Tax Fraud Blotter: Those prison blues

Accounting

Repeat business; bar none; installment plan; and other highlights of recent tax cases.

Plover, Wisconsin: Tax preparer James Canfield, 74, has been sentenced to eight months in prison for aiding in the preparation of false federal returns.  

Canfield owned and operated Advanced Accounting Concepts. Between 2013 and 2018, he prepared and electronically submitted federal returns for clients with both exaggerated and, in some instances, fabricated business expenses resulting in unjustified deductions for the business use of the clients’ homes. Despite being told by clients that they primarily used their homes as their personal residence, Canfield often attributed 100% of their home for business, then took ordinary home expenses as deductible business expenses.

The judge noted that although Canfield did not directly profit financially from the fraudulent refunds or lower taxes paid by clients, he engaged in preparing the false returns to generate repeat business from the clients and expand his client base through referrals. 

Canfield had previously been fined on two occasions by the Internal Revenue Service for preparing returns with unjustified business expenses and claiming personal living expenses as business deductions. After the second time Canfield was fined, in 2012, IRS agents met with him and explained in detail how deductions he was submitting were unlawful under regulations. He still continued to prepare returns using the same false deductions for the next six years.

Canfield, who pleaded guilty earlier this year, will also be permanently prohibited from preparing or filing any returns for third parties.

Statesboro, Georgia: Former city councilman William Britt, now of Bluffton, South Carolina, has been sentenced to 33 months in prison for evading taxes on income from bars he co-owned.

As part of the scheme, each establishment was nominally owned by an individual; in reality, a group of business partners, including Britt, owned the bars in varying ownership percentages. Britt and the other true owners skimmed cash from the establishments and disbursed it amongst themselves in accordance with their ownership percentages without reporting that income to the IRS.

Britt personally ensured that some of the nominal owners of the bars filed false returns and provided false information to an accountant who prepared returns related to some of these businesses. Britt misrepresented the businesses’ true ownership, underreported their income and omitted cash distributions to the owners.

As part of his guilty plea, Britt admitted to underreporting his income on his 2014 individual return.

He was also ordered to serve three years of supervised release and pay $352,404.54 in restitution to the United States.

Shelbyville, Kentucky: Office manager Kimberly F. Jones has been sentenced to 30 months in prison and ordered to pay $260,034 in restitution for embezzling from her employer and including false information on her returns.

Jones was employed at Guardian Retention Systems, where as office manager she handled accounts payable and receivable, petty cash, payroll and taxes. She also had electronic access to the bank accounts to pay bills.

She took several actions to embezzle from her employer, using company credit cards in her name and the names of other employees to make unauthorized personal purchases; directing unauthorized transfers from the company bank account; and diverting customer revenue received by the company’s e-payment account. Jones also set up a business called KAB Enterprises to issue false invoices to Guardian; she used the company credit cards and bank account to pay the fraudulent invoices from KAB.

Jones also failed to report her embezzled funds as income on her returns for 2016 through 2018.

Hands-in-jail-Blotter

University City, Missouri: Business owner Jonathan Michaelson has been sentenced to five years of probation and ordered to pay more than $700,000 in restitution for withholding from employees’ paychecks but not remitting the money.

Michaelson, of software company Blue 2.0 LLC, withheld $767,367 in income, Social Security and Medicare taxes from employee paychecks 2014 to 2017 but didn’t turn that money over to the IRS.

Michaelson, who pleaded guilty earlier this year, will have to pay $1,000 per month, or 10% of his monthly income, until the theft is paid off.

Chino Hills, California: Former licensed stockbroker Robert Louis Cirillo has been sentenced to 78 months in prison for committing several felonies, including filing a false return and running a securities fraud targeting low-income victims to obtain more than $3.2 million.

From 2014 to 2021, Cirillo deceived more than 100 victims by telling them that he would invest their money in short-term construction loans that would pay returns from 15% to 30% for up to 90 days. In fact, he never invested the money and instead used it for his own personal expenses, including credit card payments, a trip to Las Vegas and two automobiles.

Cirillo targeted members of the Hispanic community, many of whom were of limited means, for his fraud. One victim invested her life savings of $20,000. Cirillo admitted threatening his victims once they began to realize that he had defrauded them.

In a separate scheme in 2021, Cirillo also participated in a “grandparent scam” in which a senior citizen was tricked into believing that his grandson had been arrested for possession of illegal narcotics. Cirillo’s conspirators convinced the victim, 82, to send $400,000 for his grandson’s “bail” to a bank account that Cirillo had opened and controlled.

Cirillo filed false income tax returns for 2015 to 2017 by failing to report more than $3 million in income. For example, on his 2017 federal income tax return he reported a total income of $30,985, which failed to include more than $1.9 million from his investment scheme.

The investment fraud resulted in a total loss of $3,237,262; his conspiracy to defraud the senior citizen resulted in a total loss of $400,000; and the total tax loss was $675,898.

Cirillo, who previously pleaded guilty, was also ordered to pay $3,948,835 in restitution.

Liverpool, New York: Glen Zinszer has been sentenced to 51 months in prison for wire fraud and filing false returns.

Zinszer began operating the company Brazzlebox in 2012, which he represented to investors would be like Facebook for business. Beginning in April 2013 and continuing until about the summer of 2016, he made false representations to investors about how Brazzlebox was doing to get them to invest more money and stay invested. He used a substantial portion of the money invested to finance his lifestyle, including paying mortgages on his homes and purchasing concert tickets and jewelry.

He also filed returns underreporting his income in tax years 2013 through 2016.

He was also ordered to serve three years of supervised release after he’s released from prison and to pay $3,049,933 in restitution to his victims (including the government), as well as to forfeit $2,763,811.

Houston: David Felt, who evaded paying his income taxes, has been sentenced to 18 months in prison and ordered to pay $250,000 in restitution to the IRS.

Felt, who pleaded guilty in May, admitted that he willfully evaded payment of income taxes he owed for 1986 and 1987 and 1994 to 1998. He further admitted he received more than $4 million in income during 2004 to 2014, none of which was paid towards the owed taxes.

He falsely stated he had no significant assets or income and had no ownership in any businesses and admitted that he acted as a disbursing agent for a debtor in a bankruptcy case. He testified in 2017 that he would not pay insiders from the estate of the debtor while the debtor paid creditors. He admitted that he filed accounting reports for the debtor in 2019 containing payments to insiders, including himself, from the estate of the debtor.

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