Business Owner Brothers Plead Guilty to Income Tax Evasion

Understated Business Income for Five Years by $592,750;
Scott Weinstock Did Not Report $267,460 in Income on his Personal Tax Return
and Evaded Paying $34,831 from Sale of Business Property

February 24, 2010

Baltimore, Maryland - Scott Weinstock, age 51, of Springfield, New Jersey, and David Weinstock, age 42, of Fanwood, New Jersey, pleaded guilty today to income tax evasion in connection with a scheme to avoid paying business income taxes by structuring cash transactions.

The guilty pleas were announced by United States Attorney for the District of Maryland Rod J. Rosenstein and Special Agent in Charge C. Andre' Martin of the Internal Revenue Service - Criminal Investigation.

“Scott and David Weinstock converted nearly $600,000 of business revenue into small checks to avoid bank reporting requirements and conceal their income from the IRS,” stated U.S. Attorney Rod J. Rosenstein. “People who cheat on their taxes shift the cost to honest taxpayers.”

“Tax violations have been erroneously referred to as victimless crimes, but it is the honest law abiding citizen who is harmed when someone tries to manipulate our nation's tax system,” stated C. André Martin, Internal Revenue Service-Criminal Investigation Special Agent in Charge, Washington DC Field Office. “The prosecution of individuals who intentionally evade taxes is a vital element of the IRS enforcement strategy.”

According to their plea agreements, Scott Weinstock was the founder, president and 65% shareholder of Regal Marketing, Inc. His brother David Weinstock was the CFO, vice president and 35% shareholder. Regal operated as a produce brokerage business in Scotch Plains, New Jersey, buying produce from growers or other distributors, many of which are international, and selling the produce to grocery store chains and other distributors in the United States.

William F. Endy also operated a produce brokerage business called Just A Mere Trading Company (JAMTC) on the Eastern Shore of Maryland. JAMTC did business with Regal. Endy agreed to cash $592,750 worth of business checks from Regal and return the cash proceeds to Scott and David Weinstock as part of a scheme to help Regal evade income taxes. On more than 50 occasions between November 2002 and October 2006, Scott and David Weinstock caused Regal to issue pairs or groups of checks to Endy, typically totaling $10,500 per pair or group. The pairs or groups of checks sent from Regal to Endy were sequentially numbered, written on the same date and mailed to Endy together in a single envelope. Scott and David caused Regal to issue multiple checks, rather than a single check, so that Endy could cash the checks on separate days or at separate bank locations and thereby evade laws requiring banks to report any cash transaction exceeding $10,000.

Each time Endy cashed checks from Regal, Endy simultaneously sent $10,000 in cash to Scott and David Weinstock, keeping $500 for himself. Instead of reporting the $10,000 payments as income, the Weinstocks caused Regal to falsely deduct the $10,500 payments to Endy on its federal income tax returns as costs of goods sold, even though Endy never provided any goods or services to warrant the payments.

As a result of the structuring scheme, Scott and David Weinstock understated Regal’s taxable income for the tax years ending November 30, 2002 through 2006 by $592,750, resulting in a tax loss of $198,942.

Additionally, of the $564,750 in cash that Endy returned to the Weinstocks, the government has identified $267,450 in cash deposited into accounts controlled by Scott Weinstock, which he did not report on his personal income tax return. The amount of tax loss resulting from the evasion of Scott Weinstock’s personal income taxes is $40,119.

Finally, Scott Weinstock evaded paying $34,831 in taxes arising from the sale of business property. Scott Weinstock also owned Very Best Produce Wholesale (Very Best). Until 2004, Very Best owned the building that Regal was operating in and Regal paid monthly rent to Very Best. In July 2004, Very Best sold the building to Regal and used the proceeds to acquire a lakefront home in upstate New York. Very Best fraudulently treated the transactions as a like kind exchange of business properties in order to defer the tax owed on the appreciated Regal office building. The lakefront home, however, was in fact used by Scott Weinstock for his personal enjoyment.

In an effort to make it appear that the lakefront home was a business property, in 2005 and 2006, Scott Weinstock solicited personal checks payable to Very Best from all of the Regal employees and caused the checks to be deposited in Very Best’s bank accounts, in order to make it appear that the employees had rented the property, when in fact they had not. Scott Weinstock reimbursed the employees with cash or personal checks to cover the checks they made payable to Very Best. Scott Weinstock directed a Regal employee to record all of these transactions as rental income on Very Best’s books, and to pick names at random and record these names in the accounting records so that it did not appear that the payments came from Scott Weinstock or Regal employees.

In 2007 after construction was complete on an adjacent lakefront residence, Very Best sold the lake house and a deferred gain of $320,000 was reported on Scott Weinstock’s personal tax return. However, by 2007 Scott Weinstock had accumulated $281,886 in capital losses from day trading, which he was able to use to offset all but $41,252 of the deferred gain. In 2004 when Very Best sold the Regal business location to Regal and produced the gain, Scott Weinstock had only $83,400 in capital losses. Thus, by fraudulently showing he was renting the Very Best house for two years, Scott Weinstock avoided paying tax on $187,402 of gain from the sale by offsetting it with additional capital losses that did not exist in 2004, when Very Best effectively ceased any legitimate business rental activity and should have been taxed on the gain.

The total tax loss attributable to both Scott and David Weinstock is $198,942 relating to the structuring scheme. Additional tax loss is attributable to Scott Weinstock of $40,119 relating to his personal federal income taxes and $34,831 relating to the Very Best like-kind exchange transaction, totaling $273,892 for Scott Weinstock.

Scott and David Weinstock face a maximum sentence of five years in prison for tax evasion. U.S. District Judge Benson E. Legg scheduled sentencing for June 18, 2010.

William Endy, age 69, of Easton, Maryland, pleaded guilty and faces a maximum sentence of 10 years in prison for structuring transactions and five years in prison for tax evasion. U.S. District Judge William D. Quarles, Jr. has scheduled sentencing for March 19, 2010.

United States Attorney Rod J. Rosenstein thanked Assistant United States Attorney Michael J. Leotta, who is prosecuting the case.



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