Tax Fraud Blotter: Her little secrets
A little off the top; noted; over the Edge; and other highlights of recent tax cases.
Hemet, California: Preparer Dennis L. Reed II, 31, has been sentenced to 41 months in prison for defrauding the IRS out of more than $2.1 million by submitting phony tax returns, including ones that maximized fraudulent refunds through child tax credits and bogus businesses for hundreds of clients.
Between 2014 and 2019, Reed prepared hundreds of federal and state income tax returns containing false claims designed to inflate refunds. Reed prepared at least 384 returns that falsely stated that the client had earned income from Schedule C sole proprietorships; he also created false Schedule C businesses such as hairstylist or barber for these clients.
The federal tax loss was $2,158,337. Reed, who pleaded guilty last year, was also ordered to pay that amount in restitution to the IRS.
Inglewood, California: Preparer Cubby Wayne Williams, 64, who formerly worked at the California Franchise Tax Board, has been sentenced to 63 months in prison for defrauding the IRS out of millions by declaring bogus withholdings to fraudulently claim refunds.
Williams, of Alhambra, California, owned and operated the tax services company Williams Financial Network. He filed returns claiming that his clients had accrued OID interest income, fraudulently claiming OID withholdings on 22 returns for his clients for tax years 2013 through 2016. Between 2012 and 2019, Williams, who was found guilty last year, submitted 222 false returns claiming some $5,648,809 in fabricated withholdings.
Charlotte, North Carolina: Preparer Gregory Doneal Mack, 56, has pleaded guilty to preparing false returns while working for the tax prep business SW Financial Group.
The owner of SW, Sean Dalton Williams, 48, previously pleaded guilty to aiding and assisting in the preparation of a false return.
From 2012 to 2017, Mack worked as a preparer at SW, where Mack and Williams prepared 1040s that contained fabricated or fraudulent items on Schedules A and C. The tax loss to the government for returns prepared by Mack for tax years 2012 to 2017 is some $282,967. The loss associated with the fraudulent returns prepared by Williams for tax years 2012 to 2015 is $276,540. During the time that Williams committed the fraud, he was on pretrial release on federal charges related to a mortgage fraud.
The charge carries a maximum of three years in prison and a $250,000 fine.
Philadelphia: Preparer Jose Santiago, 48, has admitted to fraud that resulted in more than $914,000 in losses to the IRS, news reports said.
Federal authorities told news outlets that Santiago owned and operated Santiago Tax Service and pleaded guilty to six counts of preparing false income tax returns. Authorities reported that he inflated clients’ unreimbursed employee business expenses and charitable donations, causing a total loss of roughly $914,635 to the IRS.
Sentencing is March 19, reports added, when he faces a maximum of 18 years in prison, followed by a year of supervised release and restitution of $914,635.
Huntington, West Virginia: Business owners Russell and Karen Rucker have pleaded guilty to conspiring to defraud the U.S. regarding their employment taxes and individual income taxes.
The couple operated Rucker, Billups and Fowler, an insurance agency. Russell Rucker was the president of RBF and, since approximately late 2013, Karen Rucker was a financial officer. Between September 2015 and September 2018, the Ruckers withheld but did not pay over some $143,226 in federal payroll taxes from the wages of employees. Instead, the Ruckers diverted portions of the money for their personal benefit; from 2014 through 2016, they continued to pay themselves more than $500,000 in salary.
In response to IRS collection efforts and to conceal funds, the Ruckers deposited money into the bank account of another individual. They also used a series of bank accounts that they did not disclose to the IRS, and paid many of their bills, including their mortgage, in cash.
The Ruckers attempted to evade payment of $114,911 of Russell Rucker’s 2001, 2002 and 2005 individual income taxes by disguising paychecks issued to Russell Rucker as non-taxable “note proceeds.” The Ruckers also failed to file their individual income tax returns and RBF’s corporate returns for 2014 through 2017.
Sentencing is Jan. 27, when the Ruckers each face a maximum of five years in prison. They also face monetary penalties, supervised release and restitution.
New Orleans: Preparer Danielle Franklin, 28, has pleaded guilty to one count of assisting in the preparation of a fraudulent return.
Franklin prepared a false return in 2014 for a client of Cutting Edge Income Tax, in Metairie, Louisiana, that included fraudulent business losses.
Sentencing is March 5, when Franklin faces a maximum of three years, a year of supervised release and a $100,000 fine.
Waltham, Massachusetts: John H. Nardozzi, 68, a CPA for former State Senator Brian Joyce, has been sentenced to 18 months in prison and three years of supervised release for conspiring with the late senator to defraud the IRS from 2011 through 2014.
In October 2019, Nardozzi was convicted of conspiring with Joyce to defraud the IRS of approximately $600,000 by manipulating income that should have been reported on Joyce’s corporate return and applying it to Joyce’s personal return. Nardozzi was also convicted of fraudulently creating a SEP for Joyce and his wife; Nardozzi enabled Joyce and his wife to defer taxes on more than $400,000 of income, including income that Joyce falsely attributed to his wife. Nardozzi also assisted Joyce in an illegal rollover of Joyce’s SEP to purchase stock in a company without following IRA rollover rules.
Philadelphia: Fallyn Mathis, 37, has been sentenced to two years of probation and been ordered to pay $12,628 in restitution for collecting unemployment compensation while earning income from her seasonal employment with the IRS.
The charge stems from her intermittent conduct between 2015 and 2017, during which Mathis repeatedly certified her eligibility for federal unemployment compensation while she was in active-work status with and receiving a salary from the IRS. Mathis, who pleaded guilty last summer, was not entitled to receive more than $12,600 in unemployment benefits she collected during this time.
Bloomfield, Michigan: Biodiesel fuel dealer Chandra Yarlagadda, 54, has pleaded guilty to filing a false income tax return.
Yarlagadda owned and operated Alpha Bioenergy, formerly Naturol Bioenergy, which purchased and sold biodiesel fuel and was also required to purchase renewable identification numbers. Yarlagadda reported income and expenses associated with Alpha on Schedules C attached to his personal income tax returns and admitted that on the Schedules C attached to his 2009, 2010 and 2011 returns he overstated expenses associated with the purchase of RINs.
For these three years, Yarlagadda falsely reported RIN expenses totaling more than $14.2 million when he was only entitled to claim approximately $80,000. Yarlagadda avoided paying an additional $2.3 million in federal income tax.
Sentencing is March 19, when he faces a maximum of three years in prison, as well as supervised release and a fine. He agreed to pay $2,310,948 in restitution to the IRS.
Phoenix: Preparer Sandra Gamboa, 49, has been sentenced to a year and a day of imprisonment after pleading guilty to filing false income tax returns.
Gamboa operated the tax prep business SGB Enterprises, where she filed false federal returns. For her own return, Gamboa listed false information to fraudulently reduce her tax liability. For some of her clients she secretly changed the numbers in the returns, generating inflated refunds that Gamboa kept.
She was also ordered to pay $101,287 in restitution to the IRS.