Four Pennsylvania Family Members and Businessmen Sentenced for Tax Fraud
Four Lancaster County, Pennsylvania, family members and businessmen were sentenced in U.S. District Court for the Eastern District of Pennsylvania in Allentown, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division and U.S. Attorney Zane David Memeger of the Eastern District of Pennsylvania.
In October 2010, following a three-week jury trial, Chester A. Bitterman Jr. and his sons, Craig L. Bitterman, C. Grant Bitterman and Curtis L. Bitterman, were convicted of conspiracy to defraud the United States. Craig Bitterman was additionally convicted of obstruction of justice. Prior to sentencing, the defendants paid $437,000 in restitution to the Internal Revenue Service (IRS).
At sentencing hearings held on July 15, 17 and 22, U.S. District Court Judge James Knoll Gardner imposed the following sentences and stated that the offense was serious and the conspiracy was a long-term, complex and concerted effort by a family to avoid taxation:
Chester A. Bitterman Jr., 81, was sentenced to serve three years’ probation to include six months of home confinement, due in part to his age and ailing spouse confined to hospice care, and was ordered to pay a $5,000 fine;
Craig L. Bitterman, 55, was sentenced to serve three years in prison and three years of supervised release with 1,000 hours of community service at a rate of at least 30 hours of service per week, and was ordered to pay a $10,000 fine;
C. Grant Bitterman, 53, was sentenced to serve 21 months in prison and three years of supervised release with 1,000 hours of community service at a rate of at least 30 hours of service per week, and was ordered to pay a $7,500 fine; and
Curtis L. Bitterman, 61, was sentenced to serve 21 months in prison and three years of supervised release with 1,000 hours of community service at a rate of at least 30 hours of service per week, and was ordered to pay a $7,500 fine.
According to the evidence at trial, from 1996 to 2005, the Bittermans owned and operated the Bitterman Scale Company, which now operates as Bitterman Scales LLC. To conceal their income and assets from the IRS, the Bittermans used aliases, offshore bank accounts and a complex series of sham paper transactions to disguise the income. The defendants transferred their personal and business assets to sham trusts purchased from the Commonwealth Trust Company, a tax protester organization that marketed trust products to clients for the purpose of avoiding federal income tax payment. The trusts were used to make it appear as though the defendants had little or no assets or income. In reality, the defendants retained complete access and control over their funds. In January 2008, the principal owners of the Commonwealth Trust Company were convicted at trial in the Eastern District of Pennsylvania of tax crimes for causing losses of over $17 million and were sentenced to prison.
The defendants paid themselves in cash and arranged bogus payments between the numerous trusts that they had created. These bogus payments were purported to be leases, management fees and fiduciary fees. The defendants submitted trust tax returns for their business and took fraudulent deductions for these payments to create the appearance of minimal or no taxable business income. After the IRS levied the business bank account and receivables, the defendants instructed their customers to pay another trust to thwart IRS collection efforts. The defendants also placed bogus liens and mortgages on their assets to make it appear to the IRS that the defendants had no assets that could be levied or seized as part of the tax collection process. Some of the defendants used aliases and bank accounts in the names of trusts to make school tuition payments for their children appear as if they were scholarships from third parties. In addition, to further conceal their assets from the IRS, at least one defendant used offshore bank accounts in the British Virgin Islands and three of the defendants arranged for sham transfers of real estate to their children.
During the investigation, after Craig Bitterman was served with federal grand jury subpoenas requiring the production of trust records, he failed to produce the records to the grand jury and instead shipped those trust records to Texas and New Mexico in an attempt to conceal them.
Acting Assistant Attorney General Ciraolo and U.S. Attorney Memeger commended special agents of IRS–Criminal Investigation, who investigated the case, and Assistant U.S. Attorney Vineet Gauri of the Eastern District of Pennsylvania and Trial Attorney Michael C. Vasiliadis of the Tax Division, who prosecuted the case.