JUSTICE DEPARTMENT WARNS PEOPLE TO AVOID TAX FRAUD SCHEMES

WASHINGTON, D.C. - This tax season, the Department of Justice is joining the Internal Revenue Service in encouraging taxpayers to file truthful income tax returns, to beware of illegal tax schemes, and to report suspected tax fraud.

Deputy Attorney General Larry D. Thompson stated, "The events of the past year have united Americans in a way that makes each of us acutely aware of our responsibilities as citizens of this great nation. Among those responsibilities is our duty to honor our legal obligation to pay taxes. People who cheat on their taxes are cheating all Americans."

Justice Department prosecutors, working with IRS agents, recently have convicted many tax cheats and secured lengthy prison sentences. The Justice Department also is cracking down on promoters of tax fraud schemes by obtaining federal injunctions to stop them from selling bogus tax advice. In addition, Justice Department attorneys have obtained court orders for the IRS to obtain records of offshore credit cards used by the people who transfer assets overseas to evade their tax obligations.

"Recent enforcement actions taken by the Department of Justice and the IRS increase the likelihood that tax cheaters will be caught and punished. In addition to paying civil fines, interest and penalties, people do go to prison for tax evasion," said Eileen J. O'Connor, Assistant Attorney General for the Justice Department's Tax Division. "Promoters of tax fraud schemes tell people what they want to hear: that they don't really owe taxes, or that if they do, they can get out of paying them. Don't believe it."

Here are just a few of the tax criminals sentenced so far this year:

• In Billings, Montana, Donald Fletcher was sentenced to 78 months in prison and 3 years supervised release, and ordered to pay restitution of $10,000 and a fine of $100,000. Fletcher pled guilty to conspiracy to prepare false tax returns and commit mail fraud. Acting as a tax consultant, he held seminars and assisted taxpayers in setting up abusive trust arrangements. He falsely claimed that the trusts would permit taxpayers to deduct personal expenses.
• In Wilton, New Hampshire, Richard V. Richelo, Jr. was sentenced to serve 18 months in prison for failing to file individual income tax returns. Richelo was convicted after a two-day trial. The evidence at trial established that Richelo was a software engineer who earned approximately $116,000 in 1994 and $98,000 in 1995, but did not file federal income tax returns. Richelo claimed that he had studied the tax code and believed he was not required to file income tax returns because the compensation he received did not constitute income under the Internal Revenue Code. The judge ruled that Richelo's compensation did indeed constitute income. The judge further noted that the argument Richelo used has been consistently rejected by courts across the country.
• Melody J. Bohrer of New Berlin, Wisconsin, was sentenced to serve four months in prison for failing to file an Employer's Quarterly Federal Tax Return, Form 941. Bohrer owned a company that provided landscaping, lawn care and snow plowing services.
• In Miami, Florida, John P. Ellis, Sr. was sentenced to serve 10 and a half years in prison. The evidence showed that Ellis marketed sham "common law" trusts and fraudulently claimed that the trusts were tax-exempt because they were "foreign" to the United States. More than 150 customers were identified as having purchased more than 360 trusts or trust packages, at prices of $20,000 and more.
• In New Haven, Connecticut, William N. Jackson was sentenced to serve 42 months in prison, followed by a period of supervised release. Jackson was convicted on multiple counts of aiding and assisting in the preparation of false federal income tax returns. The evidence showed that Jackson created fraudulent business expenses to offset reported income for his clients, and that he reported fictitious dependents and inflated expenses, including gifts to charity. The judge also found that Jackson gave false testimony at trial.
• In Reno, Nevada, Palle "Pono" Bognaes was sentenced to serve 80 months in prison and 3 years supervised release, and to pay $29,598 in restitution to the IRS for conspiring to defraud the United States, evading more than $2 million in federal taxes, and obstructing and impeding the IRS in the collection of those taxes. He also was ordered to pay $107,752 in restitution to a client from whom he took unauthorized withdrawals and to pay $4,861 for costs of his prosecution.
• In Sacramento, California, Lonnie D. Crockett was sentenced to 42 months in prison followed by 36 months probation and ordered to pay a fine of $67,500. Crockett pled guilty to defrauding the IRS in a nationwide tax evasion conspiracy that involved the concealment of income through a chain of domestic and foreign bank accounts and trust arrangements. Three doctors from northern California also pled guilty in connection with the scheme. Daniel Bullock, an orthopedic surgeon, Richard D. Pfeiffer, an orthodontist, and Richard Shearer, an ear, nose and throat specialist, were sentenced to prison for 18 months, 27 months and 24 months, respectively, and ordered to pay fines and back taxes.
• In Greenville, North Carolina, Charles James Payton was sentenced to serve 78 months in prison followed by 3 years supervised release. In addition, Payton was ordered to pay restitution to the IRS in the amount of $87,073. Charles Payton was convicted on of seven counts of willfully aiding and assisting in the preparation of false income tax returns and one count of conspiracy.

Assistant Attorney General O'Connor encouraged people who have information about tax fraud to report it to the IRS tip line at 1-800-829-0433. The IRS Criminal Investigation web site provides additional information about fraudulent tax schemes. http://www.ustreas.gov/irs/ci/

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