April 2009

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:

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 Sommer’s plea agreement, she 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 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 the Minnesota United States Attorney, 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.

Former President of Superior Electric Company Sentenced for Tax and Bank Fraud

On April 30, 2007, in Columbus, OH, Jerry P. Gemeinhardt was sentenced to 34 months in prison, ordered to pay nearly $4.8 million in restitution to the IRS and to National City Bank, followed by five years of supervised release for tax and bank fraud.  Gemeinhardt, of Tampa, Florida, was the president and half owner of the now defunct Superior Electric Company (SEC), a Columbus, Ohio commercial electrical contracting company.  In November, 2006, he and John P. McShane, his chief financial officer, pleaded guilty to conspiring to defraud the United States.  Gemeinhardt also pleaded to a charge of bank fraud.  From 1996 through 2003, Gemeinhardt schemed with McShane to falsely characterize as business expenses millions of dollars of payments he made with SEC’s funds for his own personal expenses.  The scheme involved falsely coding expenses and burying the expenses on the books and records of SEC.  These expenses covered, among other things, the costs of enhancing and operating Gemeinhardt’s 65 foot yacht in Florida, the salary for the yacht captain and first mate, landscaping at Gemeinhardt’s former residence, as well as credit cards for his boat captain and maid.  Gemeinhardt received more than $2 million in unreported income from SEC from 1998 through 2001.  The scheme also caused both the tax returns filed by SEC and the other 50-percent owner of SEC to be false.  The mischaracterization of Gemeinhardt’s personal expenses on the company’s books and records led to an income tax loss of approximately $867,000 on Gemeinhardt’s individual income tax returns for 1998 through 2001

Former Superior Electric Chief Financial Officer Sentenced to 15 Months Imprisonment for Tax Conspiracy

On March 28, 2007, in Columbus, OH, John P. McShane, of Delaware, was sentenced to 15 months in prison and ordered to pay $1.6 million in restitution to the Internal Revenue Service for his role in a tax fraud scheme.  McShane was the chief financial officer of Superior Electric Company, a Columbus, Ohio commercial electrical contracting company which is now defunct.  McShane and his company president, Jerry P. Gemeinhardt, each pleaded guilty in November 2006 to conspiracy to impede and impair the IRS.  Shortly after McShane became CFO, he took part in a scheme to falsely characterize as business expenses millions of dollars of payments Gemeinhardt made with company funds for his own personal expenses. These expenses covered, among other things, the costs of improving and operating Gemeinhardt’s 65-foot yacht in Florida, the salary for the yacht captain and first mate, the landscaping at Gemeinhardt’s residence, as well as credit cards for his boat captain and maid.  McShane separated the expenses and hid them in other larger accounts.  This scheme resulted in Gemeinhardt receiving more than $2 million dollars in unreported income from the company. The mischaracterization of Gemeinhardt’s personal expenses on the company’s books led to an income tax loss of approximately $867,000 on Gemeinhardt’s tax returns. 

Chicago area Drywall Business Owner to Spend Two Years Behind Bars in Scheme to Defraud the Government

On March 14, 2007, in Chicago, IL, Ronald J. Presbitero, was sentenced to 24 months in prison, followed by 24 months of supervised release and ordered to pay a $50,000 fine for filing false corporate tax returns and conspiracy to defraud the United States.  Presbitero was the owner of a drywall installation company in Alsip, IL.  He created six fictitious corporations and drafted annual contracts for the six corporations to install drywall as subcontractors.  Between 1994 and 1998, Presbitero wrote more than 800 checks totaling $5.9 million to the nonexistent companies.  He cashed the checks at currency exchanges and deducted the money as a business expense on his corporate income tax returns.

U.S.  Contractor Sentenced in Case Involving Bribery, Fraud and Money Laundering Scheme in Al-Hillah, Iraq

On February 16, 2007, in Washington DC, Philip Bloom, of Bucharest, Romania was sentenced to 46 months in prison and ordered to forfeit $3.6 million in a bribery and fraud scheme involving contracts in the reconstruction of Iraq. Bloom pleaded guilty on March 10, 2006, to bribery, money laundering and conspiracy. He admitted to participating in the scheme during the early days of the war in Iraq while seeking contracts for his company, Global Business Group. From December 2003 through December 2005, Robert Stein, a DOD contract employee and the comptroller for the Coalition Provisional Authority – South Central Region (CPA-SC); Bruce D. Hopfengardner, a lieutenant colonel in the U.S. Army Reserves; and numerous public officials, including several high-ranking U.S. Army officers, conspired to rig the bids on contracts awarded by the CPA-SC so that all of the contracts were awarded to Bloom. In return, Bloom provided the public officials with over $1 million in cash, SUVs, sports cars, a motorcycle, jewelry, computers, business class airline tickets, liquor, future employment with Bloom and other items of value. Bloom also laundered more than $2 million in currency that Stein and his co-conspirators stole from the CPA-SC that had been slated to be used for the reconstruction of Iraq. Bloom then used his foreign bank accounts in Iraq, Romania and Switzerland to send the stolen money to Stein, Hopfengardner and other public officials in return for the awarded contracts. In total, Bloom received over $8.6 million in rigged contracts. On Jan. 29, 2007, co-conspirator Robert Stein was sentenced to nine years in prison for related charges of conspiracy, bribery and money laundering, as well as weapons possession charges, for his role in the same scheme. 

President of Purported Non-Profit Organization in Texas Sentenced and Ordered to Pay Restitution

On February 1, 2007, in Dallas, TX, Barbara Hildenbrand, the president of Community Housing Fund (CHF) and co-defendant Gerald Stone, owner of Ranscott Construction in Irving, TX, were each sentenced to 24 months in prison. Hildenbrand pleaded guilty to conspiracy to commit theft from and tax evasion. Hildenbrand and Stone were also ordered to pay $672,221 in restitution, jointly and severally, to HUD. Stone was ordered to pay $263,516 in restitution to the Internal Revenue Service for tax evasion. Stone admitted to embezzling money from the CHF and defrauding HUD’s Single Family Affordable Housing Program that helps “low to moderate income borrowers” become home owners. Under this program, HUD offers properties to non-profit companies at a discounted price. To participate in the program, nonprofits must act on their own and not under the influence, control, or direction of any outside party seeking to derive a profit or gain from the proposed project, including a contractor or builder. On some of the homes purchased by CHF under the HUD program, the defendants embezzled and stole money from CHF by withdrawing non-profit money for non-business related purchases and later falsely claimed that portions of the payments were made for legitimate work performed and expenses incurred by Stone operating through the business RCI. Hildenbrand admitted that she and Stone defrauded HUD by driving up the costs of houses through improper payments to RCI and increased the price of the house, making it less affordable for low income buyers. Hildenbrand and Stone used money from their conspiracy to buy a yacht.  Stone also used funds to buy a North Palm Beach, FL condominium. Stone admitted that the more than $450,000 he received to buy the yacht and the condominium was taxable income and that he failed to report that income.

Indiana Businessman Sentenced to 57 Months in Prison for Failure to Pay Employees’ Withholding Taxes to the IRS

On December 15, 2006, in Indianapolis, IN, Sergio Buezo was sentenced to 57 months in prison and ordered to pay $871,042 restitution to the Internal Revenue Service after pleading guilty to mail fraud and failure to pay employee withholding taxes. Buezo’s company, Bayou Abatement, was involved in hurricane disaster reconstruction work in Florida. Bayou Abatement hired employees to travel to Florida, paid the employees hourly wages and purported to withhold employees’ income and social security taxes. Buezo kept the money, and spent about $1.4 million that should have been paid to state and federal agencies on personal expenses including mortgage payments, automobiles, a boat, a swimming pool, home improvements and jewelry. All of the assets including Buezo’s personal residence were seized or are subject to a restraining order. His assets will be sold to pay the taxes Buezo failed to pay.

Businessman Gets 72 Months Prison Term for Employment Tax, Embezzlement and Perjury During Bankruptcy Proceedings

On December 14, 2006, in Minneapolis, MN, Chad Wetzel, the owner and operator of a now defunct heating and ventilation company, was sentenced to 72 months in prison and ordered to pay restitution of $208,427. Wetzel pleaded guilty to employment tax fraud, embezzlement of funds from a union employee benefit plan, and perjury during a bankruptcy proceeding. As an employer, Wetzel withheld and collected payroll taxes and union ERISA plan contributions from employee payrolls, but failed to pay these funds over to either the IRS or the unions. Wetzel also withheld employee premiums for health insurance, but did not pay these over to the health care benefit plans. Wetzel’s company failed to pay over approximately $412,251 in payroll taxes to the IRS, approximately $134,835 in ERISA payments to unions and more than $7,000 in health care premiums. In October 2003, Wetzel caused the company to file Chapter 11 bankruptcy. During the bankruptcy proceedings, Wetzel concealed and did not disclose the existence of accounts, assets, and transfers of property and assets to the Bankruptcy Court. He also lied under oath at a Creditors’ hearing when he falsely declared that he had disclosed all financial accounts and assets of the company and all transfers of ownership and property within the year prior to the company filing for bankruptcy protection.

Former Treasurer of South Gate Sentenced to 10 Years in Prison in Corruption Case that Cost City Tens of Millions of Dollars

On November 28, 2006, in Los Angeles, CA, Albert T. Robles, the former treasurer of South Gate, California, was sentenced to 10 years in prison for his conviction last year on 30 federal charges related to a scheme in which he extorted city contractors in exchange for using his influence to steer projects to those paying bribes that totaled more than $1.4 million. In addition to prison time, Robles was ordered to pay $639,000 in restitution to South Gate. In July 2005, a federal jury found that Robles was guilty of 16 counts of mail fraud, five counts of wire fraud, four counts of money laundering and five counts of bribery. Evidence presented at trial, found that Robles was involved in schemes to fraudulently award three contracts: a $24 million project to build senior housing, a $4 million sewer rehabilitation contract and a $48 million trash-hauling contract. A second man convicted at trial, George Garrido, was also sentenced to 51 months in prison. Garrido received a lucrative consulting contract with a trash hauler in exchange for the city awarding a 10 year contract. In addition, two men who pleaded guilty in the case were also sentenced. Edward T. Espinoza, a financial consultant who Robles used to funnel city money to himself, his family and friends, was sentenced to 10 months in prison, which will be followed by six months of home detention. Michael Klistoff, an official of Klistoff & Sons and All City Services, two now-defunct waste-hauling companies, was sentenced to six months in prison, to be followed by six months of home detention. Espinoza created a shell corporation, called EM Ventures, to receive city monies and funnel payments to Robles’ family and friends. At trial, Espinoza testified that Robles demanded half of the money Espinoza received from the do-nothing consulting contracts. As a result of this part of the scheme, a total of $2,156,606 was paid to Espinoza. In turn, Espinoza, through EM Ventures, paid $1.4 million for the benefit of Robles, his family and his friends. The second part of the scheme involved the award of South Gate’s $48 million refuse and recycling contract to Klistoff & Sons in exchange for more than $30,000 in gifts to Robles and campaign contributions to Robles’ committee, Citizens for Good Government. In exchange for Robles steering the contract to Klistoff, Garrido received a 10 year, $3.5 million consulting contract from Klistoff & Sons

Couple Sentenced on Conspiracy and Tax Evasion Charges

On November 16, 2006, in Erie, PA, Ronald J. and Carol A. Kapala were sentenced for conspiring to defraud the United States by impeding and impairing the lawful functions of the Internal Revenue Service. Ronald Kapala was sentenced to 30 months in prison to be followed by three years of supervised release and ordered to pay a $100 assessment. Carol Kapala was sentenced to three years probation and ordered to pay a $300 assessment. According to the indictment, the Kapalas used a variety of schemes to attempt to obstruct the IRS in the collection and assessment of income taxes including failing to file income tax returns from 1990 through 1998 and 2002 through 2004; attempting to conceal their construction business activity through the use of nominee names; disguising ownership of assets by transferring them out of their names; forming a bogus tax-exempt religious organization for the construction business in the name "Mission Builders," and making fraudulent claims with the IRS concerning their obligation to pay federal income taxes.

Central Minnesota Business Owner Sentenced to Federal Prison for Failing to Pay Taxes

On September 18, 2006, in Minneapolis, MN, Scott R. Lennander was sentenced to 24 months in prison, ordered to serve 36 months of supervised release and to pay the taxes he owes for failing to pay more than $822,000 in federal income and employment taxes withheld from his employees. Lennander, the owner of five Minnesota construction companies, pleaded guilty in May 2006 to six counts of failure to pay taxes. According to court documents, two payroll companies were hired to prepare the payroll and employment tax information for his five companies. On a weekly basis, the two payroll companies notified Lennander of the amounts of federal income and employment taxes withheld from employee paychecks. Those amounts were required to be forwarded to the IRS. For 13 taxable quarters Lennander failed to remit $822,707 worth of withholdings to the IRS.

San Francisco Remodeling Contractor Receives 10 Month Sentence for Tax Evasion

On June 27, 2006, in San Francisco, CA, Sam Ho Low was sentenced to five months in prison, five months home confinement, ordered to pay $73,954 in restitution and pay a $6,000 fine for intentionally underreporting his business income between 1997 and 1999. According to the plea agreement, the defendant owned and operated Frank and Sam’s Construction and Remodeling Company, Inc., which was an "S" corporation under the Internal Revenue laws. Frank and Sam’s Construction provided remodeling and construction services for residential and commercial clients in the Bay Area. Low admitted to asking clients to pay by check or cash and that he cashed the checks and used some of the money to pay business expenses such as salaries, wages, building materials and building supplies. He also admitted that he did not tell his tax return preparer about the checks he cashed or the currency he received and that none of it was reported on his income tax returns. He also admitted that he gave his income tax return preparer only the business bank statements to calculate his gross receipts for years including 1997 and 1999. The net tax loss to the United States was $73,954.

South Carolina Man Sentenced for Tax Evasion

On May 19, 2006, in Columbia, SC, John Pierce Browne was sentenced to 46 months in prison for tax evasion. Browne grossed more than $2.5 million from his siding and window company from 1998 to 2000 and did not pay his business or personal taxes. Browne used his brother’s identity for his business dealings and to buy an office building. He also used another name to buy a Cadillac, rent an apartment and pay his living expenses. Browne admitted evading the payment of $164,550 in taxes owed for 1998-2000.

Owner of California Lumber Company Sentenced to 15 Months in Prison

On April 25, 2006, in San Francisco, CA, Lee Nobmann, the CEO and owner of Golden State Lumber (GSL), was sentenced to 15 months in prison, fined $40,000 and ordered to pay $330,000 in restitution. Nobmann pleaded guilty on Dec. 8, 2005, admitting that he had his company pay for his personal expenses and deduct the funds as the company's business expenses from 1996 to 2000. Nobmann also acknowledged that he received rebate checks from vendors and deposited them into his personal bank account and did not report the payments as income for the company or as income on his personal income tax returns. As a result, his company underreported its income by approximately $1.1 million and he did not report the income on his personal income tax returns. Nobmann illegally avoided paying approximately $330,000 in taxes. The illegal activity came to light when he fired the CFO of GSL. Shortly after his termination, the CFO called the IRS to report Nobmann for tax evasion.

Former Owner and Operator of Concrete Construction Business Sentenced for Tax Evasion

On March 21, 2006, Robert E. Saunders was sentenced to 15 months in prison and ordered to pay $65,531 in restitution to the IRS. According to court documents, Saunders created various trusts which acted as nominees to which he transferred both his business assests and his real and personal property, including his home, vehicles, bank accounts, and other personal possessions. Saunders attempted to deduct personal living expenses on the trust tax returns.

Northridge Businessman Sentenced to Prison for Submitting False Corporate Income Tax Return

On December 5, 2005, in Los Angeles, CA, Michael Paul Monroe was sentenced to a year and a day in federal prison, followed by one year of supervised release with a condition of six months of home confinement, and a fine of $22,640 following his August 2005 guilty plea to one count of subscribing to a false corporate federal income tax return for Swim Pool Construction Co., Inc. for its fiscal year ending April 30, 2000. Monroe admitted that he held an ownership interest in, worked for, and participated in the management of Swim Pool Construction Co., Inc. and Monroe Pool Service, Inc., both of which conducted business in the Los Angeles area. Monroe admitted that Swim Pool Construction Co., Inc. failed to report business receipts of $2,196,893 for the three year period ending April 30, 2001, and that Monroe Pool Service, Inc. failed to report business receipts of $419,790 during the same time period. Monroe admitted that he cashed some customers’ checks paid to the corporations, rather than deposit the checks into the corporations’ bank accounts. Monroe failed to report the gross receipts from the cashed checks on the corporations’ tax returns. As part of the plea entered in this matter, Monroe also agreed to have true and accurate tax returns filed for Swim Pool Construction Co, Inc. and Monroe Pool Service, Inc. for the fiscal years ending April 30, 1999, 2000, and 2001 and to have the corporations pay the IRS the taxes, penalties, and interest assessed on these tax returns.

Minnesota Man Pleads Guilty to Employment Tax, Embezzlement and Perjury Charges

On November 30, 2005, in Minneapolis, MN, Chad Wetzel, the owner of a now defunct heating and ventilation company pleaded guilty to willfully failing to pay over Social Security and Medicare taxes to the IRS, embezzlement of funds from a union employee benefit plan, and perjury during a bankruptcy proceeding. Chad Wetzel’s father, George Wetzel, pleaded guilty in March 2005 to conspiracy to commit mail fraud and embezzlement from a union pension plan. As employer, Wetzel withheld and collected payroll taxes and union ERISA plan contributions from employee payrolls, but failed to pay these funds over to either the IRS or the unions. Wetzel also withheld employee premiums for health insurance, but did not pay these over to the health care benefit plans. Wetzel’s company failed to pay over approximately $412,251 in payroll taxes to the Internal Revenue Service, approximately $134,835 in ERISA payments to unions, and over $7,000 in health care premiums. In October 2003, Wetzel caused the company to file Chapter 11 bankruptcy. During the bankruptcy proceedings, Wetzel concealed and did not disclose the existence of accounts, assets, and transfers of property and assets to the Bankruptcy Court. He also lied under oath at a Creditors’ hearing when he falsely declared that he had disclosed all financial accounts and assets of the company and all transfers of ownership and property within the year prior to the company filing for bankruptcy protection.

Myrtle Beach Man Pleads Guilty to Tax Evasion

On November 14, 2005, in Columbia, SC, John Pierce Brown, aka Steinie Martin Browne, pleaded guilty to tax evasion. Brown operated Economy Siding and Windows, LLC. From 1998 to 2000, Brown’s business grossed over $2.5 million but failed to pay any business or personal taxes. To avoid paying taxes, Brown used another name to purchase a Cadillac, rent an apartment, and pay his living expenses. Brown also operated his business and purchased an office building using his brother’s identity. Brown admitted avoiding the payment of $164,550 in taxes owed for 1998-2000.

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