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Wednesday, November 10, 2010
Massachusetts Man Pleads Guilty to Tax Evasion as Part of Organized Crime Investigation

WASHINGTON – A Massachusetts man pleaded guilty today in U.S. District Court in Rhode Island to tax evasion related to his 2003 income tax filings, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division, U.S. Attorney Peter F. Neronha for the District of Rhode Island and Acting Assistant Attorney General John A. DiCicco of the Tax Division.

Gerald Diodati, 61, of Seekonk, Mass., pleaded guilty today before Chief U.S. District Judge Mary M. Lisi to one count of tax evasion. According to court documents, from approximately 2003 through 2006, Diodati concealed from the Internal Revenue Service (IRS) at least $586,000 he earned through his construction business by converting the proceeds of his businesses to cash and utilizing check cashing services for the purpose of evading assessment of income tax. For each year of the scheme, false income tax returns were prepared and filed, concealing additional taxes Diodati rightfully owed. In all, from 2003 through 2006, Diodati attempted to evade the assessment of more than $194,000 in federal income taxes.

 

According to information presented during the plea hearing, the case originated from an undercover investigation initiated by the FBI’s Providence, R.I., Field Office. As part of the investigation, the FBI established an undercover company, Hemphill Construction, which sought the award of union construction contracts. Diodati began working as a consultant to Hemphill Construction in 2002, operating his own businesses out of the construction company’s office in Johnston, R.I.

 

In 2003, Hemphill Construction was awarded a subcontract after signing a collective bargaining agreement with the Rhode Island Laborers District Council on behalf of 3 local unions, to perform demolition work at the Rising Sun Mills rehabilitation project in Providence. Hemphill, in turn, subcontracted the work to Diodati through RI Demolition Inc., a company Diodati formed for this purpose. According to information presented during the plea hearing, Diodati suggested to Hemphill in late 2003 that he be paid in cash for the work that his company performed on the Rising Sun Mills project. Diodati proposed that Hemphill keep 20 percent of what he was owed and pay him the balance in cash in order to reduce his taxable income, stating that, “Uncle Sam doesn’t have to know about it, so it keeps me down in the lower bracket.” Diodati later noted that both Hemphill and RI Demolition made money on the scheme and that, “the only one who is losing is the government.”

 

According to information presented at the plea hearing, Diodati opened a safety deposit box at a local bank. He then requested that the money owed him by Hemphill be paid in cash in installments placed in the safety deposit box rather than by business checks. Between December 2003 and March 2004, Diodati received more than $230,000 in cash payments for construction work placed into his safety deposit box.

As a result of this practice as well as other means Diodati used to conceal income, RI Demolition underreported business receipts to the IRS for 2003 by $244,486. In August 2004, Diodati tried to evade the assessment of a substantial income tax by causing to be prepared, signed and filed an individual income tax return for tax year 2003 that reported zero taxable income, which meant no taxes were due, when in fact his actual tax liability was $58,503.

 

At sentencing, scheduled for Feb. 10, 2011, Diodati faces a maximum sentence of five years in prison, a $250,000 fine and three years of supervised release following his prison term. Diodati has agreed to pay restitution in the amount of $194,031.

 

The case is being prosecuted by Trial Attorney Scott Lawson of the Criminal Division’s Organized Crime and Racketeering Section and Trial Attorney Jessica Nuzzellilo of the Tax Division.  The case was investigated by the IRS – Criminal Investigation and the FBI.

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