WASHINGTON - Joseph H. Smith, a CPA and attorney, was sentenced today to a year and a day in prison today by U.S. District Judge Ann Aldrich for his participation in a scheme to defraud the Internal Revenue Service (IRS), the Justice Department and Internal Revenue Service announced.
Following a six-week trial, a jury in Cleveland convicted Smith of one count of conspiracy to defraud the United States and IRS, four counts of filing false tax returns, and one count of corruptly endeavoring to impede the IRS.
According to court documents and evidence presented at trial, Smith was the treasurer, chief financial officer and eventually the financial and legal secretary for the Catholic Diocese of Cleveland. Co-conspirator Anton Zgoznik, a former diocese employee, owned and operated several corporations that provided accounting, tax, financial and computer technology services for the diocese on an outsourced basis. During trial it was shown that Smith and Zgoznik entered into a scheme to defraud the IRS. Entities that Zgoznik owned and controlled paid Smith more than $784,000 from 1997 to 2003. Smith and Zgoznik disguised these payments as compensation earned for "consulting" or "legal" services that Smith purportedly provided for the Zgoznik entities.
As a result of their scheme, they were able to deceive the IRS during an audit of Smith's 1999 tax return and during audits of three years of the Zgoznik entities. Smith also failed to report, and improperly reported, a portion of the payments on his income tax returns. In addition, Smith received $270,000 of unreported income from the diocese by means of two checks in 1996 and 1997, which were deposited into a brokerage account he controlled in the name and tax identification number of the diocese. Evidence at trial established that Smith also failed to report dividends and capital gains he earned on the investments in that account.
"Taxpayers thinking about participating in fraudulent tax schemes, including failing to report all forms of income, should stop in their tracks and simply look at the consequences of taking the next step," said Nathan J. Hochman, Assistant Attorney General of the Justice Department's Tax Division. "Those consequences include going to prison, being branded a convicted felon for the rest of their lives, and paying back all the taxes owed plus steep penalties and interest."
"No matter what the source of income, all income is taxable," said Eileen Mayer, IRS Chief, Criminal Investigation (IRS-CI). "The prosecution of individuals who intentionally conceal income and evade taxes is a vital element of the IRS' enforcement strategy."
Zgoznik was convicted, in October 2007, in a separate trial on all 15 counts with which he was charged: conspiracy to commit mail fraud and mail fraud (related to a scheme to defraud the Diocese of Cleveland), the corrupt endeavor charge described above, and four counts of aiding and assisting in the preparation of a false return. A sentencing date for Zgoznik has not yet been set.
Assistant Attorney General Hochman thanked IRS-CI, U.S. Postal Inspection Service and the FBI who investigated this case, as well as Tax Division trial attorney Jerrod Patterson and Assistant U.S Attorney John M. Siegel who prosecuted this case. More information about the Justice Department’s Tax Division and its enforcement efforts is available at www.usdoj.gov/tax/.