Tax Fraud Blotter: Crowning achievements
Over-dependency; from one cell to another; the wrong kind of thinking green; and other highlights of recent tax cases.
Boise, Idaho: Tax preparer Andres Sanchez, 33, has been found guilty of willfully aiding and assisting in the preparation and filing of six fraudulent returns for clients.
The jury, which was unable to reach a verdict on one count, heard evidence that for returns filed for 2014 through 2016, Sanchez counseled his clients to include ineligible dependents on their returns to create and inflate refunds, using such dependency exemptions and refundable credits as the Child Tax Credit, the Additional Child Tax Credit and the Earned Income Tax Credit.
Sanchez faces a maximum of three years in prison and a fine of up to $250,000 for each false return. Sentencing is May 16.
Riverside, California: Business owner Young Hwan Lee has pleaded guilty to filing returns that underreported his income by more than $2.1 million over five years and to failing to pay $683,405 in federal tax.
Lee owned and operated K-Tech Dental Lab, an S corporation that made dental prosthetics and crowns for dentists, and from January 2016 through December 2020 he evaded the assessment of federal taxes. To conceal income, Lee frequently cashed client checks rather than depositing them into K-Tech’s accounts.
Lee retained an outside accountant to prepare both the 1120-S for K-Tech’s S corp income tax return and the 1040 for Lee’s personal income tax return. After Lee intentionally failed to inform the outside accountant of all the payments that K-Tech had received from clients, both sets of returns failed to report significant gross receipts and sales.
Los Angeles: Two California men are the latest sentenced in a conspiracy to defraud the IRS and the Paycheck Protection Program initiative.
Thanh Rudin was a principal of Mana Tax Services, a tax prep business. His conspirator, Seir Havana, was the company’s vice president/director and CEO. They prepared and filed a series of false federal income tax returns on behalf of at least nine pro athletes. The false returns reported fictitious business and personal losses to generate refunds the athletes were not entitled to receive. They also filed amended returns for most of the athletes for prior years to correct what conspirators falsely characterized as “errors” made by their previous accountants. Mana Tax charged the athletes a 30% fee of the resulting federal refunds.
The scheme caused a total tax loss of more than $19 million.
Second, the defendants prepared and submitted false PPP applications for loans on behalf of small businesses, shell companies and other business entities they controlled. The conspirators prepared fraudulent PPP loan applications for these firms in exchange for a fee of 30% of the resulting loan. The conspirators also submitted fabricated returns to support the applications; some of the business owners never saw their loan applications before Mana filed them.
The conspirators grossly inflated the number of employees and monthly payroll costs claimed on the applications. Some of the businesses were ineligible for any PPP loan funds at all because they did not have payroll expenses.
During the investigation, the government seized more than $11.8 million from bank accounts containing PPP loan fraud proceeds controlled by the conspirators. In addition, Havana surrendered cashier’s checks worth some $5.6 million, representing a portion of the fees charged the professional athletes for preparing their false returns and a portion of the fees for obtaining fraudulent PPP loans.
The two schemes resulted in total losses of more than $44 million.
Havana was sentenced to 42 months in prison, Thanh Rudin to 34 months. Thanh Rudin’s brother Quin was sentenced last fall to 10 years in prison.
Garner, North Carolina: Tax preparer Montanna Gore has pleaded guilty to preparing false returns for clients.
Gore provided tax prep services from his area cellphone store from at least 2013 through 2018. He reported false items on clients’ returns to inflate refunds. He also fraudulently claimed education credits on his personal returns for 2015 and 2016. Gore did not file tax returns for himself for 2017 and 2018, even though he continued to earn income by preparing returns for clients.
The tax loss to the IRS exceeded $1.7 million.
Sentencing is May 23. Gore faces a maximum of three years in prison, as well as a period of supervised release, restitution and monetary penalties.
Merrill, Wisconsin: Kevin Shibilski has been sentenced to 33 months in prison to be followed by three years of supervised release for failure to pay $858,101 in federal employment taxes for 2014 to 2016.
Shibilski, who previously pleaded guilty, was a minority owner and CEO/CFO of 5R Processors, with locations in Wisconsin and Tennessee. 5R was involved in recycling electronic equipment and other assets. Pure Extractions Inc. was created by Shibilski in 2014 to handle 5R’s recycling operations. Pure Extractions took on all of 5R’s recycling customers, warehouses and equipment, income flows from recycling and most of 5R’s recycling employees but none of 5R’s debts.
Wisconsin Logistics Solutions was created by Shibilski in 2015 to handle 5R’s trucking and logistics operations. Wisconsin Logistics took on most of 5R’s trucks and equipment, drivers, dispatchers, pick-up routes, licenses and all of 5R’s income flows from trucking and logistics — but again, none of 5R’s debts.
Shibilski had been in charge of 5R’s operations and finances since March 2013 and had been the primary decision-maker on which bills to pay and not to pay, including employment taxes. Shibilski kept blaming others, including the IRS, his co-defendants and other 5R employees for the nonpayment.
He agreed to pay monies towards the remediation of the leaded glass storage sites for 5R in Wisconsin and Tennessee: $100,000 to the Wisconsin Department of Natural Resources and $100,000 to Paint Oak LLC, Knoxville, Tennessee.
Shibilski’s co-defendant Bonnie Dennee pleaded guilty to conspiracy to defraud the U.S. relating to 5R’s illegal storage of leaded glass; in 2021, Dennee was sentenced to five months in prison. Shibilski’s co-defendant James Moss also pleaded guilty to conspiracy to defraud the U.S. relating to 5R’s illegal storage of leaded glass, as well as conspiracy involving the failure to pay over 5R’s employment taxes. In 2020, Moss was sentenced to 18 months in prison.
Dothan, Alabama: Kenneth Cherden Glasgow, a.k.a. Kenneth Sharpton Glasgow, 57, has pleaded guilty to tax evasion, mail fraud and drug conspiracy charges.
Glasgow founded the Ordinary Peoples Society and the Prodigal Child Project, both 501(c)(4) nonprofits. He solicited donations from other nonprofits and foundations, representing that he would use those donations for charitable purposes. Instead, during 2018 alone he withdrew $407,450 in cash from the bank accounts of one of his nonprofits and used it for his own benefit. Glasgow then failed to even file a tax return for that year.
He also attempted to conceal this activity by causing his tax preparer to complete inaccurate 990s that vastly understated the income of the organizations and omitted the financial benefits Glasgow received from them.
He acknowledged committing this fraud during the 2018 tax year and agreed to pay the IRS $376,720 in restitution for tax years 2016 through 2019.
Glasgow admitted to mailing false statements to the Social Security Administration so that he could continue receiving disability benefits and related health benefits under the Medicare and Medicaid programs. Glasgow made written statements on various SSA forms describing his physical abilities and daily activities as being very limited, despite reporting on IRS 990 forms for his nonprofits that he worked 50 to 60 hours per week. There was also other proof, including a number of traffic violations, that he could drive during this time.
Finally, he pleaded guilty to conspiracy to possess cocaine with intent to distribute. According to the plea agreement, the drug conspiracy started with others at an unknown date and continued through August 2020.
He faces up to 20 years in prison, along with substantial fines and restitution.
