Abusive Tax Evasion Schemes
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Examples of Abusive Tax Scheme Investigations – Fiscal Year 2009
The following examples of abusive tax schemes are written from public record documents on file in the courts in the judicial district in which the cases were prosecuted.
New Jersey Computer Consultant Sentenced for Using Sham Trusts to Evade Taxes
On June 2, 2009, in Newark, New Jersey, James Najarian, a computer consultant, was sentenced to 12 months in prison, to be followed by three years of supervised release, and ordered to pay a $3,000 fine. On February 17, 2009, Najarian, pleaded guilty to count three of a four count Information charging him with tax evasion. According to court documents, Najarian was employed as a computer consultant by SER Associates, LLC, a limited liability company registered in the State of Nevada, which Najarian owned. Through SER Associates, Najarian performed computer consulting services for LNS Systems, Inc., a company controlled by his sister. LNS Systems made payment via check to SER Associates for consulting services performed by Najarian. In an effort to conceal his personal income and evade the assessment and payment of tax, Najarian established and controlled two trusts, Hokee Consulting and YAR Group, as the sole partners of SER Associates, which functioned as mere shell entities to conceal Najarian’s receipt of income by SER Associates. Najarian filed U.S. Partnership Tax Returns, Forms 1065, on behalf of SER Associates for tax years 2002 through 2005, in which he reported the income and expenses he had earned as a computer consultant, but attributed that income not to himself personally, but to the Sham Trusts. Najarian failed to file personal income tax returns for himself during the years 2002 through 2005, even though he had received income of over $473,000 for consulting services performed through SER Associates during that time period, which resulted in over $112,000 in federal taxes due and owing.
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Ohio and Michigan Tax Defiers Sentenced to Prison for Tax Offenses
On May 29, 2009, in Toledo, Ohio, Winfield Thomas, a resident of Carey, Ohio, and Jeanne Herrington, a resident of Parma, Mich., were sentenced to 30 months and 96 months in prison, respectively. In addition to jail time, both Thomas and Herrington were sentenced to three years of supervised release. In November 2008, a jury convicted Thomas and Herrington of conspiracy to impede the Internal Revenue Service (IRS). Herrington was also convicted of corruptly interfering with the administration of the internal revenue laws. Also sentenced was Chad Rickle, who pleaded guilty to conspiring with Thomas and Herrington. Rickle received a sentence of four months in prison, four months of home confinement, and three years of supervised release. According to the evidence presented at trial, Thomas and Herrington promoted and sold bogus financial instruments which they fraudulently stated could be used to pay tax liabilities of their clients. These fictitious financial instruments, referred to as ‘Bills of Exchange’ and ‘drafts,’ were purported to be worth thousands of dollars. The total amount of fictitious financial instruments related to the scheme was in excess of $28 million. Trial evidence indicated that Thomas began marketing and selling abusive trusts as estate planning vehicles. He instructed trust participants to file false income tax returns that were prepared by co-defendant Chad Rickle which unlawfully assigned personal property and income to the trusts and then illegally deducted personal expenses as fiduciary and other fees. After the IRS sent the trust participants tax deficiency notices, Thomas instructed participants to ignore IRS correspondence, resulting in IRS tax assessments and the initiation of collection activities. Thomas and trust participants also sent false and threatening documents to the IRS in response to its collection efforts. Following the assessments made against their clients, Herrington and Thomas promoted the preparation and submission of fictitious financial instruments to the IRS as purported payment of outstanding tax liabilities. Herrington instructed the trust participants to open and then quickly close checking accounts and to use the account and routing numbers for those closed accounts on the bogus ‘drafts.’ Additionally, Herrington submitted false Forms 1099 to the IRS in October 2006, shortly after she was first indicted for tax crimes, in an effort to obstruct the prosecution. These Forms 1099 falsely reported that various individuals associated with the prosecution, including a Tax Division attorney and an Assistant U.S. Attorney in Toledo, Ohio, had received substantial amounts of income from Herrington.
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Los Angeles Area Man Sentenced To Five Years in Prison for Tax Evasion
On May 28, 2009, in Los Angeles, Calif., Giancarlo Pertile, the former owner of Art Marble Design Inc., in Moorpark, Calif., was sentenced to 60 months in federal prison and ordered to pay a $75,000 fine. Pertile was convicted by a jury in January 2009 of five counts of tax evasion for the years 1998 through 2002. According to evidence presented at trial and at the sentencing hearing, Pertile did not report the profits from the operation of his business, Art Marble Design, on his personal income tax returns. As a result of his concealment of business receipts from his bookkeeper and his accountant, Pertile caused false and fraudulent corporate income tax returns to be filed with the Internal Revenue Service (IRS) which falsely understated his business income. Additionally, Pertile filed individual income tax returns for the years 1998 through 2002 that falsely understated his taxable income. According to evidence presented at trial, Pertile paid only $1,200 in federal income tax from 1998 to 2002 despite earning over $850,000 from the operation of Art Marble Design during the same time period. Instead of reporting the profits from the business on his tax returns, Pertile deposited a substantial portion of the business income into additional bank accounts that he concealed from his bookkeeper, accountant and the IRS. As a result of Pertile’s conduct, he evaded the payment of approximately $247,000 in federal income tax between 1998 and 2002. At trial, Pertile unsuccessfully argued that his company’s business receipts were not taxable because the company was owned by a “pure trust.” Pertile also placed his home in the name of a ministry to conceal his ownership in the property from the IRS.
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Former Aegis Trust Counsel Sentenced
On May 14, 2009, in Chicago, Ill., John Stambulis was sentenced to 24 months in prison to be followed by three years of supervised release, and ordered to pay any outstanding taxes due. According to court documents, Stambulis, a Bridgeview attorney, was the chief trust counsel of Aegis, through which he allegedly assisted in the promotion, sale, establishment, and defense of Aegis trust systems. In June 2004, a superseding indictment charged Stambulis, along with several other defendants, for participating in a nearly decade-long scheme to market and sell sham domestic and foreign trusts through, now defunct, The Aegis Company. In February 2008, Stambulis pleaded guilty to conspiracy to defraud the U.S. by impeding the Internal Revenue Service.
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Former City Corporate Counsel Attorney Sentenced for Marketing Sham Trusts
On May 11, 2009, in Urbana, Ill., John Wolgamot was sentenced to 12 months and 1 day in prison for his role in a tax fraud conspiracy that marketed and sold sham trusts to shelter taxpayers’ income from the Internal Revenue Service (IRS). In May 2007, a third superseding indictment charged Wolgamot, along with Brian Wasson and Joseph Starns, who died that year, with participating in marketing sham trusts that helped conceal taxpayer assets and income from the IRS. According to the indictment, Wolgamot was a business associate of Wasson and the late Joseph Starns in Midwest Alternative Planning, a business created to promote the Aegis scheme. The case stems from a broad federal investigation of sham trusts and business packages known as The Aegis Company of Palos Hills, Illinois. The executive director and founders of the now-defunct Aegis company were convicted of tax fraud conspiracy. In August 2008, pursuant to a sealed plea agreement, Wolgamot pleaded guilty to one count of aiding in the filing of a false tax return. Following his sentence, Wolgamot will be on supervised release for 12 months.
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Two Sham Trust Marketers and Former Congressional Candidate Sentenced
On April 30, 2009, in Peoria, Ill., three defendants convicted this summer of tax offenses were sentenced to prison terms. Kenton W. Tylman and Debra J. Hills, both of Charleston, Illinois, were convicted in July 2008 for participation in a tax fraud conspiracy that marketed and sold sham trusts and financial packages to shelter taxpayers’ income from the Internal Revenue Service. Tylman was sentenced to five years in federal prison; Hills was ordered to serve three years in prison. A third defendant, Brent A. Winters, of California, who was acquitted of the conspiracy charge but convicted of filing a false tax return, was ordered to serve 12 months in prison. Evidence presented by the government at trial showed that beginning in 1995, Tylman sold “trusts” and related financial arrangements for the Aegis Company in Palos Hills, Illinois. In 1998, Hills joined Tylman in the sale and promotion of the “trusts.” During 1999 and 2000, Tylman and Hills sold “trust” packages using the business names of Worldwide Financial Services and Worldwide Financial and Legal Association. Purchasers of the so-called “trusts” were charged as much as $40,000 for their services. Tylman and Hills received a percentage of the purchase price, as well as commissions and management fees. Winters, acquitted of the conspiracy, was convicted for filing a false U.S. Individual Income Tax Return for the 1998 tax year. The government presented evidence that Winters, an attorney who made an unsuccessful run for Congress in 1998, loaned $36,616.50 to his campaign fund when he was a candidate for the U.S. House of Representatives. Following his unsuccessful campaign, Winters claimed that he sold the uncollectible loan for $2,500 to “American Land and Mines Company,” a trust controlled by Winters and his wife. Winters then reported a capital loss of $34,117 as a deduction on his tax return; however, the law does not allow for deduction of a bad debt created by the sale to a related party. Further, there was no evidence that American Land and Mines Company ever purchased the loan.
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Attorney Sentenced to Three Years in Prison, Fined $250,000 for Impeding the IRS
On April 17, 2009, in Salt Lake City, Utah, Thomas Wood, a practicing attorney from Cottonwood Heights, Utah, was sentenced to 36 months in prison and fined $250,000 for corruptly endeavoring to impede the Internal Revenue Service and failing to file federal income tax returns for two years. Wood was also ordered to pay $56,852 in restitution to the United States Treasury. According to the indictment and evidence presented at trial, from 1998 through 2002, Wood helped two individuals, Glenn Ambort and John Benson, hide millions of dollars in income. In those years, Ambort and Benson were awaiting trial in a federal prosecution for conspiracy to commit tax fraud. While assisting in their defense, Wood used several bank accounts that he held in trust to hide millions in income that Ambort and Benson were taking from the MyCor Investment Club. To facilitate the use of this income without drawing the attention of tax authorities, Wood used non-interest bearing domestic trust accounts to receive and disburse funds, including one in the name of The Family Foundation, an entity he formed to help support the Goodman family, a popular singing group at the time. Wood also opened up and managed the use of offshore debit card accounts in the Bahamas for himself and others. Evidence showed that Wood had not filed a tax return since the 1980s. In the two years for which he was prosecuted, 2000 and 2001, his gross income was more than $180,000 and $56,000, respectively. The income came primarily from investor funds under his control in his nominee trust accounts that he used to pay for personal expenses.
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Georgia Woman and Co-Conspirator Sentenced in Tax Conspiracy
On April 15, 2009, in Atlanta, Ga., Jacqueline Ann Demer, of Gainesville, Georgia, was sentenced to 63 months in prison, to be followed by three years of supervised release, and ordered to pay $315,829 in restitution and to pay a $15,000 fine. Her co-conspirator, Jerry Robert Lahr, of Hurst, Texas, was sentenced to 37 months in prison, to be followed by three years of supervised release, and ordered to pay $1,115,444 in restitution. In addition, Lahr has also filed corrected income tax returns through the current tax year. In December 2008, Demer was convicted by a trial jury on charges related to a scheme to impede the Internal Revenue Service (IRS) in its collection of income taxes. Lahr pleaded guilty in December 2008 to conspiracy to impede the IRS. According to information presented in court: Between December 2001 and 2006, Demer performed banking and clerical services for Lahr. Demer, using the alias “Jessica Dalton,” mailed five false and fictitious obligations, captioned “Bond[s] to discharge attachment for debt,” to the IRS in October 2003. These false bonds were submitted as purported payment of Lahr’s tax liabilities, penalties, and interest for the years 1996 through 2000. Lahr had gross income totaling approximately $2,600,000 for tax years 1996 through 2003, but didn’t file federal income tax returns or make any payments to the IRS for those tax years. Lahr and Demer conspired to conceal Lahr’s assets, income, and expenditures through the use of bank accounts and shell “trust” entities, all in nominee names. The evidence at trial also established that Demer used at least 30 different business names and post office boxes in seven different locations, some of which were opened with a fraudulent identification card in the name of her alias, Jessica Dalton. Additionally, Demer served as the trustee for various shell entities set up to conceal Lahr’s ownership of assets, such as real property and automobiles. Evidence also showed that Demer had not filed a federal tax return since at least 2002.
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Little Rock Attorney Sentenced for Aiding and Abetting Tax Evasion
On April 14, 2009, in Little Rock, Ark., Barry J. Jewell, an attorney, was sentenced to 30 months in prison, to be followed by three years of supervised release, and ordered to pay a $25,000 fine and to pay $4,202 to cover a portion of the cost of prosecution. Jewell was found guilty by a trial jury on September 19, 2008, of causing his clients to file a tax return with the Internal Revenue Service (IRS) under-reporting their actual income for the year by approximately $1.8 million. According to court documents, Jewell created a fraudulent business transaction to substantiate the false return, which resulted in a tax loss to the government of over $700,000. Jewell created a profit sharing trust in which to conceal income from the IRS.
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Former Senior Manager at KPMG, Former Partner at KPMG, and Partner in Law Firm Sentenced in Tax Shelter Fraud Case
On April 1, 2009, in Manhattan, N.Y. John Larson, Robert Pfaff, and Raymond J. Ruble, aka R.J. Ruble, were sentenced on charges stemming from a scheme to design, market and implement fraudulent tax shelters that were used to evade more than a billion dollars in taxes due by their tax shelter clients. Larson, a former senior manager at KPMG, was sentenced to 121 months in prison and ordered to pay a $6 million fine; Pfaff, a former partner at KPMG, was sentenced to 97 months in prison and ordered to pay a $3 million fine; and Ruble, a partner at the law firm of Brown & Wood, was sentenced to 78 months in prison. In addition to the prison terms and fines, Larson and Pfaff are to serve three years of supervised release; Ruble is to serve two years of supervised release. The Judge scheduled a hearing in June 2009 to determine restitution. All three defendants had been found guilty on December 17, 2008, following a ten-week jury trial, of multiple counts of tax fraud. According to court documents, Larson and Pfaff were the founders and partners in Presidio Advisory Services, which purported to be an “investment advisor” for various tax shelter products. Trial evidence showed that from at least 1998 through 2000, Larson, Pfaff and Ruble were involved in the design, marketing, and implementation of a tax shelter known as BLIPS. The defendants represented that BLIPS could be used to completely eliminate either the capital gains or ordinary income tax of tax shelter clients who had at least $20 million in income in that year, purporting to eliminate millions of dollars in taxes otherwise due and owing. The Court found, as relevant to sentencing, that all of the BLIPS tax shelters combined resulted in a tax loss to the U.S. Treasury of almost one billion dollars.