Tax Fraud Blotter: Way off the books

Accounting

A crook named Kusok; more holes than a Swiss cheese; anti-social media; and other highlights of recent tax cases.

New York: International fugitive Anton Bogdanov, a citizen of Russia, has been sentenced to five years in prison for wire fraud conspiracy and computer intrusions in connection with a scheme in which he and others hacked into tax prep firms, stole personal information, used that information to file federal returns and fraudulently attempted to obtain more than $1.5 million in refunds.

Bogdanov was arrested in Bangkok in 2018, extradited to the U.S. in 2019 and pleaded guilty in January 2020.

Between June 2014 and November 2016, Bogdanov, who used the online name “Kusok,” and his conspirators stole such personal ID information as Social Security numbers and the dates of birth of victims by gaining unauthorized access to the computer systems of U.S. tax prep firms. Bogdanov and his conspirators then changed the return information so that the refunds were paid to prepaid debit cards that they controlled. Similarly, Bogdanov and his conspirators also used stolen information to obtain prior filings of victims from the IRS Transcript System website and filed new returns, purportedly on behalf of the victims, so refunds were paid to prepaid debit cards under their control.

The debit cards were cashed out in the U.S. and a percentage of the proceeds wired to Bogdanov in Russia.

The court also ordered him to pay $476,713 in forfeiture.

New York: Swiss Life Holding AG, Swiss Life (Liechtenstein) AG, Swiss Life (Singapore) Pte. Ltd., and Swiss Life (Luxembourg) S.A. have entered into deferred prosecution agreement for criminal misconduct and agreed to pay more than $77 million concerning an offshore insurance scheme.

The Swiss Life entities were charged with conspiring with U.S. taxpayers and others to conceal from the IRS more than $1.452 billion in offshore insurance policies, including more than 1,600 insurance wrapper policies, and related policy investment accounts in banks around the world.

The entities agreed to a requirement that they refrain from all future criminal conduct, enhance remedial measures and continue to cooperate fully with further investigations into hidden insurance policies and related policy investment accounts. They also agreed to pay some $77.3 million to the U.S. Treasury, which includes restitution, forfeiture of all gross fees and a penalty. If the entities abide by all terms, the government will defer prosecution for three years and seek to dismiss the charge.

From 2005 to 2014 Swiss Life, through affiliated insurance carriers in Liechtenstein, Luxembourg and Singapore, maintained some 1,608 private placement life insurance policies. The issuance and administration of those policies (a.k.a. “insurance wrappers”) and the related investment accounts were often done in a manner to assist U.S. taxpayers in evading taxes and reporting requirements, and concealing ownership of offshore assets.

Beginning as early as 2008, the PPLI carriers were aware that UBS and other Swiss banks were terminating or reevaluating their business relationships with U.S. clients in response to increasing offshore tax enforcement. Certain management and sales personnel of the Swiss Life PPLI unit viewed these developments as a business opportunity to onboard U.S. clients who were fleeing UBS and other Swiss banks. Because Swiss Life rather than the U.S. policyholder and/or ultimate beneficial owner of the assets would be identified as the owner of the policy investment accounts, the insurance wrapper policies could be and were used by U.S. taxpayers to hide assets and income and evade taxes.

Among other infractions in which Swiss Life engaged, the entities helped hide U.S. nexus, dodge detection by U.S. authorities and engaged in “parking” funds in a Swiss Life policy until the clock had run out on the perceived statute of limitations for tax offenses.

Swiss Life Holding will pay $77,374,337, including $16,345,454 in restitution to the IRS.

Albany, Georgia: Tax preparer Candace Roberts has pleaded guilty to preparing false returns for clients.

Between 2012 and 2017, Roberts worked as a preparer and manager at Rogers Tax Service. Over five years she inflated clients’ refunds by fraudulently claiming American Opportunity Credits, education credits and business income.

Roberts caused a total tax loss to the IRS of more than $700,000.

She faces a maximum of three years in prison, as well as a period of supervised release, restitution and monetary penalties.

Senatobia, Mississippi: A federal court has permanently enjoined tax preparer Kathy R. Moton from preparing returns for others and from owning, operating or franchising any prep business in the future.

Moton and K&M Tax Essentials consented to entry of the injunction, the terms of which require that Moton and K&M Tax Essentials send notice of the injunction to each person for whom they prepared returns, other tax forms or claims for refund after Jan. 1, 2018, and to advertise the injunction on social media for one year. The civil complaint alleged that the loss to the U.S. Treasury exceeded $1 million.

Dix Hills, New York: Accountant James G. Guerra, 59, has been sentenced to three years of probation, the first two months of which he must spend in home confinement, for a felony tax offense.

Guerra worked as an accountant for Bruno DiFabio, an owner of several pizza restaurants in Connecticut and New York. DiFabio and his businesses engaged in a practice whereby cash was removed from the cash registers and not deposited into the restaurants’ operating bank accounts, and Guerra knew that DiFabio had a practice of paying his employees in cash. Although Guerra was aware that DiFabio was failing to collect withholding taxes from his employees and not paying over these taxes to the IRS, Guerra reviewed and approved DiFabio’s quarterly returns.

DiFabio, Steven Cioffi (a partner in some of DiFabio’s restaurants) and bookkeeper Idalecia Lopes Santos all previously pleaded guilty and have been sentenced.

Guerra, who previously pleaded guilty, was also ordered to perform 100 hours of community service.

Norwalk, Connecticut: Financial exec Robert T. Colgan has pleaded guilty to a federal tax offense.

Colgan controlled a business known as Colgan Financial Group and employed a bookkeeper, as well as a tax preparer to assist in preparing both the company’s corporate returns and his personal income tax returns. Colgan used business funds to pay personal expenditures but directed his bookkeeper to record the payments as a loan in the company’s books.

Colgan’s personal income tax returns for the 2013 through 2017 tax years underreported his income and resulted in a tax loss of more than $250,000. He pleaded guilty to one count of filing a false tax return, which carries a maximum sentence of three years in prison.

Wichita, Kansas: Tax preparer Sonia Hernandez-Smith, a.k.a. Sonia Raquel Vazquez, has been sentenced to 18 months in prison for defrauding the IRS out of more than $100,000, according to reports.

News outlets said she previously pleaded guilty to one count of making false statements in a federal tax return and in exchange for the plea, prosecutors dropped 19 other counts. She reportedly admitted that she prepared income tax returns that claimed credits for children even though her clients were ineligible.

She must also serve a year of supervised release and pay $105,050 in restitution, reports said.

New Bern, North Carolina: Tax preparer Priscilla Evans, of Rocky Mount, North Carolina, has been sentenced to two years in prison and ordered to pay $229,000 in restitution for committing conspiracy to prepare and file false returns.

Evans, who pleaded guilty last summer, conspired to file false returns for the 2011 through 2016 tax years for clients of Community Tax Services. Evans and her conspirators filed returns that claimed false education credits, among other illegitimate items, to fraudulently generate clients’ refunds.

The IRS said the fraud resulted in a loss of more than $2 million.

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