Tax Fraud Blotter: General Evil

grain of truth books with covers; skin game and other important facts of other recent tax cases.

Houston: A federal court has permanently enjoined tax preparer Hollins Ray Alexander from preparing federal tax returns for others and from owning, operating or franchising a tax preparation business in the future.

Alexander prepared returns on which he overstated his clients’ reimbursements by falsifying deductions or falsifying credits.

The order requires Alexander to send notices to each person for whom he prepared a federal return and to post the orders in places where he does business, including on social media accounts and websites. It also allows the United States to conduct post-judgment discovery and requires Alexander to disgorge $165,940.

Key West, Florida: Tax preparer Abel Raphael, 65, was sentenced to 18 months in prison followed by one year of supervised release and ordered to pay nearly $150,000 in restitution for aiding and abetting the preparation and filing of false tax returns.

Raphael, who pleaded guilty in October, operated Abel Income Tax Service Inc. and admitted he obtained EFINs for e-filing federal returns on behalf of others. He prepared returns using false deductions and credits.

Fremont, California: Businessman Roger Chee Quan, 55, of Milpitas, California, He pleaded guilty to underreporting more than $4 million in 2017 business income.

Quan owned and operated QXQ Inc., a manufacturer of circuit test equipment that shipped products to the US and Asia. He admitted that prior to 2014, QXQ maintained two sets of QuickBooks accounting files, one to record sales to customers in the United States and all of QXQ’s expenses, and one to record sales to customers in Asia; Quan directed QXQ’s customers in Asia to make payments to QXQ’s bank accounts in New Zealand.

He admitted that he provided his tax preparer only with a US-related QuickBooks file. Kwan also admitted that he did not provide his creator or disclose the existence of an accounting file that recorded QXQ’s sales to customers in Asia or from his and QXQ’s foreign accounts.

He also admitted that he had signature authority on at least 11 foreign bank accounts in 2017, one of which had a balance of at least $12,137,288.50. Quan admitted that he had knowingly failed to report the existence of these accounts.

Quan agreed that his actions resulted in a $1,783,339 understatement of his 2017 federal income taxes. He agreed to pay $8,167,733 to the IRS.

The verdict is on September 25.

Albuquerque, New Mexico: Businessman David Wellington pleaded guilty to conspiracy to defraud the US

In 2005, Wellington and his business partner, Stacey Underwood, also of Albuquerque, founded National Business Services LLC, which was involved in the promotion, sale and formation of LLCs under New Mexico law. Through the national business, Wellington and Underwood created LLCs in New Mexico for their clients, obtained EINs, and opened bank accounts in the names of the LLCs, allowing their clients to remain anonymous. Between 2005 and 2015, Wellington and Underwood organized at least 192 LLCs in New Mexico and opened at least 114 bank accounts.

In 2006, the couple formed three LLCs in New Mexico for Jerry Schrock of Meadowview, Virginia. Underwood was listed as the “arranger” and National Business as the initial registered agent for all three. In 2011, Underwood opened a bank account for one of the LLCs and provided Schrock with online access to the account and a pre-signed checkbook. Between 2011 and 2015, $4,875,940 was deposited and withdrawn from the account.

At the time, Schrock had an outstanding IRS assessment for unpaid taxes, penalties and interest of about $1 million. Schrock never filed a federal personal or business return, allowing him to generate and report income while avoiding personal and business taxes.

Wellington faces up to five years in prison, followed by three years of supervised release. Underwood and Shrock both previously pleaded guilty and face up to five years in prison and up to three years of supervised release.

Spring Branch, Texas: Retired Air Force Brigadier General Scott A. Bethel, 59, was sentenced to one year and one day in prison and three years of supervised release for wire fraud and filing a false return.

Bethel began working as a government contractor and Air Force consultant after leaving active duty in 2012. He started his own business dealing directly with government employee contracts while simultaneously working for his contract employer.

Bethel sought hotel reimbursements from both his employer and the government, submitted false hotel invoices, such as when he stayed with personal acquaintances rather than hotels, and received approximately $15,140.50 from the Air Force to which he was not entitled.

He also falsified charitable deductions and business expenses from 2015 to 2019, resulting in a tax loss of approximately $139,687.00.

Bethel was also ordered to pay $154,827.50 in restitution.

Indianapolis: Dermatologist David Gerstein was sentenced after pleading guilty to filing false income tax returns.

Between 2017 and 2020, he was taxed at least $1.2 million and avoided $360,669 in income taxes.

Gerstein lied to his accountant that all the income from his medical practice went into a single business bank account and that he only provided records to the accountants from that account. Gerstein actually had hidden accounts where he collected business income, including checks from patients, insurance providers and Venmo payments. He also broke cash deposits of more than $10,000 and made several cash deposits on the same day.

Sarasota, Florida: Restaurateur Madeline Nicholson pleaded guilty to conspiracy to defraud the United States and obstructing and obstructing the IRS in the determination and collection of personal and corporate income tax returns.

Beginning at least in August 2013, Nicholson and his partner and co-owner of the restaurant systematically defrauded the IRS by falsifying the daily cash sales records from the restaurant’s point-of-sale records. Credit card sales only. They falsified and removed any reference to $726,105 in sales from 2016, 2017 and 2018, resulting in over $100,000 in taxes.

Nicholson faces up to five years in prison.

Milwaukee: Qasim Khan, a consultant who helped secure international business deals for clients, pleaded guilty to filing false returns.

Khan owned and operated Global Focus Partners LLC, a consulting business through which he successfully negotiated contracts between the Kingdom of Saudi Arabia and other businesses in the US and abroad. Between 2015 and 2017, he reported his income from US-based businesses, but failed to report more than $350,000 in payments from companies in the United Kingdom and the Kingdom of Saudi Arabia. In all, Khan’s multi-year scheme to exclude foreign income from his tax returns resulted in a tax loss to the IRS of approximately $127,306.

He will be sentenced on August 15, when he faces a maximum of three years in prison, as well as supervised release, restitution and fines.

Sigourney, Iowa: Mark Lynn Haynes, a seed dealer, pleaded guilty to mail fraud and conspiracy to defraud the US.

He conspired to commit fraud and money laundering from 2015 to 2018 by selling grain as organic when the grain was grown in violation of the USDA National Organic Program. Haynes used treated seeds, which is prohibited, and concealed his violation.

Haynes also conspired to obstruct and obstruct the IRS in the assessment and collection of income taxes. Between April 2017 and April 2019, he obtained false invoices, post-dated checks and cashed checks to represent an expense that was not actually incurred.

The verdict is on August 18.

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