North Stonington Man Pleads Guilty to Tax Evasion and Structuring Cash Transactions
Deirdre M. Daly, United States Attorney for the District of Connecticut, today announced that JOHN ZELEPOS, 48, of North Stonington, pleaded guilty yesterday in Bridgeport federal court to tax evasion and financial structuring offenses.
According to court documents and statements made in court, ZELEPOS is the sole owner of Mystic Pizza, LLC, a Schedule C retail restaurant business in Mystic, Connecticut. From 2006 to 2010, ZELEPOS regularly diverted Mystic Pizza’s cash business gross receipts totaling approximately $567,435. Approximately $330,005 in the diverted cash was deposited into his personal bank account ($113,360) and his and his wife’s personal checking account ($102,580) at Chelsea Groton Bank, his wife’s personal checking account at Washington Trust Company ($74,865), and passbook savings accounts in the name of each of his three minor children at Chelsea Groton Bank ($39,200).
With respect to his 2006 tax return, on June 14, 2007, ZELEPOS willfully attempted to evade and defeat a large part of the income tax due and owing to the United States for 2006 by, among other things, (1) diverting approximately $130,060 in cash from Mystic Pizza, LLC, (2) depositing the diverted cash into his personal bank account and his and his wife’s personal checking account at Chelsea Groton Bank, his wife’s personal checking account at Washington Trust Company, and passbook savings accounts in the name of each of his three minor children at Chelsea Groton Bank at various times in amounts less than $10,000, (3) deducting as business expenses wages paid to two no-show employees, (4) not disclosing to his tax return preparer receipt of the diverted cash and the two no-show employees, and (5) filing and causing to be filed with the IRS a false and fraudulent 2006 federal tax return. In his 2006 tax return, ZELEPOS stated that his taxable income was $388,957 when in fact, as he knew, in 2006 his total taxable income was $551,858 (an additional $162,901 which included the diverted income, deductions for no-show employees, and other statutory adjustments), upon which he owed the United States approximately $180,765 (an additional $54,655) in federal income tax.
As part of the plea agreement, ZELEPOS agreed that he similarly evaded the payment of his federal taxes in 2007, 2008, 2009, and 2010 and that the total federal tax loss for 2006 to 2010 based on his conduct is $234,407. He has agreed to make restitution in the amount of $234,407, plus interest and penalties.
ZELEPOS also pleaded guilty to intentionally structuring financial transactions so as to avoid having the bank file Currency Transaction Reports (“CTRs”). He engaged in 61 currency transactions in amounts less than $10,000 from January 5, 2010 through January 24, 2011, totaling $522,658. He deposited cash into the business account, his personal account, his and wife’s personal bank account, and his three children’s bank accounts at Chelsea Groton Bank in amounts ranging from $3,000 to $9,998 on sequential days or multiple cash deposits on the same day. ZELEPOS knew that the bank was required to issue a report for a currency transaction in excess of $10,000 and by conducting his financial transactions in amounts less than $10,000, he intended to evade the transaction reporting requirements.
Federal law requires all financial institutions to file a CTR for currency transactions that exceed $10,000. To evade the filing of a CTR, individuals will often structure their currency transactions so that no single transaction exceeds $10,000. Structuring involves the repeated depositing of amounts of cash less than the $10,000 limit, or the splitting of a cash transaction that exceeds $10,000 into smaller cash transactions in an effort to avoid the reporting requirements. Even if the deposited funds are derived from a legitimate means, financial transactions conducted in this manner are still in violation of federal criminal law. Structured funds are subject to forfeiture to the United States.
As part of the plea agreement, ZELEPOS is forfeiting $522,658 of the money he intentionally structured between January 2010 and January 2011.
On January 2012, pursuant to a court-authorized federal seizure warrant, IRS Special Agents seized $63,084.49 from a payroll account Mystic Pizza held at Chelsea Groton Bank. Those funds are being applied to the forfeiture, reducing the remaining forfeiture amount to $459,573.51.
"Our voluntary system of self-reported tax liability depends upon people to honestly report their income and pay their taxes," stated U.S. Attorney Daly. "Those who willfully hide their income and purposefully evade paying their taxes steal from the public and damage our nation’s system of taxation. Violators will be prosecuted, punished, and obligated to repay their taxes along with applicable penalties and interest. The tax fraud was more egregious in this case because the defendant sought to hide some of the diverted business funds by depositing cash in amounts less than the reportable $10,000 so as to prevent the bank from filing currency transaction reports reporting the multiple cash transaction to the IRS."
U.S. District Judge Victor A. Bolden will sentence ZELEPOS on June 23, 2015, at which time ZELEPOS faces a maximum term of imprisonment of 15 years and a fine of up to $500,000. He was released pending sentencing.
This matter was investigated by the Internal Revenue Service - Criminal Investigation Division. The case is being prosecuted by Assistant U.S. Attorney Peter S. Jongbloed.