Tax charges filed against Parma Heights man
As a result of the scheme, the U.S. Treasury issued 17 refund checks totaling $3,615,586 payable to McCallum’s co-conspirator and various corporations controlled by the co-conspirator.
According to court records, McCallum, age 39, resides in Parma Heights, Ohio.
During the years charged in the Information, McCallum was employed as an accountant / bookkeeper by his alleged co-conspirator, referred to in the Information as BK, both in connection with corporate businesses and personal real estate investments of BK.
The information alleges that from approximately April 2009 through June 8, 2010, McCallum and BK conspired to make false claims for tax refunds using income tax returns filed with the IRS in the names of BK, companies formed by BK and McCallum, and several “shelf” companies purchased by BK. A “shelf” company is a corporate or other formal non-operating business entity established for the purpose of being held for sale to another person.
The scheme involved the use of fake IRS Forms 2439, titled “Notice to Shareholder of Undistributed Long-Term Capital,” which is a form to be issued by a regulated investment company (RIC) or real estate investment trust (REIT) to report undistributed capital gains and taxes withheld from those gains on behalf of the shareholders, according to the information.
Under federal tax law, RICs and REITs are entities that are not taxed on their earnings but instead pass those earnings to their shareholders who, in turn, have the obligation to report those earnings and any resulting tax liabilities on the shareholders’ income tax returns.
McCallum and BK began the conspiracy by filing false returns in the names of BK and a corporation owned by BK, claiming refunds of fictitious tax withholdings purportedly paid by two of BK’s corporations as purported RICs or REITs. In light of the initial success in getting the refunds, BK began purchasing shelf companies to use both as the taxpayers claiming the refunds and as the purported RICs and REITs, according to the information.
McCallum prepared the false returns and the fake Forms 2439 accompanying the returns, in each case fabricating the reported amounts of capital gains income and withholding. None of the corporations or shelf companies were actually RICs or REITs or had any undistributed capital gains or withheld taxes, according to the information.
According to the information, the conspiracy was designed initially to alleviate BK’s financial and credit difficulties and later to finance a real estate venture BK established with other partners, known as Phoenix Ventures Partners LLC. One of the shelf companies purchased by BK was known as Controlled Systems. BK and McCallum misled BK’s real estate partners to believe that Controlled Systems was a company owned by a group of Colorado investors who agreed to provide hard money loans to Phoenix Ventures Partners to finance the costs of purchasing and rehabilitating properties for resale. In fact, Controlled Systems was used to funnel proceeds of the fraudulently-obtained refunds to the real estate venture, including the purchase of over 31 bank checks, totaling more than $1.1 million, payable to the Cuyahoga County Sheriff for real estate purchases, plus the payment of hundreds of thousands of dollars to contractors.
Over the course of the conspiracy, an additional object became the concealment of BK’s involvement in the scheme by amending the tax returns reflecting BK’s name and by listing McCallum’s name on documents, bank accounts, and other tax returns used in the conspiracy.
If convicted, the defendant’s sentence will be determined by the Court after review of factors unique to this case, including the defendant’s prior criminal record, if any, the defendant’s role in the offense and the characteristics of the violation. In all cases the sentence will not exceed the statutory maximum and in most cases it will be less than the maximum.
The government’s case is being prosecuted by Assistant United States Attorneys John M. Siegel and Justin J. Roberts, following an investigation by the Internal Revenue Service, Criminal Investigation.
An information is only a charge and is not evidence of guilt. A defendant is entitled to a fair trial in which it will be the government’s burden to prove guilt beyond a reasonable doubt.