Tax fraud investigations are the main component of IRS Criminal Investigation’s efforts to foster voluntary compliance with the tax laws. Many of these investigations include white-collar financial crimes in legal industries and involve individuals from all facets of our economy. Special agents of IRS Criminal Investigation have investigated and recommended to the Department of Justice for prosecution several people involved in the construction industry. These investigations vary from tax evasion to employment tax fraud to money laundering conspiracies.

IRS Criminal Investigation
Construction Industry Statistics

Case Summaries

The following case summaries are excerpts from public record documents on file in the court in the judicial district in which the cases were prosecuted:

Colorado Man Sentenced to Federal Prison for Currency Structuring

On September 23, 2010, in Anchorage, Alaska, Esteban Lane Stubbs, of Kremmling, Colorado, was sentenced to 12 months in prison, three years of supervised release, and was ordered to forfeit $336,753. Stubbs pleaded guilty to one count of structuring a financial transaction. According to court documents, Stubbs owned Stubbs Enterprises, doing business as Lobo Drywall, which he operated in the greater Anchorage area. Stubbs employed undocumented aliens for drywall labor who were not lawfully permitted to work in the United States. Stubbs paid them sub-market wages in cash and failed to withhold and pay employment taxes due to the United States. These low wages and the absence of costs for income taxes, employment taxes, worker’s compensation, unemployment insurance, and other benefits paid by legitimate employers allowed Stubbs to underbid fellow contractors and gain a significant share of the drywall business in Anchorage and the Matanuska-Susitna Valley. The defendant acknowledged that to conceal his activities from the federal government, he obtained large amounts of currency by making multiple withdrawals from different branches of First National Bank Alaska. Stubbs knew that a transaction involving more than $10,000 in currency would trigger the filing of a report to the IRS, and he sought to evade the filing of that report. Between November 2004 and January 2007 Stubbs structured withdrawals of $336,753 to pay his employees in cash, thereby evading employment taxes due and owing to the IRS.

New Jersey Contractor Sentenced for Tax Evasion

On July 22, 2010, in Trenton, N.J., Daniel Carlo, owner of a Barnegat, New Jersey, construction company, was sentenced to 12 months and a day in prison to be followed by two years of supervised release. Carlo pleaded guilty in August 2009 to an Information charging him with tax evasion for failing to report $242,764 in income.  According to court documents and statements made in court, Carlo owned and operated a construction company under the name of “Cartar” from his residence in Barnegat. Carlo admitted that in April 2006, he prepared, signed and filed a false 2005 U.S. Individual Income Tax Return which stated that his taxable income for calendar year 2005 was zero.  Carlo failed to report taxable income of approximately $242,764, resulting in approximately $78,792 in tax due and owing.  Carlo admitted that in an effort to hide the unreported income, he deposited client receipts into bank accounts held in the names of his wife and daughter.

Indiana Construction Company Owner Sentenced for Tax Evasion

On July 1, 2010, in Indianapolis, Ind., David W. Pittman, of Greenwood, was sentenced to 12 months in prison, 18 months’ home detention and two years of supervised release following his plea of guilty to income tax evasion. He must also cooperate with the IRS in determining his income tax liabilities.  Pittman, the owner/operator of Pittman Framing, a residential construction framing company, failed to file income tax returns for the years 1994 through 1998.  The IRS assessed the income tax owed by Pittman for each of these years, but he took steps to evade the payment of these assessed taxes.  The total income tax deficiency owed by Pittman is approximately $497,000.  Pittman also failed to file income tax returns for the years 2003 through 2005 and 2007.  The total income owed by Pittman for those years is approximately $48,000.

Former Longview Contractor Sentenced for Mail Fraud, Bank Fraud and Money Laundering

On March 29, 2010, in Tacoma, Wash., Donald Chill, of Marco Island, Florida, a former resident of Longview and Battleground, Washington, was sentenced to 48 months in prison, five years of supervised release and ordered to pay $4.9 million in restitution.  Chill owned Charles Prescott Restoration, a disaster restoration company specializing in rehabilitating real and personal property damaged by fire, flood, wind and vandalism.  The company specialized in making repairs paid for by insurance companies.  In his plea agreement, Chill admitted to submitting inflated billings for the work, and then selling the company without disclosing the fraud.  Chill’s company worked primarily for Mutual of Enumclaw.  According to records in the case, Chill’s company would respond to a damaged site, make emergency repairs and then submit a proposal for comprehensive repairs.  The company used a special computer program authorized by Mutual of Enumclaw that built in 20 percent profit and overhead for the contractor.  Beginning as early as 2004, Chill began inflating the estimates and invoices mailed to Mutual of Enumclaw.  Chill padded bills from sub-contractors, or submitted forged secondary estimates that appeared to be from competitors.  In just ten jobs scrutinized over the last five years, Chill over billed by an estimated $3.2 million.  In one instance detailed in charging papers, Chill billed for $84,000 in purported electrical work when the identified electrical contractor had actually done none of the billed work.  Indeed the electrical contractor’s bill had been entirely fabricated by Chill and submitted to the insurance company. In May 2007, Chill sold the business to another individual.  As part of the sale, Chill certified that the company books and records were true and correct.  Had the bank that financed the sale known of the false billing scheme, or the Small Business Administration (SBA) which guaranteed the loan known of it, they would not have approved the $1.8 million loan to purchase the business.  Chill is charged with bank fraud for that part of the scheme, and he is charged with money laundering for taking those ill-gotten proceeds and using them to purchase an expensive home on Marco Island, Florida.  The home is being forfeited to the United States under the terms of the plea agreement. As part of the plea agreement, Chill will pay Mutual of Enumclaw $3,227,911 in restitution and an additional $1,708,062 in restitution to Wachovia Bank and the SBA who made the loans for the purchaser of Chill’s company.

Miami Resident Sentenced for Filing a False Tax Return

On February 24, 2010, in Miami, Fla., Jesus Mena was sentenced to 12 months and one day in prison, to be followed by one year of supervised release, and ordered to pay $391,714 in restitution to the Internal Revenue Service. Mena pleaded guilty on December 14, 2009 to filing a false U.S. Income Tax Return for an S Corporation.  According to court documents, Mena was the owner of Destiny Erectors, Inc., a construction company in Miami, Florida, that provided labor for the installation of steel concrete reinforcing bars.  During the 2002 through 2004 tax years, Mena cashed a large number of checks for services that Destiny Erectors rendered. These checks were not included on the corporate tax returns of Destiny Erectors.  Mena admitted that he used a portion of these funds to pay his personal living expenses and also used part of the money to pay his employees.  Mena did not report the money cashed from the checks on his personal income tax returns. Court documents also reflect that Mena reported gross receipts of $278,749 on the 2003 Form 1120S U.S. Income Tax Return for an S-Corporation, in the name of Destiny Erectors.  Mena admitted that his corporate tax return did not include the cash that he received when he cashed checks at Hurricane Liquors instead of depositing the checks into the business bank account.  The cashed checks in 2003 totaled approximately $1.4 million.

Missouri Man Sentenced to Prison for Tax Evasion

On February 10, 2010, in Jefferson City, Mo., Leroy Miller was sentenced to12 months and a day in prison, three years of supervised release, 100 hours of community service and ordered to pay nearly $600,000 in restitution to the Internal Revenue Service (IRS). According to court documents, Miller was the principal organizer of a construction framing business, Allied Framing, LLC.  From 2000 to 2005, income received by Miller through Allied was concealed from the IRS, through the use of a system of foreign and domestic trusts.  Income earned by Allied was transferred through the series of trusts into an off-shore bank account in Grenada.  The funds were available to Miller through the use of debit cards, phony gifts or loans.  Miller failed to report the transfer of money to the IRS, or pay the taxes.  Miller also paid some Allied employees through a fraudulent employee leasing firm, American Contracting Services, evading employment taxes for those employees. 

Roofer Sentenced To Prison for Employment Tax Evasion

On February 3, 2010 in Portland, Ore., Philip G. Brill, of Lake Oswego, was sentenced to 12 months and a day in prison, to be followed by three years of supervised release and ordered to pay $314,128 in restitution to the Internal Revenue Service (IRS).  Brill pleaded guilty in July 2009 to a one-count Information charging him with tax evasion. According to court documents, Brill cheated on his employment taxes for his Oregon and SW Washington roofing businesses and lied to the IRS for more than 16 years. Brill used numerous ways to evade the IRS and payment of taxes, including using multiple nominee trust entities through which he hid business income and assets. He also failed to file federal income tax returns for those nominee entities, and extensively used cash in his business operations so there were no bank records tracking his business dealings. In February 2005, IRS special agents executed a search warrant on the offices of trust promoter David Carroll Stephenson in Western Washington, and seized a variety of material pertaining to Brill and his businesses. Files seized during the search warrant showed that Brill joined an abusive trust scheme in 2000, for which he paid nearly $20,000 in start-up fees and consultation fees in order to attempt to evade the payment of his taxes. Stephenson is currently serving a 96-month sentence. After joining the trust scheme, Brill also began disregarding payroll procedures and began paying his employees and himself in cash. Brill conducted all of his other business dealings in cash as well.

Washington State Woman Sentenced for Failing to Pay Employment Taxes

On December 18, 2009, in Seattle, Wash., Michelle L. Bielaski, of Bellevue, Washington, was sentenced to 15 months in prison, two years of supervised release, and ordered to pay $2,478,002 in restitution.  Bielaski pleaded guilty in June 2009, admitting that as secretary and treasurer of Falcon Construction, Inc., she was responsible for failing to send to the Internal Revenue Service taxes that the company withheld from employee paychecks.  The failure to pay over the taxes occurred over a ten year period from 1997 to 2007.  In her plea agreement, Bielaski admitted that the construction company had the ability to pay the withheld taxes over the years and in fact had paid salaries totaling approximately $3.9 million from 1998 to 2007. 

Las Vegas Business Owner Robert Kahre Sentenced To 15 Years in Prison for Tax Fraud Scheme

On November 16, 2009, in Las Vegas, Nev., Robert Kahre and his sister, Lori Kahre, were sentenced to 190 months and 72 months in prison, respectively.  Both were found guilty in August 2009 of conspiring to defraud the federal government for the purpose of impeding the Internal Revenue Service (IRS) in its collection of income and employment taxes. According to information presented in court, between 1997 and 2003, Robert Kahre owned and operated six construction-related businesses in Las Vegas and paid employees over $100 million in cash wages. Additionally, Kahre provided a payroll service to approximately 35 other construction contractors who employed thousands of employees. Robert and Lori Kahre devised and used a payroll scheme that concealed and disguised the true amount of income received by his employees and the employees of the companies for which he provided payroll services. Robert Kahre claimed to pay employees in gold or silver coins, but which were actually immediately exchanged for pre-determined envelopes of cash. The face amount of the coins was one-eighth the amount of pay that the employee actually earned and received in the cash envelope. The defendants told the employees that the income was either not taxable or that they should falsely report their income to the IRS at the face amount of the gold and silver coins. During the course of the scheme, cash wage payments of at least $25 million were paid to Robert Kahre’s employees and cash payments of approximately $95 million were paid to the employees of the other contractors. No federal tax withholdings were made from the paychecks, and the wages were not reported to the IRS. The defendants took steps to hide the correct amount of income paid to the employees by using false invoices, keeping two sets of books, using false names on payroll records, making false statements on mortgage applications, and using nominees to conceal assets. In addition to the payroll scheme, Robert Kahre was convicted of evading personal income tax on approximately $12 million in income for the years 1999 through 2002; Lori Kahre was convicted of evading personal income tax on approximately $242,882 in income for the years 1998 and 2000 through 2005.

Cape Cod Business Owner Sentenced to 21 Months for Tax Fraud

On October 23, 2009, in Boston, Mass., Robert J. Belanger, of Centerville, Mass., was sentenced to 21 months in prison, to be followed by one year of supervised release, and ordered to pay a $25,000 fine. As a condition of his supervised release, Belanger was ordered to cooperate with the Internal Revenue Service (IRS) and pay back taxes.  Belanger was convicted by a trial jury in July 2009, to charges of obstructing the IRS in connection with unreported income from his business. Evidence presented during trial showed that Belanger and his son operated Number One Foundations, a concrete foundation business on Cape Cod. The evidence showed that the Belangers failed to report nearly $500,000 of the gross receipts from the business on their 1999 and 2000 tax returns. Additional evidence showed that Belanger routinely directed his son to deposit only a portion of the customer checks into the business’s bank accounts so that some income from customers would not appear on the business’s bank account statements. Belanger attempted to conceal the business’s unreported income from the IRS by negotiating customer checks to buy treasurer’s checks and by limiting the amount of cash withdrawn to less than $10,000 at a time, thereby avoiding bank reports to the IRS regarding cash transactions and avoiding year-end statements to the IRS reflecting interest from bank accounts. Belanger attempted to mislead IRS agents who interviewed him in connection with the investigation of the business’s taxes.

Owner of Construction Company Sentenced on Tax Fraud and Other Charges

On October 21, 2009, in Philadelphia, Pa., Sean O’Neill was sentenced to 18 months in prison on charges of conspiracy to commit tax fraud, immigration fraud, and other federal charges.  O’Neill was ordered to pay nearly $393,000 in restitution to the Internal Revenue Service (IRS), a $60,000 fine, and a $500 special assessment fee. According to court documents, O’Neill obtained a “green card” by lying about his criminal record, his marriage, and his membership in a prohibited organization.  Additionally, O’Neill admitted that he engaged in a more than 10-year conspiracy to defraud the IRS.  O’Neill, who owns a construction company, a restaurant and bar, and a property development business, paid some of his restaurant and bar employees in cash wages in order to avoid paying the required federal payroll taxes to the IRS.  As a result of the conviction, O’Neill also faces a removal proceeding in immigration court.

Connecticut Businessman Sentenced for Failing to Pay Income Taxes

On October 14, 2009, in New Haven, Conn., Leonard Widman, of Sherman, was sentenced to 12 months and one day in prison, followed by three years of supervised release, and ordered to pay $173,355 in restitution to the Internal Revenue Service (IRS).  Widman pleaded guilty on April 30, 2009, to one count of tax evasion.  According to court documents and statements made in court, Widman owned a sole proprietorship known as Phase II Construction, which performed general contracting services in New York and Connecticut.  Phase II Construction had a business checking account, into which Widman deposited all business receipts and from which he paid both his business and personal expenses using checks and debit card transactions. For the tax years 1997 through 1999, Widman filed false individual income tax returns and made false statements and representations to employees of the IRS.  In a series of interviews with IRS agents in 2003 and 2004, Widman falsely represented the nature of dozens of expenditures made from the Phase II Construction checking account as legitimate business expense. These expenditures included tens of thousands of dollars in payments for an extensive renovation done to Widman’s home, personal gym equipment, marina and boat fees, vacations, and furniture.  In addition, Widman told IRS investigators that he had received loans and gifts of cash from family members and friends, which would be non-taxable sources of income, when, in fact, he had not.    From 1997 to 1999, Widman failed to pay $173,355 in federal income tax and self-employment tax. 

Former New Jersey Developer Sentenced for Tax Evasion; Ordered to Pay Over $17 Million in Taxes, Penalties and Interest

On August 13, 2009, in Newark, N.J. Morton Salkind, the developer of a Morris County condominium community, was sentenced to 12 months in prison, to be followed by two years of supervised release, and ordered to pay a $30,000 fine.  Salkind had previously agreed to pay back taxes, penalties and interest on his individual income taxes of approximately $17 million and to date has paid $11.5 million. Salkind pleaded guilty on May 28, 2009, to tax evasion and admitted that he made false accounting entries in the books and records of Fox Development, Inc., the company that developed the Fox Hills over-55 residential community in Rockaway Township.  According to court documents, Salkind admitted falsely claiming approximately $5.7 million in expenses related to the development of Fox Hills that were never incurred and inflating legitimate project expenses by approximately $136,000. Salkind, who was the Vice President, Secretary and Treasurer of Fox Development, admitted causing the filing of a 2001 Corporate U.S. Income Tax Return that understated Fox Development’s income because of those false accounting entries. In connection with his plea, Salkind agreed to resolve his and his wife’s personal tax liabilities with respect to certain tax years between 2000 and 2005, as well as Fox Development’s tax liabilities for those years.

Southern Illinois Construction Company Owner Sentenced for Tax Evasion

On July 30, 2009, in Benton, Ill., Ricki Lee Jones, of Wood River, Illinois, was sentenced to 15 months imprisonment, two years of supervised release, a $100 special assessment, and $114,654 following his plea of guilty to a one-count Information charging him with tax evasion. The court also ordered restitution totaling $3,642,507, which Jones paid at the time of sentencing. According to information presented in court, Jones was the owner of Triad Industries, Inc., a construction company located in Madison County, Illinois.  Between 2002 and 2005, Triad and is subcontractors performed construction work, in part at the request of a client for the client’s facility. During the calendar year 2003, Jones caused Triad to bill its client for both construction work that Triad and its subcontractors performed for the client and for construction work that Triad and its subcontractors had performed for the benefit of Jones and others. Included in the billing was a 7% mark-up for work performed by sub-contractors. The client paid the invoices that it received from Triad, but the client was not aware that it was being billed for construction work that Triad performed for Jones and others. To carry out his attempt to evade taxes, Jones gave his accountant numerous documents indicating that Triad had invoiced the client for construction work that Triad and its subcontractors had performed. In fact, much of the work for which Triad billed the client was actually work performed by Triad and its subcontractors for the personal benefit of Jones and others rather than for the client.  Jones falsely stated that his taxable income for the calendar year 2003 was $1,738,882, and that the amount of tax due and owing was $537,9l2.  However, the correct amount of taxable income was $5,248,345 and the correct tax due and owing was $1,766,224.

Chicago Businessman Sentenced for Filing False Tax Returns

On June 22, 2009 in Chicago, Ill., Christopher G. Kelly, president and owner of a roofing business and a separate consulting firm, was sentenced to 37 months imprisonment, to be followed by three years of supervised release, for obstructing and impeding the Internal Revenue Service (IRS) and illegally structuring monetary transactions. The court also ordered Kelly to pay a fine of $7500 and restitution of $554,702 to the IRS. Kelly pleaded guilty to the charges on January 16, 2009. The plea agreement included Kelly's agreement to forfeit $86,000.  According to information presented in court, Kelly was the president and owner of BCI Commercial Roofing, Inc., and CGK Consulting, Inc., both of which shared offices in Markham, Illinois. Kelly maintained financial control over the two companies and determined how each company spent money and categorized its spending for purposes of calculating its business expenses as well as Kelly’s personal income. From approximately 2001 to at least 2006, Kelly participated in a corrupt endeavor to obstruct and impede the IRS by using business funds to pay for certain personal expenses, concealing the true nature of the payments through improper recording of the payments on the companies’ financial books and creating false documents describing the payments; structuring cash withdrawals under $10,000 from banks by disguising them as legitimate business expenses; and using third parties to pay portions of his illegal gambling debts.

Oklahoma Heat & Air Company and Company President Sentenced for Immigration and Tax Crimes

On April 24, 2009, in Oklahoma City, Okla., Steve W. Nievar, of Norman, Okla., and his company, A-l Electric Heat and Air, Inc. (A-1) were each sentenced for tax and immigration crimes.  Nievar, president of A-1, is its sole shareholder.  Nievar was sentenced to 12 months in prison, followed by three years of supervised release, and ordered to pay $187,789 in restitution.  A-1 was sentenced to pay $150,000 in forfeiture and a $10,000 fine.  The corporation was also placed on four years probation.  As charged in court records, from at least 2000 into 2004, A-1 employees were issued two checks - one check for their regular hours and a separate check for their overtime hours.  A-1 caused the overtime checks to be issued to employees with no employment taxes or withholdings deducted from those wages.  Moreover, those checks were classified by A-1 as business-reimbursement expenses for items such as tires, job materials, auto expenses, and subcontractors in an effort to disguise the fact that they were wages.  As a result, the overtime wages were not reported to the Internal Revenue Service.  In addition, from May of 2003 through May of 2008, A-1 hired illegal aliens knowing they did not have proper documentation to work in the United States.

Minnesota Woman Sentenced for Failing to Pay Employment Taxes

On April 20, 2009, in St. Paul, Minn., Kara Kristine Sommer, of Burnsville, Minn., was sentenced to 18 months in prison and three years of supervised release for failing to pay the Internal Revenue Service (IRS) payroll taxes from employees of a construction business. According to her plea agreement, Sommer admitted withholding or causing to be withheld amounts for federal income taxes and Federal Insurance Contributions Act (FICA) taxes from the wages of employees of Frontier Construction, Inc., located in Burnsville, from April 1, 2002, through Sept. 30, 2006. Sommer was responsible for accounting, payroll management and income taxes for Frontier Construction. Her duties included withholding federal payroll taxes from employee paychecks and paying over the withheld taxes to the IRS. From April 1, 2002, to September 30, 2006, Sommer deducted and collected federal income taxes and FICA taxes from the taxable wages of Frontier employees. Sommer admitted that during the tax years of 2001 through 2005, she willfully failed to account for and to pay over to the IRS a total amount of taxes of nearly $200,000.

Wisconsin Businessman Sentenced to Prison for Employment Tax Fraud

On March 19, 2009, in Milwaukee, Wis., Keith Kuchenbecker, of Neenah, Wisconsin, was sentenced to 21 months in prison and ordered to pay $288,546 in restitution to the IRS. Kuchenbecker pleaded guilty to failing to pay over to the IRS approximately $197,000 in payroll taxes that had been withheld from the wages of the employees of his business, Keith Kuchenbecker Construction, Inc. According to documents filed in federal court, Kuchenbecker was responsible for paying over payroll taxes that had been withheld from the wages of the employees of the business. He was also responsible for filing quarterly payroll tax returns with the IRS. During the period from January 2000 through March 2007, approximately $206,000 was withheld from the employee wages, none of which was paid over to the IRS. In addition, Kuchenbecker failed to file the required quarterly payroll tax returns during this period. At the same time, the government’s investigation identified numerous purchases by Kuchenbecker using corporate funds. These included a Mercedes Benz automobile, a Nissan truck, and airline tickets for trips to the Bahamas.

Michigan Businessman Sentenced for Failing to Pay Construction Company’s Withholding Taxes to IRS

On February 11, 2009, in Detroit, Mich., Richard Blanchard was sentenced to 22 months in prison and ordered to pay $195,000 in restitution to the IRS for failure to account for and pay over employee withholding taxes. A federal jury found Blanchard guilty in August 2007 on 18 counts. According to court records, during 1997 through 2003, Blanchard and his wife, Karen Blanchard, operated R. Blanchard Construction Company in Warren, Michigan, which provided excavation and snow removal services. Karen was the company’s bookkeeper. They were responsible for deducting and collecting, from the wages of their employees, federal income withholding and FICA taxes. Karen Blanchard was sentenced to two months in prison following her guilty plea for failing to account for and pay over employee withholding taxes.

Underground Cabling Company Owners Sentenced to Prison for Filing a False Partnership Tax Return

On February 5, 2009, in Oklahoma City, Okla., James E. Newman, Quanah K. Newman, and Glenda J. Robertson were sentenced to prison terms of 12 months, five months, and five months, respectively, for submitting a false federal partnership income tax return. All three defendants are former owners of Terra Tech, LLC, a company that installed underground cables for utilities and other businesses. In July 2008, they all pleaded guilty admitting that they caused a 2002 partnership return to be filed with the IRS, knowing that $5.1 million reported as Terra Tech’s gross receipts was false. The crime involved the diversion of certain gross receipts of Terra Tech into personal bank accounts and the exclusion of those gross receipts from both the partnership tax returns and the defendants’ personal tax returns. Newman was also ordered to pay $117,785 in restitution to the IRS. He remains subject to penalties and interest that may be imposed by the IRS.

Construction Company Owner Sentenced for Federal Payroll Tax Evasion    

On December 5, 2008, in Miami, Fla., business owner Leroy Edward Felt, Jr. was sentenced to 48 months’ imprisonment for participating in a federal payroll tax evasion scheme. According to documents filed in court and statements made during the plea, Felt owned Woody’s Construction, Inc. (“Woody’s”), in Margate, Florida. From 1997 through at least 2003, Felt admitted that he conspired with others, including William Stephens and James Monahan, to defraud the IRS by paying cash wages to many of Woody’s employees, causing financial institutions to file false Currency Transaction Reports (CTRs) with the IRS, and under-reporting Woody’s payroll tax liability to the IRS. To execute the fraud, Felt issued corporate checks to various individuals and entities, including Anthony Sauls and Northeast Custom Builders, for fictitious subcontracting expenses. These individuals/entities would, in turn, cash the corporate checks at financial institutions, retaining a portion of the cash as a check cashing fee, and return the remaining cash to Felt for use in paying wages. When cashing the checks, the individuals/entities did not disclose to the banks that the checks were being cashed for the benefit of Woody’s, causing the financial institutions to file CTRs that did not contain accurate information about the purpose of the checks. Between 1997 and 2003, Felt failed to report to the IRS that Woody’s had paid $14.5 million in actual payroll wages. As a result of this understatement, Felt knowingly failed to pay $2.2 in federal payroll taxes to the IRS. 

Utah Roofing Company Owner Sentenced for Tax Evasion

On October 27, 2008, in Salt Lake City, Utah, David Roger Hemmert, was sentenced to 12 months and a day in prison and ordered to pay $134,614 in restitution for federal income tax evasion. Hemmert, owner and operator of Northwind Roofing, Inc. (Northwind), pleaded guilty in August 2008 to one count of tax evasion. He deposited third party checks from Northwind's customers into a bank account and received cash back, ranging from $1,000 to $9,500 per deposit. Hemmert acknowledged the he knowingly and willfully failed to report some of that cash as taxable income on his personal federal tax returns.

Florida Construction Business Owner Sentenced for Understating Gross Receipts on Tax Returns

On October 2, 2008, Jacksonville, Fla., Joseph Barney Wainwright, Jr., was sentenced to 18 months in prison, to be followed by one year of supervised release, and ordered to pay the Internal Revenue Service (IRS) for all under-reported gross receipts for the years 2000 through 2007, plus interest and penalties. Wainwright’s total tax bill will be more than $600,000. Wainwright pleaded guilty on September 13, 2007 to filing false federal income tax returns. In his plea agreement, Wainwright admitted that he knowingly and willfully filed false federal income tax returns for the years 2000 and 2001. On the false returns, Wainwright substantially understated gross receipts from his business, Wainwright Construction. For the year 2000, Wainwright's tax return understated gross income from his business by more than $1 million. Likewise, for the year 2001, his tax return understated gross receipts by more than $600,000. There were also other false entries on his tax returns for both years.

Three Defendants in Minnesota Mortgage Fraud Scandal Sentenced

On July 31, 2008, in Minneapolis, Minn., the owners of Parish Marketing and Development Corp. (PMDC), a long-time Minnesota homebuilder, were sentenced for conspiring to commit mortgage fraud and money laundering in connection with a scheme involving approximately 200 residences and $100 million in loan proceeds. According to court documents, Michael Alan Parish was sentenced to 156 months in prison; Ardith Ann Parish was sentenced to 60 months in prison; and Christopher David Troup was sentenced to 120 months. According to their November 2007 guilty pleas, PMDC utilized “straw buyers” to buy about 200 properties built by PMDC. Their scheme generated nearly $100 million in loan proceeds, with PMDC receiving in excess of $25 million from these loan proceeds. The defendants acknowledged that they completed loan applications for the straw purchases, which included false information; executed loan documents in the names of the straw buyers; and, manufactured and provided false documentation, such as false representations of employment and false verifications of deposit, to obtain loans to buy the properties from PMDC. Straw buyers did not: view the residences they were purchasing; negotiate the purchase price of residences; and, oftentimes, did not execute the sales documents and loan documentation, which were instead signed by the defendants. The straw buyers made no payments on the mortgages that were taken out in their names. Instead, PMDC made the payments or allowed the mortgages to go into foreclosure. Often, PMDC utilized proceeds from the sale of one residence to a straw buyer to make monthly payments for the mortgages held on other residences in the names of other straw buyers.

Owners and Former Bookkeeper of Commercial Construction Firm Sentenced in Multi-Million Dollar Tax Fraud Scheme

On June 20, 2008, in Atlanta, Ga., Gerald Marchelletta, Jr., Gerald Marchelletta, Sr., and Theresa Kottwitz were sentenced on charges of committing and conspiring to commit tax fraud.  Marchelletta, Jr. was sentenced to 36 months in prison, followed by three years of supervised release, and ordered to pay a $50,000 fine.  Marchelletta, Sr. was sentenced to 33 months in prison, followed by three years of supervised release, and ordered to pay a $50,000 fine.  Kottwitz was sentenced to 24 months in prison, to be followed by one year of supervised release.  Although the defendants have paid a substantial portion of taxes owed, the judge ordered the Marchellettas to cooperate with the Internal Revenue Service (IRS) in paying back the remainder, approximately $200,000, as a condition of their supervised release following their prison term.  According to information presented in court, the Marchellettas are the owners of Circle Industries, Inc., a multi-million dollar international commercial construction firm based in Alpharetta.  Kottwitz served as the bookkeeper of the business.  Circle has been the principal construction firm on many prominent Atlanta area projects, including the construction of the Olympic Village in downtown Atlanta in 1996 and the Atlantis hotel and casino on Paradise Island in the Bahamas.  Evidence at trial revealed that the Marchellettas paid millions in company money for their own personal benefit.  Kottwitz falsely recorded these expenses as purported job-related or other business expenses.

Maryland Business Owner Sentenced to 18 Months in Prison for Conspiracy to Defraud the IRS

On May 19, 2008, in Greenbelt, Md., Ernest Lee, Jr., of Clinton, Md, was sentenced to 18 months in prison, followed by three years of supervised release for conspiracy to defraud the IRS and ordered to pay $340,001 in taxes owed.  According to his plea agreement, beginning in or about February 1995 through at least 2002, Lee, Jr. was responsible for maintaining the payroll and financial and accounting records for the family-owned, ceramic-tile installation business called ELT, Inc.  As part of his duties, Ernest Lee, Jr. was responsible for remitting FICA, withholding and federal unemployment taxes owed by ELT, Inc. to the Internal Revenue Service (IRS) and the Social Security Administration for ELT, Inc. employees.  For tax years 1998-2000, Lee failed to pay approximately $161,000 in FICA, withholding and federal unemployment taxes owed by ELT, Inc.  In addition, for the period of 1998-2001, Ernest Lee, Jr. caused ELT, Inc’s corporate bank account to pay for the personal expenses of his father, his mother, himself, his wife, and other family members.  Many of the personal expense payments were recorded inaccurately or falsely by Lee, Jr. in the company’s accounting software as payments of business expenses such as purchase of supplies.  The total amount of personal expenses paid from the business account from 1998 through 2001 exceeded $362,000.  Moreover, Lee, Jr. underreported his adjusted gross income and the income for his father for tax years 1996 to 2001 and 2000-2001, respectively.

Michigan Man Sentenced for Tax Evasion

On March 6, 2008, in Grand Rapids, Mich., Charles E. Hughes, of Dansville, Mich., was sentenced to 15 months in prison and ordered to pay restitution of $37,559 to the U.S. Treasury for tax evasion.  Hughes was convicted by a federal jury of four counts of tax evasion on December 6, 2007.  Hughes, a sprinkler fitter, purchased a “16th Amendment Reliance Defense Package” for $3,500 in 2000 from William Benson, of Chicago, Ill.  This package of material purports to establish that the federal income tax, as applied to individuals, is unconstitutional. Although the legal analysis and claims contained in the package have been thoroughly discredited, some persons who buy these kinds of packages have used it in attempts to justify their decision to stop paying federal income taxes.  Hughes failed to file his 2000 through 2002, and 2004 federal tax returns, despite having more than $300,000 in income over that period.  In addition to his failure to file returns, Hughes also avoided having federal tax withheld from his income. 

Construction Company Owner Sentenced to 10 Years in Prison for Payroll Tax Evasion

On February 22, 2008, in West Palm Beach, Fla., Lucky Mata, owner of Kodiak Construction and Management, Inc., was sentenced to 120 months in prison on multiple charges relating to his evasion of federal payroll taxes.  According to court documents, Kodiak underpaid its federal payroll taxes by nearly $3 million between 1994 and 2005, during which time it paid its workers nearly $18 million in cash payments without any employer withholding.  Mata was convicted at trial in November 2007 on all 10 counts with which he was charged including conspiracy, causing the filing of false currency transaction reports, filing false federal payroll tax returns that substantially understated the true wages paid to employees of Kodiak Construction, and obstructing a federal grand jury inquiry into the massive scheme. The evidence at trial showed that Mata paid cash wages to most of his workers in order to avoid federal payroll tax obligations.  In addition, the evidence showed that many of the workers were undocumented aliens.  Check cashers posing as subcontractors helped him to perpetrate the scheme.  Mata caused the check cashers to lie to banks about the final destination of the cash after it left the bank, and then caused multiple false federal payroll tax returns to be filed with the Internal Revenue Service.  The total scheme involved more than $18 million in Kodiak wages over a 10 year period.  According to the evidence, Mata caused fraudulent invoices to be presented to the grand jury that was investigating this matter.

Massachusetts Man Sentenced For Tax Evasion

On December 5, 2007, in Boston, Mass., Gerald R. Coulstring was sentenced to 14 months in prison for tax evasion. Coulstring pleaded guilty in August 2007 to an "information" charging him with evading taxes in 2002. According to the "information", from 1998 through 2002, Coulstring, the owner of Jerico Concrete Cutting, Inc., in Hanson, Massachusetts, took more than $600,000 in customer payments, cashed them at a check cashing business in South Boston, and diverted the cash for his own personal use. Coulstring did not report the cashed checks, either on his personal income tax returns or on Jerico’s corporate tax returns. By failing to report the cashed checks, Coulstring evaded approximately $254,000 in federal income taxes.

Former CEO of Maryland Company Sentenced to 6 ½ Years on Racketeering Conspiracy, Fraud and Tax Charges

On November 26, 2007, in Baltimore, Md., W. David Stoffregen, of Towson, Md., the former president and chief executive officer of Poole and Kent Corporation (P&K), was sentenced to 78 months in prison and ordered to forfeit $5.6 million in cash, vehicles and property for racketeering conspiracy, mail fraud and filing a false tax return.  According to the statement of facts presented at his guilty plea, Stoffregen provided benefits to former State Senator Thomas Bromwell, in exchange for the senator’s influence to help Stoffregen and his company, P&K.  Those benefits included a $1.3 million subcontract for security work at the Juvenile Justice Center in Baltimore to Network Technologies Group (NTG); $85,000 in construction work on Bromwell’s new house in Baltimore County; $80,000 a year in pay to Bromwell’s wife, Mary Patricia Bromwell, for a no-show job at Namco Services, Inc. (Namco) for remaining in his senate office rather than go to work in the private sector; a 15 percent interest in International Partners Construction LLC (IPC), a company Stoffregen formed in order to do construction work in Russia.  In exchange for these benefits, Bromwell used his influence to: expedite monthly payments from the Maryland Comptroller’s Office to P&K for work performed on the Juvenile Justice Center project in order for Stoffregen to be eligible for bonuses; help Stoffregen and P&K win a multi-million dollar bid over a competitor with a lower bid to perform the mechanical subcontract on the UMMS Weinberg Building in downtown Baltimore, pursuant to which contract P&K realized a profit of about $1.8 million; and intervene in business disputes on P&K’s behalf, including contract disputes with UMMS involving significant sums.  From 1999 to March 2005, Stoffregen submitted false expense claims to P&K, resulting in P&K paying Stoffregen more than $261,000 to which he was not entitled.

Former Indianapolis Man Sentenced for Filing False Income Tax Returns

On November 20, 2007, in Indianapolis, Ind., Javier Varela-Sanchez, was sentenced to 12 months and one day imprisonment and ordered to pay $94,447 in restitution to the Internal Revenue Service.  Varela’s sentencing follows his earlier guilty pleas to filing false individual and corporate income tax returns. Varela, a Mexican citizen and legal resident of the United States, operated a drywall finishing business called Red Monster, Inc. in Indianapolis between 1996 and 1998.  Varela was a part owner of the corporation and was responsible for the financial aspects of the business, including preparing books and records and tax returns and providing information to the tax return preparer for preparation of corporate returns.  Varela received the gross receipts for Red Monster, Inc. in the form of checks made out to the business or to himself.  Instead of depositing all of the gross receipts to the corporate bank accounts, Varela diverted a portion of the checks by cashing them at the banks on which they were drawn or at check cashing stores.  Varela diverted almost $600,000 in corporate gross receipts.  This money was not reported on the corporation’s income tax returns, and subsequently Varela’s income was not reported on his personal income tax returns and he did not report and pay over $90,000 in individual income taxes.

Office Manager Sentenced to 18 Months for Tax Evasion

On October 10, 2007, in Oklahoma City, Okla., Margaret Renee Schram, of Enid, Okla., was sentenced to 18 months in prison, to be followed by three years of supervised release, and ordered to pay $278,429 in restitution to M. Crow Construction, Inc. and $69,118 in restitution to the Internal Revenue Service (IRS).  According to court documents, Schram was employed as the office manager of M. Crow Construction, also known as Grant Construction, during 2000 through 2002.  Her duties included assisting in the preparation of documents relating to employment taxes for the company’s employees.  On March 7, 2007, a federal grand jury indicted her for evading personal income taxes by failing to file returns and for filing four false quarterly employment tax returns on behalf of M. Crow Construction.  The indictment also charged her with a scheme to embezzle money from her employer through interstate wire transmissions.  During a plea hearing in June 2007, Schram admitted that in early 2003, she created a false Form W-2 for herself for the 2002 calendar year by including her salary of $19,740 but not including tens of thousands of additional dollars that she received from the company during 2002.