Accounting
Tax Fraud Blotter: No Alternative
Table disservice; down on the farm; a barebones job; and other highlights of recent tax cases.
Miami: Tax preparer Juan Mendieta has been sentenced to 57 months in prison after pleading guilty in October to one count of criminal conspiracy and four counts of aiding and assisting the preparation of false returns.
Beginning in 2019 and continuing through at least 2023, Mendieta conspired to prepare fraudulent returns for clients by using false business losses and expenses. These false items resulted in inflated federal refunds.
For multiple clients, he prepared two sets of returns. One set directed certain federal refunds to Mendieta’s clients; Mendieta provided this set to clients and told them he would file these returns with the IRS. Instead, he filed a second set of returns that directed even greater refunds to bank accounts that he and a conspirator controlled.
The IRS has identified at least 29 tax filings that fraudulently inflated refunds, which Mendieta filed on behalf of at least 13 clients. The IRS is entitled to more than $11 million in restitution.
Boston: Restaurateur John Drivas, of Hampton, New Hampshire, has been sentenced to a year and a day in prison, to be followed by a year of supervised release, for defrauding the IRS of federal employment taxes and the Massachusetts Department of Revenue of state meals taxes.
Drivas, who pleaded guilty in September, owned and operated three restaurants in Salem and Peabody, Massachusetts, and in Seabrook, New Hampshire. He was the sole shareholder of the Salem restaurant until he sold it to an employee in 2022, the 100% owner of the Peabody restaurant with his wife and the 52% owner of the Seabrook restaurant with his children.
From at least January 2017 to June 2022, Drivas paid under-the-table wages of $1,496,417 to multiple restaurant employees and did not report those wages to the IRS or pay employment taxes on them, causing more than $439,000 in employment tax losses.
He also collected the state and local meals taxes paid by restaurant customers, which he failed to pay over to the state: In Massachusetts, owners and operators of restaurants and bars are required to collect 6.25% sales taxes on meals. Salem and Peabody also require restaurants and bars to collect an additional 0.75% local option meals excise tax. Although Drivas collected the taxes from restaurant customers, he intentionally withheld $1,596,775 of those taxes from monthly reports and payments owed to Massachusetts.
Drivas was also ordered to pay restitution of $1,596,775 to the state and $439,341 to the IRS, in addition to a $20,000 fine.
Los Angeles: Area resident Kevin J. Gregory has pleaded guilty to seeking more than $65 million by falsely claiming that his non-existent farming business was entitled to pandemic-related tax credits.
From November 2020 to April 2022, he made false claims to the IRS for the payment of nearly $65.4 million in tax refunds for a purported Beverly Hills-based farming-and-transportation company named Elijah USA Farm Holdings. The IRS issued a portion of the refunds Gregory claimed, and he used that portion — more than $2.7 million — for personal expenses.
Specifically, in January 2022 Gregory made a false claim to the IRS for the payment of a tax refund of $23,877,620, which he submitted as part of Elijah Farm’s quarterly federal return. He claimed that Elijah Farm employed 33 people, paid nearly $1.6 million in quarterly wages, had deposited nearly $18 million in federal taxes and was entitled to nearly $6.5 million in COVID-relief tax credits. In fact, Elijah Farm had no employees and paid wages to no one and had not made federal tax deposits in the amounts stated.
Sentencing is May 16. Gregory, who’s been in federal custody since May 2023, faces up to five years in prison.
Jacksonville, Florida: Jose Molina-Herrera, of Honduras, has been sentenced to 27 months in prison for conspiracy to commit wire fraud and conspiracy to defraud the U.S. for the purpose of impeding the IRS.
Between 2019 and 2020, Molina-Herrera conspired to facilitate payment of construction workers off the books to avoid paying payroll taxes and premiums for workers’ compensation insurance. Construction contractors and subcontractors entered arrangements with the conspirators through which All National Remodeling, a shell company formed by Molina-Herrera, facilitated both the distribution of proof of insurance and the payment of workers with cash.
In exchange for 6% to 8% of the contractors’ and subcontractors’ payroll, Molina-Herrera and others caused the distribution of certificates of liability insurance in the name of All National, which contractors and subcontractors then used as nominal proof that workers were supposedly insured. In reality, All National Remodeling’s insurance policy was issued based on a fraudulent application that never disclosed that contractors and subcontractors would be employing workers who were ostensibly insured under the shell company’s barebones insurance policy. The insurance company was defrauded of more than $2.2 million.
Molina-Herrera and others also facilitated deposit of checks into the shell company’s bank accounts as well as the withdrawal of cash to be paid to workers, all without withholding, or paying over, payroll taxes to the IRS. Through these arrangements with the conspirators, the construction contractors and subcontractors could disclaim responsibility for withholding and paying payroll taxes to the IRS or ensuring that the workers were legally authorized to work in the United States. By facilitating payments to workers of more than $14 million without payroll taxes being withheld, Molina-Herrera and his co-conspirators caused the U.S. Treasury to lose more than $3.5 million in tax receipts.
Molina-Herrera, who pleaded guilty in November, was also ordered to forfeit $867,005, the proceeds of the wire fraud, and was ordered to pay $3,558,579.42 in restitution to the IRS. One co-conspirator, Oscar Molina-Avila, was
Agate, Colorado: Businesswoman Shandel Arkadie has pleaded guilty to not paying employment taxes.
Arkadie operated Alternative Choice Home Care Nursing and was responsible for withholding Social Security, Medicare and income taxes from employees’ wages and paying those funds over to the IRS each quarter. She was also responsible for paying over Alternative’s portion of Social Security and Medicare taxes.
Between January 2015 and December 2020, the company withheld more than $1 million from employees’ wages but did not pay the funds over to the IRS or file the quarterly returns. The company also owed some $500,000 in Social Security and Medicare taxes that Arkadie did not pay.
In total, she caused a tax loss to the IRS of some $1.5 million.
Sentencing is May 15. She faces a maximum of five years in prison, a period of supervised release, restitution and monetary penalties.
Cogan Station, Pennsylvania: Businessman James Michael Barr has been sentenced to time served plus two years of probation, including 10 months of home confinement, for failing to pay employment taxes owed by his construction company.
Barr pleaded guilty in July to failing to account for and pay over employment taxes owed by Barr Construction from 2017 through 2020. In addition to a normal paycheck from which taxes were withheld, Barr also paid his employees in cash and did not withhold federal taxes from the cash payroll or remit taxes to the IRS.
The sentence also imposed a $5,000 fine and required Barr to make $337,000 in restitution to the IRS, plus penalties.
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