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Tax Fraud Blotter: Booked for bundles

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Father-daughter dance; long-distance relationships; this auction is closed; and other highlights of recent tax cases.

Garden Grove, California: Preparer Michael Hung Lee, 70, has pleaded guilty to federal criminal charges that he filed false returns and cheated the U.S. out of nearly $5 million.

From 2014 to March 2018 Lee owned and operated the prep business 1040 U.S. Tax Center, and during that time he and others fraudulently filed federal individual income tax returns on behalf of clients to obtain false federal refunds.

On these returns, Lee claimed Schedule D capital losses that he knew his clients never approved and for which they were unqualified. The federal government incurred a tax loss of at least $4,917,035.

Sentencing is Nov. 16, when Lee will face a maximum of five years in prison.

Earlier this summer, Tax Center preparer Mylinh Thi Lee, 50, who is Michael Lee’s daughter, pleaded guilty to one count of aiding and assisting in the preparation of false returns. She will face a maximum of three years in prison at her sentencing on Oct. 26.

Wichita, Kansas: Preparer Sonia Hernandez-Smith, 41, has reportedly agreed to repay the IRS more than $100,000 after filing returns for clients that claimed as dependents children who were actually living abroad.

According to published reports, she pleaded guilty to the one count with the greatest financial loss, part of a plea deal that dismisses the other charges.

Prosecutors reportedly contended that returns prepared by Hernandez-Smith had claimed the Child Tax Credit, the Additional Child Tax Credit and the Earned Income Tax Credit even though the clients were ineligible. The charging document reportedly listed a tax loss of slightly more than $100,000 connected to eight separate taxpayers for tax years 2013, 2014 and 2015.

News outlets said Hernandez-Smith admitted in a plea agreement that she obtained ITINs for the children of a niece of one of her clients even though she knew the family lived in another country. The loss to the IRS in that one case was $7,814, and a similar scheme was used for several other people between 2013 and 2015 for a combined loss of $105,050.

Sentencing is Oct. 26, news outlets said, when she could face up to three years in prison and a fine of up to $100,000. Reports added that the court could order probation with a mandatory schedule of payments as a condition of supervised release and that Hernandez-Smith has agreed to pay the IRS full restitution.

The plea agreement suggests that the U.S. Attorney’s Office will seek to ban her from filing federal or state tax returns for others, reports added.

Bayonne, New Jersey: Construction-business owner Patrick Franconeri has been sentenced to 18 months in prison for tax evasion and bankruptcy fraud.

Franconeri, who previously pleaded guilty, owned and operated several construction businesses that performed work for a major insurance company in New Jersey. During tax year 2014, he earned taxable income of $1,362,950 and owed federal income tax of $558,439. Franconeri failed to file a return or request an extension for that year. He also tried to conceal his income, including by cashing checks at check-cashing facilities so the money would not come to the attention of the IRS.

Franconeri filed a Chapter 7 petition in March but concealed property belonging to his bankruptcy estate. Franconeri concealed and failed to disclose his ownership and operation of his construction companies, as well as $965,575 in income he had received in the prior two years as the owner and operator of the companies.

He was also sentenced to three years of supervised release and ordered to pay $716,569 in restitution to the victims of his bankruptcy offense and $558,349 in restitution to the IRS.

Aurora, Ohio: Bookmaker Ryan Driscoll has been sentenced to three years of probation and ordered to forfeit $628,950 in cash seized during a search and pay $208,693 in restitution to the IRS.

He previously pleaded guilty to running an illegal sports gambling business with others, laundering the money and filing a false income tax return.

From July 2015 to August 2019, Driscoll operated as a bookmaker for his clients and provided them with access to offshore sports gambling websites. The websites allowed Driscoll’s clients to bet on sporting events and track wins and losses and monies due. Driscoll paid out winnings and collected losses locally. He concealed that most of his income came from the illegal gambling business and hid the proceeds as $10,000 bundles of cash in his home.

For tax years 2014 through 2017, Driscoll underreported his income by some $825,323, which resulted in additional tax due of some $208,693. In 2018, Driscoll knowingly submitted a false income tax return that grossly underreported his income and failed to disclose money made from the gambling business.

Jefferson City, Missouri: Business owner Ryan M. Phegley, 39, has pleaded guilty to tax evasion after failing to pay taxes on more than $600,000 in income over three years.

Phegley owned and operated Phoenix Freight Lines from 2010 to 2014, which provided truck transportation services in which it leased trucks, hired drivers and obtained contracts for transporting goods. Phegley admitted that he never filed state or federal individual income tax returns or state or federal business income returns for Phoenix for 2011 through 2013, despite earning $642,344 in taxable income during those years.

He also admitted that from January 2011 through April 2012 he tried to evade income tax owed for 2011 by using the Phoenix Freight Lines bank account to pay his personal expenses, such as residential mortgage and utilities, personal vehicles and remodeling of his residence.

Phegley must pay $152,570 in restitution to the IRS and $31,604 to the Missouri Department of Revenue. He is subject to up to five years in prison without parole.

Littleton, Colorado: Kristin Martin, 39, has been sentenced to 33 months in prison to be followed by three years of supervised release for tax evasion and mail fraud related to selling fraudulently obtained items on eBay.

Martin worked as an executive assistant for her employer and was provided with an ID and password to purchase supplies from Staples. Between January 2013 and December 2016, Martin used her information to fraudulently order unauthorized items such as iPads, Apple TVs, Kindles and other items which she kept and then resold on eBay for her own profit. These purchases caused a loss of $864,441.11 to her employer.

Martin assigned the fraudulent purchases to 23 different cost centers of her employer so each would be less likely to notice the fraudulent charges. She also used her company’s Federal Express account to ship the items to buyers.

She netted at least $571,725.61 from the resale of the items and did not provide her personal accountant with information regarding the online sales until she received a notice of additional income from the IRS. To reduce her income tax liability, she then gave her accountant false information regarding the cost of goods sold and other expenses she did not incur. Based on this false information, her accountant prepared a false and fraudulent 2014 amended federal return.

Martin, who previously pleaded guilty, was also ordered to pay $161,864 in restitution to the IRS and $872,337.68 in restitution for the fraud to her former employer.

Orlando, Florida: Resident Mark Goolsby has been sentenced to two years in prison for filing a false claim for a tax refund.

Goolsby, who pleaded guilty in March, filed a fraudulent federal return for the 2014 tax year, falsely claiming that he had earned 1099-MISC income of more than $1 million, paid more than $800,000 in federal withholding taxes and was due a refund of $420,288. The IRS processed the return and issued a check to Goolsby for the false refund. Shortly after, the IRS realized that the return was false and began collection proceedings to obtain the refund.

Goolsby refused to return the money and instead hid it in multiple bank accounts, withdrew large amounts of cash, purchased a vehicle in the name of a third party and otherwise spent on a lavish lifestyle.

He was also ordered to pay $420,288 in restitution to the IRS.

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