPods to school children with the intent to benefit underprivileged Native American children in New Mexico. Stock stole more than 3,000 iPods purchased by the school district and sold them to Chawla. Stock admitted that she received more than $800,000 in proceeds from selling stolen iPods worth more than $1 million. In 2019, Chawla purchased Apple products that he believed had been stolen by a different person working at another school district in New Mexico, including 25 iPads for $5,000 in May 2019. After his relative received the stolen goods, Chawla listed them for sale online through eBay at a substantial markup.

Chawla of Aurora, Colorado, and Joseph Kukta of Laurel, Delaware, were sentenced to 66 months and 42 months in federal prison respectively. Chawla was sentenced to pay $713,619 in restitution to the IRS and to sign an order of forfeiture requiring him to forfeit a 2013 Tesla Model S, and $2,308,062.61 from accounts held in his name and the sale of property in Aurora. Kukta was ordered to pay $1,101,743.91 in restitution and forfeit $1,880,000. Stock, of Waterflow, New Mexico, is scheduled to be sentenced this year.

Miami: A federal court has permanently enjoined two area tax preparers from preparing federal income tax returns for others.

The injunctions against Gerald Vito, James Eleby and Gerald Vito LLC d.b.a. Income Tax Services, were entered by default. The complaint alleged that they prepared returns that significantly understated clients’ tax liabilities by claiming deductions for fabricated or inflated charitable deductions, medical expenses and employee business expenses, as well as by reporting false or inflated business losses.

The complaint alleged that the defendants often deducted hundreds in fees from clients’ refunds, in many cases without disclosing the fee.

IRS estimates from audits of some of the defendants’ customers reveal that the fraudulent activities likely cost millions in lost federal tax revenue.

Phoenix: Businessman Kwan Sung Jin has pleaded guilty to one count of tax evasion.

Jin purchased Cool Ace Air, an HVAC repair and replacement company, in 2008. In 2013, he expanded his business to include plumbing services through a company called Ace Home Services.

Jin schemed to evade taxes by underreporting income from both companies. He directed his employees to give him cash received from customers and to make entries in their accounting software that would result in an apparent net sales amount of $0 in the general ledger. He also failed to report cash received by Ace for the sale of used HVAC units to metal-recycling companies.

As a result of this scheme, cash receipts were not reflected in the 1120-Ss for the companies; for tax years 2013 through 2016, he intentionally omitted cash receipts totaling $560,950 from their income. Because the companies’ income passed through to his personal 1040s through a Schedule K-1, Jin’s returns for 2013 to 2016 underreported his income by $560,950, resulting in additional total tax due of $207,378.

Sentencing is March 28.

New York: Tax preparer Raul Martinez has been sentenced to five years of probation after pleading guilty to felony criminal tax fraud.

Martinez admitted to falsely representing his New York City residency, failing to remit withholding tax to the state of New York and failing to report business income from his firm, Apollo Tax, on his personal income tax return.

He will pay more than $94,000 in restitution for tax years 2015 through 2018. As part of his probation, he’s prohibited from preparing returns for any individual taxpayer. He faces jail time if he violates this condition of his sentencing.

Buffalo, New York: Church employee Richard Stenhouse has pleaded guilty to filing a false return.

Stenhouse received some $397,942 in salary from the Bethel African Methodist Episcopal Church that he did not report as income on his returns for tax years 2014 through 2018. The IRS estimates the taxes due for these tax years is $95,896.

The charge carries a maximum of three years in prison and a $250,000 fine.

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