Three Albuquerque Businessmen Sentenced to Probation for Federal Tax Fraud Convictions

ALBUQUERQUE – Three brothers, all naturalized U.S. citizens from Armenia, were sentenced to terms of probation this morning in Albuquerque, N.M., for conspiring with each other to defraud the United States of corporate income tax due and owing from their jointly owned business, announced U.S. Attorney Damon P. Martinez and Ismael Nevarez, Jr., Special Agent in Charge of the Phoenix Field Office of IRS Criminal Investigation.

Hrant Kostanian, 51, Hrair Kostanian, 56, and Gayk Kostanian, 60, were each sentenced to a five-year term of probation.  The brothers also were ordered jointly to pay $263,600.00 in restitution to the IRS, the amount of corporate income taxes they jointly evaded.  In addition, the three brothers were ordered individually to pay restitution to the IRS as follows for evading personal income taxes:  Hrant Kostanian, $33,312.00; Hrair Kostanian, $20,386.00; and Gayk Kostanian, $16,059.00.  In addition to the restitution payments, Hrant Kostanian and Hrair Kostanian each were ordered to pay fines in the amount of $15,810.65.

The three brothers were indicted on Sept. 23, 2014, and charged with one count of conspiracy and four counts of tax evasion.  Count 1 of the indictment charged the three brothers with conspiracy to defraud the United States of corporate taxes owed on income generated by Pro Billiards, Inc., a New Mexico corporation jointly owned by the brothers that does business as “Billiards Palace” in northeast Albuquerque.   The conspiracy count also alleges that the Kostanians also evaded personal income tax due and owing on their personal incomes.  The brothers are charged with evading approximately $263,600.00 in corporate taxes during tax years 2007, 2008, 2009 and 2010.  More specifically, the Kostanians evaded federal taxes owed by their business by underreporting their income as follows:

Count 2 charges the Kostanians with evading $58,834.00 in federal taxes by falsely claiming that their business had $694,293.00 in taxable income in 2007 when in fact it had $906,003.00 in taxable income that year. Count 3 charges the brothers with evading $25,521.00 in federal taxes by falsely claiming that their business had $624,034.00 in taxable income in 2008 when in fact it had $773,289.00 in taxable income that year.  Count 4 charges them with evading $33,810.00 in federal taxes by falsely claiming that their business had $543,224.00 in taxable income in 2009 when in fact it had $684,694.00 in taxable income that year.  Count 5 charges the Kostanians with evading $10,485.00 in federal taxes by falsely claiming that their business had $476,439.00 in taxable income in 2010 when in fact it had $773,289.00 in taxable income that year.

According to the indictment, the Kostanians perpetuated their fraud against the United States by maintaining false books and records for their business in order to conceal their actual corporate income.  The brothers presented the false books and records to their corporate accountant, which caused their accountant to file false corporate income taxes with the IRS.  The indictment also stated that the Kostanians diverted the unreported income to their own personal use and maintained a separate accounting ledger that showed their business’s actual income.

On May 6, 2015, the Kostanians each entered a guilty plea to Count 1 of the indictment.  In their plea agreements, the brothers admitted conspiring with each other to defraud the United States by obstructing the IRS’s ability to collect corporate income taxes owed by their business.  Each admitted that they maintained false books and records that they presented to their corporate accountant for use in preparing the business’s income taxes for 2007, 2008, 2009 and 2010.  They also admitted maintaining a separate accounting ledger that showed their business’s actual income.  The conspiracy was discovered in Jan. 2011 and Feb. 2011, when Hrair Kostanian and Gayk Kostanian discussed the prospect of selling the business with undercover IRS agents and revealed that the business generated more income than reflected on the business’s corporate tax returns.  On Feb. 23, 2011, Hrair and Gayk Kostanian showed the undercover IRS agents documents that detailed the business’s additional, unreported income.

In their plea agreements, all three brothers admitted that they evaded an aggregate of $263,600.00 in federal corporate taxes for tax years 2007 through 2010, by intentionally understating their business’s income.  In addition, each of the Kostanians admitted evading his own taxes during that same period by understating his personal income.  To that end, Hrant Kostanian admitted evading $33,312.00 in individual taxes; Hrair Kostanian admitted evading $20,386.00 in individual taxes; and Gayk Kostanian admitted evading $16,059.00 in individual taxes.

This case was investigated by the Albuquerque office of IRS Criminal Investigation and was prosecuted by Assistant U.S. Attorney Reeve L. Swainston.