Thursday, March 12, 2015

Sentencing of Ex-Casino Owner, Nevada Businessman and Former NFL Player for Fraudulent Tax Scheme (3/12/15)

DOJ Tax has announced, here, the sentencing of an Ex-Casino Owner, Nevada Businessman and Former NFL Player for marketing a fraudulent tax scheme.  Key excerpts are:
A former casino owner from Henderson, Nevada, a former businessman from Las Vegas and a former NFL punter from Upland, California, were sentenced yesterday in U.S. District Court in Las Vegas to serve prison time and ordered to pay more than $35 million in restitution for conspiracy and fraud related to their promotion of a fraudulent tax product through the now-defunct National Audit Defense Network (NADN), announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division. 
Alan Rodrigues, NADN’s former general manager and executive vice president, was sentenced to serve 72 months in prison to be followed by three years of supervised release and to pay a $2,000 special assessment by U.S. District Court Judge Miranda Du of the District of Nevada.  Rodrigues was ordered to pay restitution of more than $35 million to customers of NADN who purchased the fraudulent tax product.  Weston Coolidge, a businessman who previously served as NADN’s president, was sentenced by Judge Du to serve 70 months in prison followed by three years of supervised release, and to pay a $2,000 special assessment for his part in the fraud.  Coolidge was also ordered to pay restitution of more than $35 million to victims of the fraud.  Joseph Prokop, who previously served as the National Marketing Director for Oryan Management and Financial Services, a company affiliated with NADN, was sentenced to serve 18 months in prison to be followed by 30 months home confinement and three years of supervised release.  Prokop was also ordered to pay a $1,800 special assessment and restitution to victims of more than $35 million.  At sentencing, Judge Du found that the defendants were responsible for fraud losses of more than $36 million and an intended tax loss of more than $60 million.
On May 27, 2014, after a six-week jury trial, the three defendants were convicted of one count of conspiracy to defraud the United States, 13 counts of aiding and assisting in the preparation of false income tax returns and four counts of mail fraud.  Rodrigues and Coolidge were each convicted of an additional two counts of aiding and assisting in the preparation of false income tax returns. 
* * * * 
The evidence at trial established that through NADN, the defendants promoted and sold a product called Tax Break 2000 to customers throughout the United States.  NADN began to promote and sell Tax Break 2000 in early 2001.  Tax Break 2000 purported to be an online shopping website.  The defendants falsely and fraudulently told customers that buying the product would allow them to claim legitimate income tax credits and deductions under the Americans with Disabilities Act (ADA) by modifying the website each customer was provided to make it accessible to the disabled.  NADN charged $10,475 for the product to maximize the fraudulent income tax credits and deductions that individuals would claim on their tax returns.  Although the price of the product that was claimed on the tax returns was $10,475, the customers only paid between $2,000 and $2,695 out-of-pocket.  The remainder of the cost was covered by a promissory note that customers were not expected to repay.  
The defendants knew that the websites provided to customers made little, if any, money from sales commissions and that they did not entitle the purchaser to either a tax credit or any deductions.  The defendants nonetheless taught and directed the tax return preparers working for NADN to prepare thousands of tax returns for customers that claimed the fraudulent tax credit and deductions.  When special agents of the Internal Revenue Service (IRS) began to investigate Tax Break 2000 and NADN, the evidence showed that the defendants sought to cover up the fraud by creating false IRS Forms 1099 that reported fictitious income to make it appear that the websites were in fact earning money. 
From 2001 through approximately May 2004, NADN sold the Tax Break 2000 product more than 18,000 times to thousands of customers located throughout the United States.  As a result of the defendants’ fraud, thousands of NADN customers were audited by the IRS.  On April 13, 2004, the Tax Division filed a civil complaint seeking to enjoin, among others, NADN, Rodrigues, Coolidge and Prokop from selling fraudulent tax schemes, including Tax Break 2000.  NADN ceased operations in May 2004.
JAT Comments:

1.  Note the DOJ's reference to the conduct as involving a "scheme" and more precisely a "Tax Fraud Scheme" or  "fraudulent tax scheme[]."  Gambits not dissimilar in effect to this are usually referred to as tax shelters (at least when promoted by tax professionals).  The word "scheme" is commonly defined in the U.S. as "a clever and often dishonest plan to do or get something."  Merriam-Webster on line dictionary, here (viewed 3/12/15).  That  is the meaning that is used in the press release.  But, readers should be aware that scheme can have a much more neutral meaning.  For example, in Great Britain, it can mean "A large-scale systematic plan or arrangement for attaining some particular object or putting a particular idea into effect.  Oxford Doctrinaires on line, here (viewed 3/12/15).  Thus, entirely legal and appropriate retirement arrangements are often referred to a "schemes".  See Wikipedia entry for Pensions in the United Kingdom, here.  When I first dealt with such wholly legal arrangements in Great Britain and encountered the use of schemes to describe legitimate arrangements, I had to re-orient my use of the term to include legitimate arrangements.

2.  If, as indicated, the "scheme" was shut down in May 2004, it is not clear why the statute of limitations was still open.  The counts of conviction had 5 and 6 year statutes.  The counts for tax conspiracy and aiding and assisting have 6-year statutes, and the mail fraud counts have a 5-year statute.  I suppose it is possible that the defendants took some further action in the interim that might have refreshed these statute of limitations on previous conduct.  Perhaps the defendants employed the Form 1099 gimmick after May 2004 and within an available statute of limitations.

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