Band of brothers; heavy Metal; gone underground; and other highlights of recent tax cases.
Dublin, California: Kishore Kethineni, CEO of multiple software development and IT services companies in the Bay Area, has been sentenced to two years in prison for a conspiracy to commit bank fraud and for failure to pay over more than $2 million in employment taxes.
Kethineni pleaded guilty to the charges in February, admitting that he conspired with his two brothers to fraudulently obtain more than $3.1 million in loans under the Paycheck Protection Program.
Kethineni was the sole owner and CEO of four of the companies involved in the scheme; his brothers owned three other companies involved. From April 2020 through May 2021, Kethineni and his brothers submitted multiple PPP loan applications on behalf of their companies on which they made fraudulent representations and provided falsified payroll data and records to obtain loans and loan forgiveness under the program.
Kethineni and his brothers submitted at least 12 loan applications on behalf of their companies. The applications, which sometimes were virtually identical, resulted in the approval and funding of nine loans.
Kethineni redirected significant amounts of the money to himself and his family instead of using it for payroll and other authorized business expenses.
He also admitted to willfully failing to account for and pay over employment taxes that his company, Neelinfo Inc., had withheld from the pay of its employees, incurring an employment tax liability of more than $2 million from 2014 through 2018.
Kethineni acknowledged that he used a payroll service company to process Neelinfo’s employee payroll and track its employment tax obligations. Every quarter, the payroll service company provided Neelinfo with a 941 that reflected the taxes withheld from Neelinfo’s employees. Kethineni did not file these forms with the IRS, nor did he pay over any employment taxes on behalf of Neelinfo, while still causing the company to make thousands of dollars in other expenditures. Some of Neelinfo’s employees also came under IRS audits and inspection after filing income tax returns based on income that Neelinfo never reported.
Kethineni was also ordered to serve two years of supervised release, to pay $3,295,514.25 in restitution and to pay a $15,000 fine. The court also ordered entry of a money forfeiture of $3,186,315.
Norwich, Connecticut: Tax preparer David Etienne, 49, has pleaded guilty to a tax fraud offense.
Etienne operated as a tax preparer through several businesses, including Los Maestros Inc., Los Maestros Group, Tax Experts USA and Tax Experts USA Inc. For the 2012 through 2021 tax years, he prepared numerous federal returns for clients that included false expenses and losses in connection with sole proprietorship businesses when he knew the taxpayers had not operated such businesses; false unreimbursed employee expenses; and, in certain instances, false medical, dental or education-related expenses.
Etienne’s crime involved a tax loss, affecting both the IRS and the Connecticut Department of Revenue Services, of some $600,000.
He pleaded guilty to aiding and assisting in the preparation of a false income tax return, an offense that carries a maximum term of imprisonment of three years. Sentencing is Nov. 29.
Louisburg, Kansas: Business owner Douglas Furnell, of Leawood, Kansas, has pleaded guilty to failing to pay federal employment taxes.
He was the owner and operator of Western Metal Co., which manufactured custom metal products, and was responsible for paying over to the IRS the federal income and Social Security and Medicare taxes withheld from his employees’ wages. From the first quarter of 2015 through the second quarter of 2020, Furnell did not timely pay the withholdings to the IRS nor file the requisite quarterly employment tax returns.
He caused a tax loss to the IRS of some $333,983.
Sentencing is Dec. 14. Furnell faces up to five years in prison, as well as a period of supervised release, restitution and monetary penalties.
Boise, Idaho: Tax preparer Keveny Rosier, formerly of Boise, has pleaded guilty to preparing and filing false income tax returns.
Rosier operated a tax prep business and prepared returns for clients for the 2016 and 2017 tax years. On returns he prepared, he routinely falsely inflated clients’ itemized deductions and Schedule C expenses, falsely claimed fuel tax credits and falsely inflated income to maximize the Earned Income Tax Credit.
In total, Rosier’s conduct cost the IRS some $143,000.
Sentencing is Nov. 28. He faces up to three years in prison as well as a period of supervised release, restitution and monetary penalties. He has agreed to pay outstanding restitution to the IRS of $63,890.
Beaver Falls, Pennsylvania: Paul J. Austin, of Pittsburgh, president of a mineral company, has been sentenced to three years of probation and ordered to pay $222,255.35 in restitution to the IRS and a fine of $55,000 on his conviction for filing a false income tax return.
From 2012 through 2017, he was the president of J.P. Austin Associates and he and his spouse, who served as the company’s treasurer, jointly filed annual 1040s. Austin admitted that during this time payments were made from company accounts for college expenses, which were falsely categorized as business expenses using fictitious vendor names.
The tax preparer for Austin and his spouse was not informed about these college expense payments and the payments were not included as taxable income on 1040s ultimately filed with the IRS.
Before sentencing, Austin paid the $222,255.35 in restitution owed to the IRS.
Bucyrus, Kansas: Business owner Sheryl Clanton has pleaded guilty to failing to account for and pay over federal employment taxes.
Clanton owned and operated McCorkendale Construction Inc., which specialized in the construction and maintenance of underground infrastructure. She was president of McCorkendale from 2006 through 2011, and for 2010 through 2011 did not pay some $980,536 in employment taxes owed to the IRS.
In 2011, Clanton abandoned McCorkendale due to its outstanding tax obligations and a bank mortgage foreclosure and started McClan Construction LLC. From the second quarter of 2012 through the fourth quarter of 2017, Clanton did not pay approximately $1.1 million in employment taxes or file quarterly payroll tax returns as required.
Clanton also operated a third underground construction business, NJ Trenching LLC, organized in late 2011. Between 2012 and 2015, Clanton did not report or pay nearly $100,000 of employment taxes owed to the IRS on behalf of that company.
In total, Clanton caused a tax loss to the IRS of more than $2.2 million.
Sentencing is Dec. 14. Clanton faces a maximum of five years in prison as well as a period of supervised release, restitution and monetary penalties.
Stafford, Connecticut: David Kamal, 61, has been sentenced to eight months in prison, to be followed by two years of supervised release, for tax evasion.
He evaded taxes for the 2012 tax year by filing a false return on which he claimed false deductions, including deductions for moving expenses and medical expenses he had not incurred. Kamal subsequently provided false documentation for the moving expenses, including invoices and bank statements, to an IRS attorney in connection with U.S. tax court proceedings.
He also filed false tax returns for the 2013 through 2017 tax years by claiming false and inflated unreimbursed medical and dental expenses.
Kamal, who pleaded guilty in December, was also ordered to pay a $20,000 fine. He has agreed to cooperate with the IRS to pay $163,264 in back taxes, as well as interest and penalties.
