Tax Fraud Blotter: Fallen angels

Accounting

Could be a long haul; Boston illegal; down the drain; and other highlights of recent tax cases.

East Providence, Rhode Island: Michael Chaves, owner of an automobile transport company, has been sentenced to 30 months in prison for taking evasive steps to avoid paying personal federal income taxes owed to the IRS, falsifying U.S. Department of Transportation Federal Motor Carrier Safety Administration records, using another person’s personal ID information to continue to illegally operate his business after being ordered to shut down, and fraudulently obtaining more than $400,000 from various financial institutions.

Chaves continued to operate a fleet of auto transport trucks after having been cited for, among other things, allowing drivers to operate without a current or properly classified license; failing to maintain certifications that drivers were medically able to drive; failing to implement a driver alcohol or controlled substances testing program; and allowing drivers to exceed the maximum number of hours of driving allowed under the law.

Among other crimes, Chaves utilized another person’s personal ID information to continue to illegally operate the business after being ordered to shut down, and fraudulently obtained more than $400,000 from various financial institutions by providing fraudulent earning statements, tax returns, motor vehicle purchase contracts and Department of Motor Vehicle documents.

He also took steps to evade income taxes by, among other things, commingling business and personal expenses; using a check casher to divert third-party income; creating fraudulent third-party checks and cashing them using a check casher, rather than a bank; and maintaining approximately 15 different bank accounts using at least five different company names.

He was also ordered to serve three years of supervised release. A restitution order will be forthcoming.

Rock Springs, Wyoming: CPA Paul Edman has pleaded guilty to aiding or assisting in the preparation of a false document filed with the IRS.

In April 2015, Edman willfully counseled taxpayers in the preparation of 1040s for calendar year 2014, knowing the 1040 was false.

Edman faces a prison sentence of up to three years, up to one year of supervised release and a fine of up to $100,00. Sentencing is June 1.

Joliet, Illinois: Juan C. Hurtado, owner of five Chicago-area Pepe’s Mexican Restaurant franchises, has pleaded guilty to filing false corporate tax returns that underreported some $2.5 million in gross receipts and sales.

Hurtado owned Pepe’s franchises in Chicago, Tinley Park, Hickory Hills, Matteson, and Chicago Heights. He admitted that from 2016 to 2018 he caused the filing of 11 materially false corporate federal returns, as well as materially false sales and income tax returns with the State of Illinois that underreported the gross receipts and sales of his restaurants by a total of some $2.5 million. Hurtado further admitted that he created false sales reports and gave them to his accountants.

He faces up to three years in prison. Sentencing is June 7.

Charlotte, North Carolina: Preparer Aminta Smith has been sentenced to 30 months in prison, followed by a year of supervised release.

Smith owned and operated the prep business Touch by Angels Tax Services, a.k.a. Touch by Angels Accounting Services and Smith Tax & Insurance Group. Between 2011 to 2016, Smith prepared income tax returns for clients that claimed false education credits, false W-2 wages and false Schedule C businesses to inflate the federal refunds.

She also falsified her own income tax returns by underreporting the fees she earned in her prep business for tax years 2011 to 2015, and in some years failing to disclose that she was engaged in the operation of a prep business.

She caused a tax loss to the IRS of more than $1 million.

Smith, who was convicted in 2019, was also ordered to pay $171,017 in restitution.

Boston: The owner of several bogus charitable organizations in Georgia has pleaded guilty to filing false returns.

Taressa Hightower of Grayson, Georgia, ran two nonprofits that purported to serve underprivileged children in the Atlanta area. From about 2010 to 2015, Hightower received more than $650,000 in ostensible donations from a bank in Boston where Palestine Ace, the wife of Hightower’s family member Jonathan Ace, worked.

The monies Hightower received were the proceeds of a separate embezzlement scheme carried out by Palestine and Jonathan Ace. As a condition of receiving these “donations,” Hightower agreed to return about 25 percent to Palestine and Jonathan Ace as a kickback.

Hightower spent most of the money on personal expenses unrelated to any charity work. For tax years 2013 and 2014, Hightower filed false personal and organizational returns in connection with the purported donations. Each year, Hightower reported significant amounts of non-existent or inflated business expenses.

In 2018, Palestine and Jonathan Ace were convicted of embezzlement and sentenced to prison.

The charging statute on Hightower provides for up to three years in prison, a year of supervised release and a fine of $250,000. Sentencing is July 12.

Cadillac, Michigan: Business exec Douglas Arvin Horning has pleaded guilty to tax evasion.

Horning has not filed an individual return since 2008 or a corporate return since 2006 for his software company Perfect Professionals Inc., d.b.a. Compass Technologies. He has not paid any individual or corporate taxes since that time. Horning also failed to pay all of the required payroll taxes withheld from his employees’ paychecks.

Horning concealed income by routing it through a second company — even after that company was dissolved by the State of Michigan — failing to disclose the company’s bank account to the IRS and not including that income on the W-2s he issued to himself through Perfect Professionals. He likewise received unreported income by paying personal expenses using Perfect Professionals.

For criminal tax purposes, Horning owes the IRS $977,983, covering corporate and individual taxes for tax years 2012 through 2016 and payroll trust fund taxes for 2006 through 2019.

He faces up to five years in prison when sentenced later this year.

Max Meadows, Virginia: Landlord Matthew Wood Ridgaway has pleaded guilty to a federal felony of willfully filing a false return.

For tax years 2014 through 2016, Ridgaway failed to disclose on his 1040s more than $130,000 in payments he received as rental income from properties he owns.

Ridgaway faces a maximum of three years in prison or a fine of $250,000, or both. Sentencing is June 17.

Great Falls, Montana: Plumbing exec Thomas O’Connell has pleaded guilty to employment tax fraud.

O’Connell owned and operated three plumbing businesses and from at least 2005 through 2016 did not pay federal employment taxes for several quarters. Instead, he directed payments to other creditors and to his personal expenses.

The federal tax loss from O’Connell’s conduct totaled more than $550,000.

Sentencing is June 24, when he faces a maximum of five years in prison, a period of supervised release, restitution and monetary penalties.

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