Massachusetts Man Sentenced to Prison for Tax Evasion Related to Organized Crime Investigation
WASHINGTON -- A Massachusetts man was sentenced today in U.S. District Court in Providence, R.I., to 12 months and one day in prison for tax evasion related to an FBI investigation of organized crime activity in Rhode Island.
U.S. District Court Chief Judge Mary M. Lisi also ordered Gerald Diodati, 61, of Seekonk, Mass., to pay $194,031 in restitution and to serve three years of supervised release following his prison term. Diodati pleaded guilty in November 2010 to tax evasion related to his 2003 income tax filings.
Diodati’s sentence was announced by Assistant Attorney General Lanny A. Breuer of the Criminal Division; U.S. Attorney Peter F. Neronha for the District of Rhode Island ; Acting Assistant Attorney General John A. DiCicco of the Tax Division; Richard DesLauriers, Special Agent in Charge of the FBI’s Boston Field Office; and William P. Offord, Special Agent in Charge of the Boston Field Office of the Internal Revenue Service - Criminal Investigation (IRS-CI)
According to court documents, f rom approximately 2003 through 2006, Diodati concealed from the IRS at least $586,000 he earned through his construction business by converting the proceeds of his businesses to cash and using check cashing services to evade 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 in court, 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 three 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 in court, Diodati requested that the money owed him by Hemphill be paid in cash installments placed in a safety deposit box he opened at a local bank, 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.
The case was 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 FBI and IRS – Criminal Investigation.