Tax Fraud Blotter: Man of steal
Big bank shuffle; tax fraud smoked; asphalt, trees and evasion; and other highlights of recent tax cases.
Ridgefield Conn.: Restauranteur Bruno DiFabio, 49, has pleaded guilty to filing false income tax and payroll tax returns.
According to court documents and statements in court, DiFabio has had various ownership interests in several pizza restaurants in Connecticut and New York. He and others in the businesses removed cash from the register and didn’t deposit it into the restaurant’s operating bank account. The businesses’ outside bookkeeper and accountant used the bank records to determine business gross receipts.
DiFabio also knew that certain employees had their wages paid in cash and that a certain number of the employees were paid either a portion or all of their wages off the books. By paying various expenses in cash and off the books, DiFabio, his business partner and others manipulated the net income reported to the IRS and the underpayment of federal withholding taxes.
In September, DiFabio’s business partner in some of his restaurants, Steven Cioffi, pleaded guilty to aiding and assisting in the filing of a false return.
Loss to the IRS in income taxes and employment taxes for the 2013 through 2015 tax years was $816,954.
DiFabio pleaded guilty to one count of conspiracy to file false income tax returns and payroll tax returns. When sentenced, he faces a maximum of five years in prison, a fine of up to $1.6 million and full restitution to the IRS.
Columbus, Wis.: Business owner Norman Vick, 57, has pleaded guilty to failing to pay over employment and income taxes from his employees’ wages.
Vick owned and operated Norman Vick Construction, which assembled steel buildings for commercial operators nationwide.
Vick admitted that he failed to file 941s and pay over the withheld taxes for the years 2012 through 2015, instead spending the money on his family. He also agreed he failed to pay the employer’s share of the payroll taxes and failed to pay over to the State of Wisconsin the withheld state income taxes. Vick agreed that the unpaid taxes due and owing for this time period totaled $683,105. He faces a maximum of five years in prison when sentenced on Jan. 10.
Arvada, Colo.: Businessperson Marlene Seo has pleaded guilty to one count of willfully making and subscribing to a fraudulent corporate income tax return.
According to court documents, Seo owned and operated National Martial Arts Academy, a martial arts instruction business.
From 2011 through 2013, income from Seo’s martial arts school was deposited into bank accounts that she did not disclose to the corporation’s bookkeeper and accountants, which resulted in her underreporting the business’ gross receipts on corporate tax returns for tax years 2011, 2012 and 2013 by approximately $650,000.
Sentencing is Feb. 1. Seo faces a maximum of three years in prison as well as a term of supervised release, restitution and monetary penalties.
Huntington Beach, Calif.: Resident Elie Waknine has pleaded guilty to filing a false return that failed to report millions in foreign bank accounts and the resulting income.
Waknine held millions of dollars in an offshore account in Israel at Bank Leumi Le-Israel B.M. from approximately 1994 to 2011. Despite having this account, Waknine filed a return for 2007 that falsely claimed he did not have financial interest in or signature authority over any foreign financial accounts.
To hide his money, Waknine instructed Bank Leumi to hold bank mail from delivery to the U.S. and obtained access to his offshore funds through the use of “back-to-back” loans, designed to let borrowers tap concealed accounts. These lending arrangements permitted Waknine to have funds issued by Leumi’s U.S. branch that were secretly secured by funds in his undeclared accounts in Israel.
In 2011, Waknine closed his Bank Leumi Israel account, but used the $2.4 million he received from closing the account to open a new undisclosed foreign bank account at another bank in Israel. Over 1994 to 2015, he held undisclosed foreign bank accounts in four banks in three countries, each with assets of at least $1 million.
In December 2014, Bank Leumi entered into a deferred prosecution agreement in which the bank admitted to conspiring from at least 2000 until early 2011 to aid and assist U.S. taxpayers to prepare and present false returns by hiding income and assets in offshore bank accounts in Israel and other foreign locations. Under the terms of the agreement, Bank Leumi paid the U.S. $270 million and continues to cooperate with respect to civil and criminal tax investigations.
Waknine faces a maximum of three years in prison, as well as a period of supervised release, restitution and monetary penalties. Sentencing is Jan. 28.
Fairfield, Conn.: Tobacco wholesaler Rishi Malik, 46, has pleaded guilty to charges related to his role in a conspiracy to defraud Connecticut of millions in taxes due on tobacco products imported into the state.
For several years until 2012, Malik and a partner operated Connecticut Discounts, a tobacco wholesale business in Bridgeport. Through that company, Malik obtained tobacco products from out-of-state suppliers and distributed the products to a network of clients who offered tobacco products for retail sale. While operating Connecticut Discounts, Malik caused Connecticut Forms OP-300 to be filed that underreported the amount of tobacco he imported into the state for distribution.
In June 2012, Malik sold Connecticut Discounts to Pavan Vaswani, who continued the tobacco wholesale business under the name KDV Discounts. From approximately June 2012 to April 2017, Malik frequently assisted Vaswani in importing tobacco products from out-of-state suppliers, including suppliers in Pennsylvania. Malik sometimes drove to Pennsylvania to pick up products that he delivered to KDV in Connecticut. He also participated in making orders, and sometimes delivered payments in cash.
Between January 2013 and April 2017, KDV acquired almost $12 million in tobacco products, primarily cigars and other products, from suppliers in Pennsylvania, and distributed these products to customers in Connecticut that stocked tobacco products for retail sale. On the OP-300s that Vaswani filed on behalf of KDV, the amounts reported were a fraction of what KDV actually acquired.
Vaswani failed to report approximately $5,821,057 in tax to Connecticut.
In 2014, Malik registered Discount Deals with an address in Sciota, Pa., holding out the company to be a tobacco distribution business. The unit he rented was not a space for a legitimate tobacco business and was maintained to create the appearance that Discount Deals was a legitimate Pennsylvania-based tobacco wholesaler. Between 2014 and at least April 2017, to subvert other federal regulations regarding interstate transport of smokeless tobacco, Malik used Discount Deals to purchase more than $1.1 million in smokeless tobacco products from Pennsylvania suppliers. Discount Deals made no tax payments to Connecticut between 2014 and 2017, and approximately $400,000 in smokeless tobacco tax was not reported.
Malik and Vaswani were arrested in January. Malik pleaded guilty to one count of conspiracy to commit wire fraud and to violate the Contraband Cigarette Trafficking Act, an offense that carries a maximum of five years in prison, and one count of wire fraud, which carries a maximum of 20 years in prison. Sentencing is Jan. 23. Both Malik and Vaswani have agreed to restitution of $5,821,057.
Wisconsin Rapids, Wis.: Business owner Russell Broga, 51, has pleaded guilty to tax evasion for tax year 2013.
Broga owned and operated A-1 Services Wisconsin Rapids, which provided asphalt paving, asphalt maintenance, tree removal, tree transplanting and other services. Broga oversaw all operational aspects of the business, including hiring and firing of staff, job quotes, job scheduling, invoicing, and depositing and cashing of customer checks. He admitted that he took customer checks and cashed them using his personal bank account instead of depositing the income in his business bank account. He then withheld these skimmed receipts from his bookkeeper and preparer for tax years 2012, 2013 and 2014.
Tax evaded for these three years totaled $147,682.
This charge carries a maximum of five years in federal prison and a $250,000 fine. Sentencing is Dec. 19.