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Tax Crime Roundup: Daugerdas Denied Coronavirus Shelter Request

Posted on June 1, 2020

Paul M. Daugerdas, one of the central figures in the turn-of-the-century tax shelter wars, is serving a 15-year sentence for his participation. On May 1 most of his request for compassionate release because of health concerns related to the coronavirus pandemic was denied.

From the late 1990s to the early 2000s, Daugerdas sold a variety of abusive tax shelter products. In 2013 he was convicted on charges including conspiracy, section 7201 tax evasion, and section 7212(a) tax obstruction. He was sentenced to 15 years in prison the next year.

Daugerdas made three requests for compassionate release: conversion of the remainder of his sentence into time served, to be allowed to serve the remainder in home confinement, and for a judicial recommendation that the Bureau of Prisons consider him for temporary home confinement.

The court noted that Daugerdas has served only a little more than one-third of his sentence. “Granting Daugerdas’s motion would do little to ‘promote respect for the law’ or ‘provide just punishment for the offense,’” the judge wrote in denying his first two requests.

However, while relief from the rest of his sentence might be unjust and inappropriate, a temporary furlough might be reasonable, the court said. The problem is that courts can’t order furloughs, so the district court granted Daugerdas’s motion only to the extent of making its recommendation to the Bureau of Prisons.

More Legal Escape Attempts

Theresa Foreman, convicted of evading taxes by using “ghost employees,” obtained more relief from her compassionate release request.

Foreman operated a home healthcare staffing company in Connecticut and tried to avoid taxes while extracting money from the business by writing payroll checks to people who weren’t employees. She was sentenced to a year and a day in prison in January.

On May 11 Foreman’s prison term was reduced to time served, although her supervised release and yet-to-be-determined restitution orders remain in place. She had been ordered to self-surrender by February 28.

Connecticut insurance salesman Terry DiMartino wasn’t so lucky in his attempt to reduce his 70-month sentence for trying to dodge taxes on his commissions.

DiMartino was convicted in 2016 and sentenced in 2018 on tax obstruction, section 7206(1) false tax return, and section 7203 failure-to-file charges. In addition to filing the false returns, one of which requested a $14 million refund, he tried to impede the IRS’s efforts to investigate, assess, and collect the taxes he owed by sending threatening letters to the agency as well as the insurance companies cooperating with it and used nominee entities to receive his insurance commissions and hide his assets.

In a May 8 order, the sentencing court rejected DiMartino’s compassionate release motion because, however compelling or not the reasons for his release may be, “there are compelling reasons not to reduce his sentence.” The court noted that his long course of criminal conduct included sending threats to both the IRS and private insurance companies and that he served only about a third of his sentence.

Run Away!

Colorado tax fraudster Wilma Hau’s failure to report for her 27-month sentence in 2014 earned her an additional 18 months of prison time at a May 4 sentencing for the flight offense.

According to the Justice Department, Hau was originally sentenced for an identity theft refund fraud scheme she engaged in with her spouse. The couple obtained $430,000 from 138 fraudulent tax returns and used the money for personal expenses, including buying a home and paying off the mortgage on it.

Hau was scheduled to report to a federal prison in Minnesota in March 2014 but fled and became a fugitive until her July 2019 arrest in El Paso, Texas.

Hidden Government Income

Xiao-Jiang Li of Atlanta was sentenced to one year of probation on May 8 for failing to report income he earned from Chinese universities at the same time he was employed at Emory University.

The Justice Department said that while Li was working at Emory in 2011, he joined a Chinese government program through which he worked for two Chinese universities between 2012 and 2018 conducting large animal model research and earning over $500,000.

Li didn’t report those separate earnings on his tax returns. He pleaded guilty to one count of filing a false tax return on the day he was sentenced. He was also ordered to pay $35,000 in restitution to the IRS.

Bent Out of Shape

Rhode Island chiropractor Leonard Marino was sentenced to three years of probation, including a year of home confinement, for trying to evade taxes on over $1 million of income diverted from his business.

From 2016 to 2018, Marino contrived to cash checks paid to his chiropractic practice by law firms and used the money for personal expenses at Whole Foods and strip clubs, and for purchases of drugs, according to the government.

Marino claimed he was paying $2,000 per week in extortion to an organized crime figure, but the government couldn’t corroborate that.

On February 6 Marino had pleaded guilty to one count of tax evasion. In addition to his probation term, he’s also been ordered to pay a $75,000 fine and $460,000 in restitution to the IRS.

Do Not Pass Go!

Coby Frier, an owner of multiple restaurants, bars, and clubs in Atlantic City, New Jersey, pleaded guilty to one count of tax evasion on May 7 for cash he skimmed from the businesses and moved to his personal accounts.

According to the Justice Department, Frier used the proceeds of the 2012-2015 skimming on personal expenses at luxury hotels and for department store purchases. He reportedly took the cash to banks in amounts below the $10,000 reporting threshold and to luxury automobile dealers for down payments.

During that period, Frier neither filed tax returns nor made tax payments. A sentencing stipulation in his plea agreement pegged the tax loss between $100,000 and $250,000.

At his September 11 sentencing, Frier faces up to five years in prison.

Old School Threats

Californian Brian Gregg Waterfield Nash pleaded guilty on May 7 to attempting to blackmail someone by threatening to accuse the person of committing tax crimes.

The Justice Department said Nash sent messages to his victim and the victim’s associates referring to investigation of the victim by the IRS and FBI and offering to “settle” the matter by not filing a civil complaint accusing the victim of criminal wrongdoing. One message reportedly read: “This brings all your IRS stuff to the public eye even more. This will be huge news. You were scamming the IRS.”

At his August 7 sentencing, Nash faces up to one year in prison under 18 U.S.C. section 873. Before agreeing to plead guilty to the blackmail charge, he had also faced extortion and stalking charges.

Fuller Big House

Actress Lori Loughlin and her husband, clothing company owner Mossimo Giannulli, have joined several other parents involved in the massive college admissions bribery scandal by pleading guilty to one count of mail and honest services fraud conspiracy under 18 U.S.C. section 1349.

The Justice Department announced Loughlin and Giannulli’s guilty pleas on May 21. The couple is accused of paying $500,000 in bribes to have their two daughters fraudulently admitted to the University of Southern California as crew recruits.

Loughlin’s plea agreement calls for a two-month prison sentence, a $150,000 fine, 100 hours of community service, and two years of supervised release. Giannulli’s calls for five months in prison, a $250,000 fine, 250 hours of community service, and the same two years of supervised release.

Like many of the other parent guilty pleas in the so-called Varsity Blues case, Loughlin and Giannulli allegedly received receipts for their payments made to look like they were tax-deductible donations. Both defendant’s plea agreements include clauses stating that the agreements don’t settle any civil tax liabilities.

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