Prison Time And Stiff Penalties Await Tax Fraudsters, Prosecutors Warn
For Immediate Release
U.S. Attorney's Office, Western District of North Carolina
Phishing, Phone Scams and Identity Theft among the 12 Most Common Tax Scams
CHARLOTTE, NC - With the deadline for filing income tax returns a week away, U.S. Attorney Andrew Murray and Matthew D. Line, Special Agent in Charge of the Charlotte Field Office of the Internal Revenue Service - Criminal Investigations Division, jointly announce recent tax fraud prosecutions and sentencings, and deliver a powerful warning to those who are thinking about breaking the law by committing tax crimes.
“As April 15th approaches, we assure taxpayers who file honest tax returns and pay their taxes on time that my office works diligently to catch tax cheats. Whether it’s failing to report income, falsely padding deductions on returns to obtaining inflated refunds, or stealing innocent victims’ identities to file fraudulent tax returns, our experienced tax prosecutors work with dedicated IRS criminal investigators to find those who try to cheat our tax system and hold them accountable for their actions,” said U.S. Attorney Murray.
“The IRS Criminal Division takes tax violations of law very seriously. Our largest enforcement program is directed at the portion of American taxpayers, who willfully and intentionally violate their known legal duty of filing and paying their fair share of taxes. With the April 15 tax deadline looming, it is important for people to have confidence that when they pay their taxes, their neighbors and co-workers are doing the same,” said Special Agent in Charge Line.
Attorney Indicted for Tax Fraud
John Hanzel (3:19-cr-82). On March 27, 2019, an indictment was unsealed charging Hanzel with three counts of filing false tax returns for tax years 2012 through 2014. From in or about 2011 to the present, Hanzel was a resident of Cornelius, N.C., and was an attorney with the law firm John F. Hanzel, P.A. Hanzel’s law practice included, among other things, counseling his clients to set up offshore corporations and offshore bank accounts to purportedly protect income and assets from creditors, including the IRS. During the relevant time period, Hanzel did not have a personal bank account and did not pay himself a salary from his law firm. Instead, Hanzel wrote checks from his law firm account to pay for personal expenses including utility bills, mortgage payments, and credit cards. Hanzel fraudulently deducted personal expenses paid out of his law firm bank account as business expenses, including by falsely categorizing such as expenses as costs of goods sold and other deductions. From 2011 through 2014, Hanzel reported minimal income on his Federal Individual Income Tax Returns, Forms 1040, and paid minimal federal income tax. However, Hanzel actually received substantial income that he hid from the IRS by falsely deducting personal expenses as business expenses and by living out of his business bank account.
Other Tax Prosecutions
In the last year, the U.S. Attorney’s Office, with the assistance of IRS-CI, has investigated and prosecuted numerous individuals for criminal tax violations. Tax enforcement prosecutions include:
Aminta A. Smith (3:18-cr-107). On March 18, 2019, a superseding indictment was returned charging Smith with aiding and assisting in the preparation of false tax returns and filing false tax returns for herself for 2013, 2014, and 2015. The indictment alleges that, between 2012 and 2015, Smith prepared and submitted to the IRS more than 1,300 tax returns, many of which included false information such as false income and false education expenses, which qualified filing individuals for inflated tax refunds. The indictment further alleges that the Charlotte-area tax return preparer kept a portion of the tax refund as her fee. For tax years 2013 to 2015, Smith also filed U.S. Individual Income Tax Returns that did not include much of the income she earned for preparing tax returns, which resulted in Smith receiving large tax refunds. Smith faces a maximum penalty of three years in prison for each charge of aiding and assisting in the preparation of false tax returns and three years in prison for each charge of filing a false tax return.
James E. MacAlpine (1:18-cr-92). On February 4, 2019, MacAlpine pleaded guilty to evasion of payment of his taxes. MacAlpine, a resident of Buncombe County, was the owner/operator of “James E. MacAlpine, DDS,” an orthodontic practice in Buncombe County. MacAlpine has a long history of tax non-compliance – he failed to file tax returns for tax years 1996 through 2000, and in other years, MacAlpine filed tax returns self-assessing taxes due and owing, and then failed to pay those taxes. Between 2000 and 2017, MacAlpine took numerous affirmative acts to evade the payment of his taxes including, opening and closing bank accounts to evade IRS levies and filing frivolous documents to the IRS for the purpose of harassing the IRS. In 2014, the United States District Court entered a judgment that MacAlpine owed the IRS additional taxes, interest, and penalties in the aggregate amount of more than $1.9 million for tax years 1999, 2000, and 2002 through 2006.
Vincent Griggs (3:18-cr-383). On January 11, 2019, Griggs pleaded guilty to filing a false tax return. Griggs operated an audio-visual services company and failed to report gross receipts of more than $700,000 from 2011 through 2015 to the IRS from the business. As a result, Griggs fraudulently obtained the Earned Income Tax Credit for 2014 and 2015, and he had additional tax due and owing to the IRS of approximately $124,971 for tax years 2011 to 2015.
Arthur Joseph Gerard III (3:16-cr-270). On September 25, 2018, a federal jury convicted Gerard of conspiracy to impede the IRS after a week-long jury trial. Gerard was the promoter of a fraudulent tax evasion scheme and helped others to shield their assets from the IRS using nominee companies and false IRS filings. Between October 2007 and May 2016, Gerard assisted clients in hiding income and assets from the IRS using straw companies and bank accounts opened in the names of those companies. In particular, Gerard conspired with his client, Reuben DeHaan, to hide from the IRS over $2.7 million in gross receipts earned by DeHaan through his holistic medicine business. Gerard recruited his friend, Richard H. Campbell Jr., into the scheme to serve as a nominee on DeHaan’s bank accounts. Gerard also assisted DeHaan in the filing of false documents with the IRS to obstruct the IRS’ collection efforts. Gerard charged DeHaan a fee of between $1,000 and $2,500 for each straw company he created. In total, Gerard’s conduct caused a tax loss of approximately $560,000.
Quandella Walker (3:17-cr-343). On March 21, 2019, Walker, 29, of Charlotte, was sentenced to 18 months in prison for aiding and assisting in the filing of false tax returns for others. Through her tax preparation business, Quandella Tax Services, between January 2010 through at least 2016, Walker prepared tax returns for clients that contained false income information, to enable her clients to fraudulently qualify for inflated tax refunds. Walker also filed false tax returns for her own name.
Albert Strong (3:18-cr-131). On January 31, 2019, Strong, 59, of Union, South Carolina, was sentenced to 36 months in prison. Strong worked as a machinist/mechanic for a company at its Charlotte, N.C. location. From 2008 to 2015, Strong embezzled funds from the company using a fraudulent purchasing and billing scheme. Strong created a purported parts vendor, and then caused the company to order fictitious parts from the vendor. As part of the scheme, Strong created false invoices and submitted them to the company for payment. In all, Strong embezzled approximately $1,488,000 from the victim company. Strong failed to report the embezzled funds on his 2009 through 2015 tax returns, resulting in an approximate $450,000 tax loss.
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Federal penalties for tax crimes range from a maximum of one year in prison and a $100,000 fine for failure to file a tax return, false withholding exemptions, and delivering or disclosing false tax documents, to a maximum of 10 years in prison and a $250,000 fine for conspiracy to defraud with respect to false refund claims. Other penalties include a mandatory term of two years in prison and a $250,000 fine for aggravated identity theft charges, three years in prison and a $250,000 fine for obstructing or impeding an investigation and filing or preparing a false tax return, and a maximum of five years in prison and a $250,000 fine for tax evasion, failure to pay employment taxes, conspiracy to commit a tax offense or conspiracy to defraud.
The U.S. Attorney’s Office and the IRS remind tax payers to exercise caution during tax season to protect themselves against a wide range of tax schemes ranging from identity theft to return preparer fraud. Illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice to shutdown scams and to prosecute the criminals behind them. The IRS has issued its annual “Dirty Dozen” which lists common tax scams that taxpayers may encounter, particularly during filing season. Taxpayers are urged look out for, and to avoid, the following common schemes:
• Phone Scams
• Identity Theft
• Return Preparer Fraud
• Inflated Refund Claims
• Falsifying Income to Claim Credits
• Falsely Padding Deductions on Returns
• Fake Charities
Excessive Claims for Business Credits
Offshore Tax Avoidance
• Frivolous Tax Arguments
• Abusive Tax Shelters
Education is the best way to avoid these common schemes. To learn more about the Dirty Dozen scams and for help with recognizing and avoiding abusive tax schemes, the IRS offers educational material at www.irs.gov. Suspected tax fraud can be reported to the IRS using Form 3949-A found on the IRS.gov website.
Updated April 8, 2019