Accounting
Tax Fraud Blotter: Negative waves
Seeking shelter; please be Gentle; where the heart is; and other highlights of recent tax cases.
Nixa, Missouri: Tax preparer Tina Louise Yager has pleaded guilty to making false and fictitious claims against the U.S. and to wire fraud.
Yager used clients’ information to present false returns to the IRS from November 2023 through March of 2024, submitting returns in the name of her clients without their knowledge or approval. She also included unapproved deductions to inflate refunds and then pocketed the money using debit cards.
The intended losses amounted to $48,481, but Yager was able to embezzle only $16,850.
Yager must pay restitution of at least $14,447 to the IRS, the exact amount to be determined at her sentencing. She agreed to the court-entered forfeiture judgment of $16,850.
She faces up to 25 years in prison.
Orlando, Florida: Medical equipment manufacturer Roger Whitman, 76, has been sentenced today to two months in prison for evading nearly $2.4 million in taxes on income he earned from his business.
Whitman manufactured and sold Rife machines, devices that use energy waves to purportedly treat a wide range of medical conditions. Between 2002 and 2018, he generated millions of dollars in gross receipts sales.
Whitman also has not filed an individual income tax return since 1997 and has made no tax payments since 2000. In 2012, the IRS assessed nearly $800,000 in taxes against Whitman for 2002 through 2009 and began trying to collect.
In response, Whitman formed a trust with his girlfriend as the trustee then directed his income from the business into the trust’s bank accounts and used the money to pay personal expenses. Around July 2019, to further thwart IRS efforts, he formed a new entity to operate his business.
He was also ordered to serve a year of supervised release and pay $2,314,220.15 in restitution to the IRS.
Delray Beach, Florida: Financial advisor Stephen T. Mellinger III, was sentenced to eight years in prison for orchestrating a nearly decade-long scheme to promote an illegal tax shelter and to steal client funds.
Mellinger, who
The payments were circular, designed to give the appearance of genuine business expenses. A client would send money to bank accounts controlled by Mellinger and his conspirators, who sent the money, minus a fee, to a different bank account that the client controlled. Tax shelter participants retained control of the money they transferred while falsely deducting the transfers as business expenses.
In total, Mellinger and his co-conspirators helped clients prepare returns that claimed more than $106 million in false deductions, causing a tax loss to the IRS of some $37 million. Mellinger and a co-conspirator, who was a relative, collectively earned approximately $3 million in fees from the scheme.
In January 2016, Mellinger learned that several of his clients were under investigation and that the United States had started seizing their funds. Mellinger and the relative subsequently stole more than $2.1 million from some of the clients, a portion of which Mellinger used to buy an area home.
Mellinger was also ordered to serve three years of supervised release and to pay some $37 million in restitution to the United States.
San Jose, California: Chiropractor Tae Hyun Lee, 62, has pleaded guilty to aiding and assisting in the preparation and presentation of a false return for 2019.
Lee is a self-employed chiropractor and sole owner and operator of Gentle Chiropractic Care. He hid income generated by his practice from his tax preparer and from the IRS. In 2018, 2019 and 2020, Lee cashed more than $1.4 million in checks payable to his chiropractic practice at a check cashing business rather than depositing them into the practice’s bank account; he also deposited checks and e-payments into his personal bank accounts.
Lee then told his preparer for those three years that all the practice’s income had been deposited into the practice’s bank account, resulting in Lee’s tax due being under-reported, causing a tax loss to the IRS of at least $439,028.
Roanoke, Virginia: Two men have been sentenced to prison for wire and tax fraud to obtain title to a $1.3 million home. Herman Estes Jr. of Fieldale, Virginia, was sentenced to 84 months in prison; his co-conspirator Daniel Heggins of Charlotte, North Carolina, was sentenced to 24 months.
Estes filed a false amended income tax return for 2021 claiming he was entitled to a refund of $18.3 million. In March 2023, Estes made a $1.3 million cash offer for a local property. He provided a proof of funds letter that he’d created using an online form and provided the real estate agent with contact information for Heggins, whom he claimed was his trust manager with authority to approve the cash offer. When the real estate agent contacted Heggins, the latter purported to approve use of his trust funds to buy the house.
As payment, Estes used a fraudulent cashier’s check for $1,307,199.43 signed by him and purportedly drawn off a Federal Reserve Bank. Funds in that amount were debited to the settlement company’s trust account before the check was flagged as fraudulent.
In March 2023, Estes filed another false return claiming he was entitled to a $2.9 million refund.
Both Estes and Heggins were also ordered to serve three years of supervised release.
Lawrence, Massachusetts: Kathleen Mannion, 58, a former IRS employee, has pleaded guilty to filing false returns to fraudulently obtain refunds and to stealing Social Security benefits.
From 1998 to 2009, Mannion worked as an IRS contact representative in Andover, Massachusetts. Between around July 2020 through April 2023, she prepared and filed income tax returns for other individuals with the IRS, though she did not list herself as the preparer. Instead, Mannion prepared the returns to appear as if the taxpayers prepared the returns on their own.
Mannion also listed ineligible dependents on the returns, resulting in inflated and undeserved refunds, all without knowledge of the taxpayers. Mannion also filed forms with the IRS directing that a portion of the fraudulent refunds be deposited in her personal bank accounts.
Between April and October 2020, Mannion also applied for Social Security benefits via telephone for other individuals. Unknown to these beneficiaries, Mannion directed the benefits into her personal accounts.
Aiding and assisting the preparation and filing of a false return carries a sentence of up to three years in prison, a year of supervised release and a fine of up to $250,000. Theft of government money provides for up to 10 years in prison, three years of supervised release and a fine of $250,000.
Sentencing is Sept. 3.
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