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Conspirators Used Sham Trusts And Corporations To Hide Business Profits From Irs

WASHINGTON D.C. - Eileen J. O’Connor, Assistant Attorney General for the Tax Division, Department of Justice; Gregory A. White, U.S. Attorney for the Northern District of Ohio; and Nancy Jardini, Chief, IRS Criminal Investigation, announced that yesterday, at the federal courthouse in Akron, Ohio, U.S. District Judge John R. Adams sentenced Michael Kotula to 70 months’ imprisonment, to be followed by three years’ supervised release and a $100,000 fine. Judge Adams further ordered Mr. Kotula to pay the costs of prosecution and $82,806.83 in restitution to the Internal Revenue Service. At the conclusion of sentencing, Judge Adams ordered Mr. Kotula to be immediately be taken into custody.

Judge Adams also sentenced Tamara Schwentker Harris 15 months’ imprisonment, to be followed by two years’ supervised release, and ordered Ms. Harris to pay $17,054 as restitution to the Internal Revenue Service. Sentencing of a third defendant, Gary Harris, was rescheduled for July 9, 2004.

In March 2004, after a four-week trial, the jury found all three defendants guilty of conspiring to defraud the United States (18 U.S.C. § 371). In addition, the jury convicted Harris and Kotula on three counts and one count of income tax evasion (26 U.S.C. §7201), respectively.

“Hiding income from the IRS by moving it into bogus trusts or other sham entities is a serious crime,” said Assistant Attorney General Eileen J. O'Connor. “The substantial prison sentences imposed in this case are the result of the IRS and the Department of Justice working aggressively to investigate and prosecute tax fraud.”

“The IRS aggressively investigates those who use abusive trust arrangements to hide the true ownership of assets and income. It is a matter of maintaining public confidence in the fairness of the tax laws,” stated Nancy Jardini, Chief, IRS Criminal Investigation. “If individuals choose to participate in abusive trust schemes, they will be held accountable and sentenced to prison.”

At trial, the evidence proved the defendants used a maze of trusts and corporations to try to hide approximately $18 million in income generated by various businesses they controlled, including historic Conneaut Lake Park in Crawford County, Pennsylvania. Between January 1, 1994 and July 8, 2003, they paid little or no taxes on the income earned. Nonetheless Mr. Harris lived lavishly, acquired several homes, a jetway for his ranch in Conneaut, and an antique Mercedes sports car which he claimed was worth $250,000.

Mr. Harris has been in federal custody since his arrest in July 2003. He had previously been convicted of tax evasion for tax years 1987, 1989, and 1990. In addition, between 1998 and 2002, when Mr. Harris was in federal prison after convictions for racketeering and income tax evasion, Mr. Kotula and Ms. Schwentker Harris kept Mr. Harris’ businesses running and continued to operate this illegal conspiracy to conceal income from the IRS.

Assistant Attorney General Eileen J. O’Connor and United States Attorney Gregory A. White thanked Tax Division Trial Attorney Robert J. Livermore and Antitrust Division Trial Attorney Brian Stack, who prosecuted the case. They also thanked the special agents of the Internal Revenue Service, whose assistance was essential to the successful investigation and prosecution of the case.

Additional information about the Justice Department’s Tax Division and its enforcement efforts may be found at