New York Couple Pleads Guilty to Obstructing IRS, DOJ Announces

Manhattan U.S. Attorney Preet Bharara said: "As they admitted today, Jeffrey Stein and Marla Stein not only cheated the IRS by claiming hundreds of thousands of dollars of false deductions on their tax returns, they doubled down on their fraud by using the identities of others to create false documents in an attempt to snooker the IRS again -- this time during an audit. Lawyers, doctors, and indeed all taxpayers have an obligation not only to report their income and expenses truthfully, but also to deal in an honest and forthright manner with the IRS when it conducts an audit. Those who seek to mislead and defraud the IRS do so at their peril."

IRS Special Agent-in-Charge Shantelle P. Kitchen said: "It is inexcusable when financially successful individuals, with the resources to meet their tax obligations, defraud the tax system. By doing so, they increase the burden on law abiding American taxpayers, effectively forcing them to make up the difference. As we approach the April 15th tax deadline, this investigation serves as a timely warning to those who contemplate filing fraudulent tax returns through falsifying their expenses. It also reinforces the message that falsifying books and records "after the fact," in preparation for a tax audit, is also a criminal offense and will be dealt with accordingly. IRS-Criminal Investigation remains committed to protecting the American tax system and ensuring that everyone pays their fair share."

According to the Information filed today in Manhattan federal court:

JEFFREY S. STEIN was a vascular surgeon who, between 2009 and 2012, conducted business principally through his own Manhattan and Long Island-based medical practice, "Jeffrey Stein, M.D." Between 2008 and 2011, JEFFREY S. STEIN was also affiliated with and earned income from certain medical groups, including one based in Brooklyn that had contracts with the United States Department of Veterans Affairs ("V.A.").

MARLA STEIN was an attorney who, between 2009 and 2012, performed legal services largely as an independent contractor to certain Manhattan-based personal injury law firms.

Both JEFFREY S. STEIN and MARLA STEIN reported the profits from their medical and law practices, respectively, on separate Schedules C (Profit or Loss From Business) attached to the joint U.S. Individual Income Tax Returns, Forms 1040, that they filed for the tax years 2009-2012.

Filing of False Tax Returns

In connection with the preparation of their Forms 1040 for the tax years 2009-2012, JEFFREY S. STEIN and MARLA STEIN provided false and fictitious information to their accountant in order to fraudulently reduce the amount of taxes they would have to pay to the IRS. In particular, JEFFREY S. STEIN provided the accountant with (a) wholly fictitious Schedule C expenses purportedly incurred by his medical practice, such as contract labor expenses and transcription services that were, in truth and fact, never incurred or paid; and (b) falsely inflated Schedule C expenses purportedly incurred by his medical practice, including travel and auto expenses, deductible meals and entertainment, and the amounts of wages paid to employees of his medical practice. In addition, MARLA STEIN provided this accountant with (a) wholly fictitious Schedule C contract labor and advertising expenses purportedly incurred by her law practice but which were, in truth and fact, never incurred or paid; and (b) falsely inflated Schedule C expenses purportedly incurred by her law practice, including those for office supplies and deductible meals and expenses.

In addition to the foregoing, for the tax years 2007-2013, JEFFREY S. STEIN and MARLA STEIN failed to inform their accountant that they employed and paid approximately $15,000 annually in cash wages to a household employee ("the Domestic Employee") who performed certain cleaning and childcare services in their Upper East Side home.

As a result of the falsely inflated and wholly fictitious information provided by JEFFREY S. STEIN and MARLA STEIN to their accountant in connection with the preparation of their Forms 1040 for the 2009-2012 tax years, the accountant prepared tax returns for JEFFREY S. STEIN and MARLA STEIN that falsely and fraudulently understated their business income and, consequently, the amount of taxes due and owing to the IRS. In addition, as a result of the failure of JEFFREY S. STEIN and MARLA STEIN to inform their accountant of the cash wages paid to their Domestic Employee for the 2007-2013 tax years, JEFFREY S. STEIN and MARLA STEIN failed to pay to the IRS various employment taxes due and owing to the IRS, and also aided the Domestic Employee in avoiding detection by the IRS of the employee's failure to report her cash wages to the IRS for the tax years 2007-2013.

Obstruction of the IRS Audit

In February 2013, the IRS notified JEFFREY S. STEIN and MARLA STEIN, the defendants, that their tax returns for the 2010 and 2011 tax years had been selected for audit, specifically with respect to their respective Schedule C expenses. In response to requests by the IRS auditor for documents supporting their claimed deductions and expenses, JEFFREY S. STEIN and MARLA STEIN created and provided to their accountant -- whom they retained to represent them during the audit -- various fabricated and fictitious documents and information as part of a corrupt effort to convince the IRS auditor that the expenses claimed on their respective Schedules C were legitimate.

Among the fabricated and fictitious documents created by JEFFREY S. STEIN and MARLA STEIN and provided to their accountant, in order to pass on to the IRS auditor, were the following:

(a) Using the names of four disabled military veterans (including two former patients) whose identities JEFFREY S. STEIN obtained as a result of his work for the V.A., JEFFREY S. STEIN created bogus invoices in the names of those veterans ("the Bogus Invoices"). The Bogus Invoices falsely recited that the individuals whose names were contained on the invoices had performed during 2010 and 2011, and been paid by JEFFREY S. STEIN for, various medical services rendered to JEFFREY S. STEIN's medical practice, such as "ultrasound technologist" and "vascular technologist" services. In truth and fact, none of the individuals whose names were placed on the Bogus Invoices provided any of the services recited in the fabricated invoices, which totaled $126,525. One of the veterans whose name was placed on a Bogus Invoice by JEFFREY S. STEIN was not even alive in 2011 -- a year for which JEFFREY S. STEIN created a Bogus Invoice for that individual.

(b) JEFFREY S. STEIN created invoices purportedly sent to STEIN's medical practice in 2010 and 2011 by a Long Island hospital ("the Hospital") reflecting payments sought by the Hospital for "surgical physician assistant cost sharing," which invoices JEFFREY S. STEIN claimed were paid by his medical practice. In truth and fact, the services reflected in the Hospital invoices were never provided to JEFFREY S. STEIN and never paid by his medical practice as expenses.

(c) JEFFREY S. STEIN created invoices purportedly sent to STEIN's medical practice in 2010 and 2011 by a company that provided transcription services. In truth and fact, the transcription company identified by JEFFREY S. STEIN never provided any transcription services to JEFFREY S. STEIN's medical practice.

(d) MARLA STEIN created certain documentation indicating that two individuals, whose names and purported tax identification numbers were included thereon, had provided certain services to MARLA STEIN's law practice and had been paid fee income by MARLA STEIN as a result. In truth and fact, neither of those individuals had provided services to MARLA STEIN's law practice. Instead, the individuals whose identities were used were those of the Domestic Employee and a medical professional who had performed services for a member of MARLA STEIN's family.

(e) Using genuine invoices previously provided to MARLA STEIN by photographers and a videographer who had performed services in connection with religious celebrations for members of MARLA STEIN's family, MARLA STEIN used the names of the photographers and videographer but fraudulently altered the real invoices to make them appear as if the services reflected in the invoices had been provided to MARLA STEIN's law practice.

Mr. Bharara praised the outstanding efforts of IRS-CI in the investigation.

This case is being handled by the Office's Complex Frauds and Cybercrime Unit. Assistant U.S. Attorney Stanley J. Okula, Jr. is in charge of the prosecution.