Tax Fraud Blotter: The maleficent seven

Smells fishy; getting the boot; quit the day job; and other highlights of recent tax cases.

Charlotte, North Carolina: Seven preparers have pleaded guilty to conspiracy to defraud the U.S. by preparing and filing false returns.

Joseph Octave and Vonyeda Carson pleaded guilty on Jan. 12, 2021; Melissa Greene, Natisha Holloman, Kimberly Joline, Whitney Vargas-Medrano and Wendia Courtois pleaded guilty earlier in 2020. In addition to the conspiracy charge, Octave pleaded guilty to one count of aiding and assisting in the filing of false returns.

Octave owned and operated Kapital Financial Services, a tax prep business with two offices in Charlotte. From 2014 through at least 2019, Octave and certain employees, specifically Carson, Courtois, Vargas-Medrano, Greene, Holloman and Joline, conspired to falsify clients’ returns by claiming deductions, business losses, American Opportunity Credits, education credits and Earned Income Tax Credits that the clients did not incur.

Octave trained employees on how to file false returns and provided them with scripts and cheat sheets. He instructed employees not to provide clients with copies of their returns and to not review the completed returns with clients beyond the refund amount.

By filing false returns, Octave and his conspirators increased their client base. Octave received the largest share of the $700,000 earned by Kapital Financial Services in preparation fees.

Octave faces a maximum of eight years in prison. Carson, Courtois, Greene, Holloman, Joline and Vargas-Medrano each face a maximum of five years in prison. They all also face a period of supervised release, restitution and monetary penalties.

Providence, Rhode Island: Billie R. Schofield, part-owner and employee of Northern Pelagic, a seafood processing business in New Bedford, Massachusetts, has been sentenced to three years in prison for tax evasion.

For more than 10 years, Schofield attempted to evade his federal income taxes. Despite earning hundreds of thousands of dollars in income, he failed to pay taxes owed and, beginning in 2009, stopped filing income tax returns.

Between 2008 and 2018, Schofield obstructed IRS efforts to assess and collect his taxes by filing fraudulent forms, advancing frivolous tax arguments, creating and using a nominee entity and bank account, negotiating income checks to cash, and creating and submitting fraudulent checks to the IRS.

Including penalties and interest, Schofield caused a federal tax loss of more than $350,000.

He was also sentenced to three years of supervised release and a $5,000 fine and ordered to pay $364,200.22 in restitution to the IRS.

Westwego, Louisiana: Preparer Henry J. Timothy has pleaded guilty to four counts of tax fraud.

Timothy, owner and sole preparer for B&B Accounting Services, operates his business out of his home and has been a preparer since 2012. He admitted to preparing and e-filing false and fraudulent federal personal returns for himself and his wife for tax years of 2013 through 2016 during which he failed to report some $320,219 in gross receipts from his Schedules C. Omission of this income resulted in a tax liability of $88,593.

He faces a maximum of up to three years in prison, a $100,000 fine, or both. Sentencing is April 15.

News reports added that Timothy is cooperating in a tax case against a local district attorney-elect.

Seattle: Former college soccer star Dion L. Earl, currently serving time for sexual assault in Arizona and on a second sexual assault case in Washington, has pleaded guilty to making false statements on a tax return.

During a massive tax fraud scheme, Earl purchased the Seattle Impact FC franchise, a professional indoor soccer club. Between 2008 and 2014, he used false documents to lie about his income, the amount of tax dollars withheld by employers and his mortgage deductions so that he could attempt to claim refunds of more than $1.6 million.

Under the terms of the plea agreement, prosecutors will recommend Earl serve a one-year consecutive federal sentence following his 12-year sentence in Arizona and 33-month consecutive sentence in Washington, for a total sentence of nearly 16 years in prison. Sentencing is April 9.

In the 1990s Earl was a soccer star at Seattle Pacific University. Between 2008 and 2014, he also worked in car sales in Washington and Arizona and owned Dion Earl’s Total Soccer & Tennis Camps (d.b.a. Total Business Ventures) and the Seattle Impact FC. Earl admitted that he used his association with car dealers, Dion Earl’s Total Soccer & Tennis Camps and the Seattle Impact to commit tax fraud.

Earl acknowledged that on his 2012 1040 he claimed that he made $1.6 million working for eight different car dealers, which withheld more than $660,000 of his wages for taxes; and that his wife was employed by Total Soccer, which paid her $240,000 and withheld $51,000 in taxes. He also claimed he made $520,000 in mortgage interest payments on four different properties.

Earl admitted that all these claims were false, admitting that during 2012 he made less than $45,000 from which he did not have any taxes withheld and he paid limited mortgage interest. Pursuant to these false claims, Earl obtained a federal tax refund of $414,160.

Earl also admitted that even after the IRS began a civil audit of his taxes in 2013, he continued to make false claims and provide false information to the IRS. For example, Earl admitted that as late as 2015 he falsely claimed that he and his wife made $765,000 from Total Soccer and the Seattle Impact FC, from which the businesses withheld $180,000 in taxes. In making these false claims, Earl sought a tax refund of $137,554. That refund was not paid.

In total, Earl sought $1.6 million in fraudulent federal refunds and was paid $1,093,534.

Earl also agreed to pay $600,000 in restitution to Arizona as a result of fraudulent returns he filed with that state. While not admitting to submitting false income information in 2008 to qualify for a home equity line of credit, he did agree to make some $95,000 in restitution payments to Key Bank.

East Haven, Connecticut: Accountant Louis DeMaio, of Guilford, Connecticut, has been sentenced to 30 months in prison to be followed by a year of supervised release for tax evasion and obstruction.

DeMaio was employed as an accountant in and, from approximately 2010 to 2018, also operated Almatt LLC, a temporary employment agency that provided day laborers to construction companies. Although DeMaio listed another individual as the owner of Almatt, the agency was effectively owned and run by DeMaio.

Almatt invoiced construction companies for the cost of labor provided and, from the payments received from the companies, paid the employees. Almatt and DeMaio then provided the employees with W-2s reflecting that Almatt had undertaken required federal tax withholdings. Almatt and DeMaio in fact failed to withhold taxes and subsequently failed to pay over those withholdings to the IRS. Almatt also never filed yearly income tax returns or 941s.

DeMaio also issued hundreds of thousands of dollars of checks from Almatt made out to himself and to family members who did not work at the business. From 2010 through 2018, DeMaio and his family received more than $2.5 million from Almatt. He failed to report any of these distributions on his federal personal income tax returns.

In 2015, the IRS initiated a civil examination of Almatt, and then expanded the examination to evaluate the completeness of DeMaio’s personal income tax returns. When the IRS confronted DeMaio, he said that a substantial portion of the payments he received from Almatt were loan repayments from the supposed owner. DeMaio also provided an IRS revenue agent with a false notarized document and continued to support his story with IRS special agents.

DeMaio underreported his income by more than $2.5 million. The tax loss is $1,132,398.

In August, DeMaio pleaded guilty to one count of tax evasion and one count of obstructing and impeding the due administration of internal revenue laws. He was also ordered to pay full restitution, as well as interest and penalties.


No Comments

    Leave a reply