James Roy McDaniel, once a tax lawyer and estate planner, pleaded guilty to a tax evasion charge on October 21, his second tax felony guilty plea.
The IRS noted in a release that McDaniel had been a California attorney for over 20 years before he pleaded guilty to filing a false tax return in 2004. On that charge, he was sentenced to the statutory maximum three years in prison and, as another result of his plea, lost his California law license.
Because that first case arose out of McDaniel’s embezzlement of $1.6 million from two of his clients, he also got state prison time.
More recently, McDaniel directed the income he earned as a tax and estate planning consultant through two shell companies. In the 2008-2012 scheme, McDaniel directed nominees to sign documents and open bank accounts connected to his shell companies.
The government asserts that McDaniel didn’t file tax returns or otherwise report his income from 2011 through 2018. He admitted to owing $184,000 on more than $500,000 of undeclared income for tax years 2012-2017.
At his January 21 sentencing, McDaniel faces up to five years in prison on one count of section 7201 tax evasion.
Hot Topic
Firas Hajjar of Commerce Township, Michigan, pleaded guilty on October 17 to evading tax on income earned from his business selling pop-culture apparel over the internet.
The Justice Department said Hajjar misreported his income on both his business and personal income tax returns for 2012. According to the criminal information, he lied to his accountant about the volume of sales deposits into the business’s PayPal account.
Hajjar is scheduled to be sentenced January 28. While his plea agreement doesn’t include a specified amount of restitution, it does include a provision requiring assistance in the assessment of and payment of his tax liabilities for 2011-2014.
Stunning Conclusions
Kansas City, Missouri, business owner Barrett Prelogar was sentenced October 23 to 18 months in prison for trying to obstruct the IRS’s efforts to collect payroll taxes from a defunct company he co-founded.
According to the Justice Department, Prelogar was personally assessed over a quarter of a million dollars in payroll taxes for 2002 and 2003. He then avoided paying that debt by using corporate funds for personal expenses and cashing, rather than depositing, payroll checks. At the same time, he made several substantial purchases, including three homes, a Porsche, and a boat.
Prelogar was convicted in April of one count of tax obstruction under section 7212(a) but acquitted of a tax evasion charge. Before his trial, he unsuccessfully tried to force the government to prove compliance with the Supreme Court’s narrowing of section 7212 in Marinello v. United States, 138 S. Ct. 1101 (2018).
In addition to his prison sentence, Prelogar was ordered to pay just under $264,000 in restitution to the IRS.
Craig P. Orrock, an ex-attorney and former IRS employee, was sentenced October 22 to 32 months in prison for evading payment and assessment of his taxes and obstructing the IRS.
The Justice Department noted that Orrock filed tax returns but didn’t pay the tax shown as owed on those returns from 1993 to 2015. He then resorted to hiding assets behind nominees, filing frivolous bankruptcy petitions, and submitting an offer in compromise.
Orrock was convicted in May on two counts of tax evasion and one count of tax obstruction. Before his trial, he tried to plead guilty to one tax misdemeanor charge despite the government’s disagreement with that course of action, but the court found that he didn’t have the option of overruling the prosecutor’s discretion over charges and pleas.
At his sentencing, Orrock was ordered to pay over $923,000 in restitution to the IRS after evading about half a million dollars in income taxes.
Beverly Hills, California, business owner Teymour Khoubian was sentenced October 10 to 21 months in prison for filing false tax returns that omitted Israeli and German bank accounts.
According to the Justice Department, Khoubian also paid a $7.686 million penalty for failing to file foreign bank account reports for the accounts, which held as much as $20 million between 2005 and 2012. At his sentencing, he was ordered to pay a further $612,000 to the IRS as tax restitution for the interest the accounts earned.
Khoubian was indicted in July 2017 for tax obstruction, filing false tax returns under section 7206(1), and perjury under 18 U.S.C. section 1001, and he pleaded guilty to two false return charges in November 2018. Until October 2017, he was represented by current IRS Commissioner Charles Rettig, who was then of Hochman, Salkin, Rettig, Toscher & Perez PC.
Roll Call
Most of the parents in the first batch of guilty pleas related to the massive college admissions bribery scheme have now been sentenced, with only one avoiding prison.
California packaged food entrepreneur Peter Jan Sartorio was sentenced on October 11 to one year of probation, 250 hours of community service, and a $9,500 fine. According to court documents, he was one of the only parents who didn’t deduct the bribe payments — he paid $15,000 to inflate his daughter’s standardized test scores.
Marjorie Klapper, owner of a jewelry business, and Jane Buckingham, a marketing company CEO, were both sentenced to three weeks in prison on October 16 and 23, respectively. Klapper also got a $9,500 fine and 250 hours of community service, whereas Buckingham got a $40,000 fine.
Both paid bribes to increase their sons’ standardized test scores — Klapper paid $15,000 and Buckingham $50,000.
Robert Flaxman, a California real estate developer who paid $75,000 in bribes, on October 18 got a month in prison, 250 hours of community service, and a $50,000 fine.
Each of the four parents, like those who pleaded guilty in April in the so-called Varsity Blues case, pleaded guilty to one count of mail and honest services fraud conspiracy under 18 U.S.C. section 1349. Most of the parents’ payments in the bribery scheme were characterized as charitable donations, but some were described as business consulting fees. All the plea agreements referred to the defendants’ civil tax liabilities.