Tax Fraud Blotter: Flaws in the system | #phishing | #scams


Dutch treat; ain’t no Sunshine; the trouble with truffles; and other highlights of recent tax cases.

Charleston, South Carolina: Real estate developer James Thomas Bramlette of Salt Lake City has pleaded guilty to wire fraud and tax fraud.

In 2011, Bramlette borrowed $17.5 million from a Dutch investor to purchase out of bankruptcy Melrose Resort on Daufuskie Island, South Carolina. Bramlette put none of his own money into the purchase. Bramlette and a co-defendant also raised more than $10 million from individual investors by issuing promissory notes with high interest.

Bramlette could not make the mortgage payments to the Dutch lender, which led to a $27 million foreclosure in 2014. He lost further control of the resort in October of that year when he pledged ownership of the property to secure a separate $700,000 loan, which he later defaulted on. He was allowed to remain as manager of the resort; part of his duties included paying property taxes. By September 2016, Melrose owed $502,759 in past-due property taxes.

Bramlette created a fake wire receipt that falsely represented that Melrose had wired $502,759 to pay the property taxes. Melrose actually had only $121.07 in its bank account at this time.

He used at least $1.8 million from investors for personal use. He also collected payroll taxes from the Melrose employees but failed to turn over to the IRS some $1 million in payroll taxes.

Greenbelt, Maryland: Tax preparers Lenore Worthy and Veronica Fortune have been sentenced for conspiring to defraud the U.S. and preparing false returns.

Worthy was sentenced to six months in prison and Fortune to a year and a day in prison.

The pair used varying business names, including United Tax Services and Fortune’s Professional Services, to provide tax prep services. For tax years 2012 through 2018, they and a third conspirator, Anita Fortune, inflated clients’ refunds by fabricating and exaggerating Schedule A deductions and by engineering Schedule C losses.

The IRS expelled Worthy from its e-filing program after she and Anita Fortune, who was using Worthy’s e-filing credentials, each prepared false returns for undercover IRS agents.

Worthy and Anita Fortune subsequently used Veronica Fortune’s e-filing credentials to conceal their identities from the IRS and continue preparing false returns. The IRS later expelled Veronica Fortune from the e-filing program but she obtained new credentials from a third party and again shared them with her conspirators.

All three continued to prepare fraudulent returns through the 2019 filing season, causing a total tax loss to the IRS of $189,748.

Anita Fortune was sentenced in June to 30 months in prison.

Worthy was ordered to pay some $189,748 in restitution to the U.S. Veronica Fortune was ordered to pay some $86,590. Both were also sentenced to three years of supervised release.

Uncasville, Connecticut: Business owner Kathryn Pocock, 58, has pleaded guilty to one count of tax evasion.

Pocock has operated the home-cleaning business Sunshine Cleaners for 30 years. Between 2015 and 2019, she withdrew some $855,000 from the business and failed to report those proceeds on the relevant tax forms for the business and on her federal income tax returns.

Investigation revealed that Pocock regularly cashed numerous client checks that had been paid to her business, deposited some checks into her personal bank account and paid her employees in cash without collecting and paying over employment tax to the IRS or sales and use taxes to the State of Connecticut. She also provided her tax preparer with false documentation that significantly understated her income and employee-related expenses.

Sentencing is Dec. 8. Pocock faces a maximum of five years in prison. She has agreed to pay $213,965 in restitution to the IRS and $33,514 to the State of Connecticut.

Rocky Mount, North Carolina: Tax preparer Bertha Battle, 40, has been sentenced to 16 months in prison and ordered to pay $59,268 in restitution for conspiracy to prepare and file false returns.

Battle, who pleaded guilty last year, conspired to file false returns for the 2011 through 2016 tax years for clients of Community Tax Services. She and her conspirators filed returns that claimed false education credits, among other illegitimate items, to fraudulently generate clients’ refunds.

The scam resulted in a loss of more than $2 million in taxes.

Pinehurst, North Carolina: Married couple James and Susan Rice have been convicted of conspiring to defraud the IRS and with other federal employment and income tax violations.

Since 1992, James Rice was an orthopedic surgeon who owned and operated Sandhills Orthopedic, a medical practice. Susan Rice worked at Sandhills and handled the administrative operations; she also owned and operated a truffle business.

Between 2007 and 2016, the Rices withheld nearly $580,000 in Social Security and other withholdings from Sandhills employees’ wages but used the money for personal expenditures. The Rices also did not file individual returns for the 2014 through 2016 tax years.

To conceal their income, they transferred funds from Sandhills bank accounts to other accounts they controlled, such as those for Susan Rice’s truffle business. They also used their business bank accounts for personnel expenditures, including a country-club membership, kennel boarding and rent for their personal residence. From June 2013 through December 2016, the Rices diverted at least $1 million in cash and check co-payments to Sandhills directly into their personal bank accounts.

The couple each face a maximum of five years in prison for each count of conspiracy, tax evasion and employment tax fraud, and an additional year for each count of failing to file individual and corporate returns. They’re also subject to additional monetary penalties, supervised release and restitution.

Portland, Oregon: Tax preparer Damian O. Barrett, 40, of Homestead, Florida, has been sentenced to 54 months in prison for perpetrating a multiyear fraud in which he filed hundreds of false returns in different states.

Barrett owned two tax prep companies: Max Tax Experts and Winngate Tax Services. He used Max Tax to submit returns on behalf of legitimate clients and Winngate to submit false and fraudulent income tax returns.

From about 2015 through 2018, Barrett filed 745 false returns to 19 different state taxing authorities. The Oregon Department of Revenue alone received 348 returns requesting more than $322,000 in fraudulent refunds; the agency paid out more than $130,000 in fraudulent refunds to Barrett.

Barrett used the names, Social Security numbers and employer ID numbers of various individuals, some of whom were his clients, to submit fraudulent returns. He also set up bank accounts in the names of some of his victims to receive fraudulent refunds.

In total, Barrett sought nearly $900,000, and received more than $234,000, in fraudulent refunds. News outlets said he eventually told investigators, “I found a flaw in your system, and I took advantage of it.”

In 2016, he excluded more than $21,000 in income from his personal income tax return, resulting in a tax loss of $5,506. In 2017, he failed to even file a personal income tax return, creating an additional tax loss of $68,918.

Barrett, who pleaded guilty last July, was ordered to pay more than $234,000 in restitution to 11 state departments of revenue and more than $74,000 to the IRS. He was also sentenced to three years of supervised release.

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