Tax Fraud Blotter: Alien predator
Flag on the play; $7,500 in fake doctors; money funneled through the pulpit; and other highlights of recent tax cases.
New York: Staten Island tax preparer Thomas Falkowski, 48, of Wall Township, N.J., has pleaded guilty to a misdemeanor count of criminal tax fraud.
Falkowski was charged with filing returns with inflated itemized deductions, including ones for charitable contributions.
He was ordered to pay $50,000 restitution and was barred from preparing and filing New York State returns.
Tacoma, Wash.: Donald A. Knutsen, 54, owner of two sports memorabilia stores, has been sentenced to 30 days in prison, 10 months of home detention with electronic monitoring and three years of supervised release, and been ordered to pay $234,769 in restitution for failing to pay employment taxes on more than 50 employees.
Knutsen owned Northwest Sportscards in Tacoma and University Place, Wash. He pleaded guilty in April, admitting that between 2008 and 2016 he withheld $234,769 in income, Social Security and Medicare taxes from the paychecks of at least 51 different employees but failed to accurately report and pay the withholdings and an additional $122,350 in employer-owed federal taxes.
According to case records, Knutsen operated the two stores for more than 27 years. Investigation revealed that as early as 2002 he stopped paying employment taxes, including Social Security and Medicare taxes on his employees.
Knutsen withheld the money from the employee paychecks but never paid it to the IRS or filed the required forms accounting for the payments. Instead, he used the money to acquire inventory and promote his business. Knutsen failed to file any personal income tax returns after 2000.
Knutsen delivered a check to the court for $82,500 as a partial payment for his $234,769 restitution. After the IRS calculates his civil tax liability and interest, Knutsen will pay that amount as well. Because Knutsen has not been filing tax forms or paying taxes to the IRS, the employees working at his shops did not accrue individual Social Security benefits during the relevant years. Under the terms of his plea agreement, Knutsen will work with the IRS to correct those records.
Jersey City, N.J.: Preparer Cesar Cruz has pleaded guilty to preparing false returns for clients.
According to court documents and statements in court, Cruz owned Cesar Cruz Tax Solutions, which he operated out of his residence. He prepared fraudulent returns for clients by inflating itemized deductions to in turn inflate refunds.
Cruz admitted that for 2013 he prepared a fraudulent return for a client with the initials R.S. and on this return claimed his client was entitled to $41,986 worth of Schedule A deductions, including $7,500 in medical and dental expenses and $15,772 in unreimbursed employee business expenses. Cruz knew when he prepared the return that R.S was not entitled to $7,500 in medical and dental expenses, nor was he entitled to the $15,772 in unreimbursed employee business expenses. Cruz knew that R.S. was only entitled to claim no more than $11,552 worth of deductions.
Sentencing is April 3. Aiding and assisting in the preparation of a false return carries a maximum prison sentence of three years and a fine.
Buffalo, N.Y.: Restauranteur Sergio Ramses Mucino, 44, has pleaded guilty to tax evasion and conspiracy to unlawfully employ more than 10 aliens during any 12-month period.
Prosecutors said Mucino owned and operated multiple restaurants in Western New York and for the tax years 2013, 2014 and 2015 owed substantial federal income tax as a result of income generated at his restaurants through his employment of illegal aliens. He concealed cash payments, failed to collect payroll taxes, paid employees with cash and placed assets in the names of others to evade payment of income taxes totaling $1,006,161.
Between March of 2014 and October 2016, Mucino, along with co-defendants Jose Sanchez-Ocampo and Marguin Sanchez, conspired to hire at least 10 illegal aliens to work in Mucino’s restaurants. Mucino provided money to Sanchez to purchase homes and pay rent where the alien employees lived.
Mucino must forfeit nearly $40,000 in cash seized from his restaurants, a 2009 Porsche Boxster that the defendant purchased with his illegal profits and another $1 million representing additional profits made from operating the restaurants against the law. Previously, another $35,000 in cash was forfeited by managers of Mucino’s restaurants, along with the two houses that housed some of the illegal workers.
The charges carry a maximum of five years in prison and a $250,000 fine.
Powder Springs, Ga.: Dr. Michael Jon Kell, 68, has been sentenced to six months in prison after a two-decade scheme to funnel millions of dollars in assets through a church he created to evade filing federal taxes.
According to authorities and information presented in court, Kell developed numerous patented technologies and worked as a consultant, which generated millions of dollars in income over the years. To hide this income, he founded and was the “pastor” of the First Meliorite Church, which he claimed to be a branch of the Universal Life Church.
Kell directed his substantial income and assets into bank accounts belonging to the church, all of which were under his exclusive control. He used these accounts to cover all of his personal expenses, including overseas vacations, dining out, high-end clothing purchases, online dating services and private school tuition for his children. Dr. Kell also transferred ownership of his multi-million-dollar residence several times over the years to various entities he created and controlled to protect the property from creditors, including the IRS.
He was also ordered to pay $321,878.40 in restitution to the IRS.
Hillsboro, Ore.: Tax fraud promoter Winston Shrout, 70, has been sentenced to 10 years in prison for submitting fraudulent financial instruments to financial institutions and the U.S. Treasury, and failing to file income tax returns.
According to court documents and evidence, from approximately 2008 through 2015 Shrout created and submitted more than 300 fraudulent financial instruments with the intent of defrauding financial institutions and the U.S. Treasury. Shrout held seminars and private meetings to promote and market the use of these fraudulent financial instruments to pay off debts, including federal taxes. Shrout sold recordings of his seminars, templates for fraudulent financial instruments and other materials through his website.
The evidence presented at trial also proved that Shrout failed to file his 2009 through 2014 tax returns despite earning substantial income from seminars, licensing fees associated with the sale of his products and annual pension payments.
Shrout admitted during trial that he had not paid income tax for at least 20 years.
Shrout was also ordered to serve five years of supervised release and pay restitution to the IRS.
Austin, Texas: Former staffing exec John Herzer has pleaded guilty to willfully failing to pay over federal employment taxes.
According to court documents, from 2010 to 2016 Herzer was the CFO of AXO Staff Leasing, a professional employer organization. Herzer did not pay to the IRS AXO’s employment tax withholdings and instead used more than $4.9 million of those funds for his own benefit, including paying personal expenses and transferring millions of dollars to his own bank accounts.
Herzer’s conduct cost the federal government more than $13 million.
He faces a maximum of five years in prison, as well as a term of supervised release, restitution and monetary penalties.