Making use of refunds; playing defense; how to use thin air; and other highlights of recent tax cases.
Honolulu: Resident Hannah Heart has pleaded guilty to defrauding her mortgage lender and conspiring to defraud the IRS by fraudulently obtaining a tax refund and then thwarting IRS efforts to recoup it.
She conspired to file a false 2014 individual income tax return in her name. Heart’s co-conspirators created a fake tax form purportedly issued by a mortgage lender to Heart, which she attached to her return. The form falsely reported that Heart had received income from a financial institution of more than $2.4 million, from which over $1.2 million in taxes had been withheld. Heart then filed a return that claimed she was entitled to a $464,904 refund, which the IRS paid.
When the agency began trying to collect the fraudulent refund, she took several steps to thwart collection. She deposited the refund check into a trust bank account and immediately transferred most of the balance to a separate bank account, both of which she controlled. She also sent numerous “false, fraudulent and frivolous” letters to the IRS in response to their communications.
Heart helped another co-conspirator defraud the IRS using the same scheme. She and her co-conspirator deposited a second fraudulently obtained $1 million refund check from the IRS, payable to the co-conspirator.
In total, Heart caused a tax loss to the IRS of $1,618,985.54.
Heart also conspired to defraud her mortgage lender of $2,066,522.22.
She faces up to 20 years in prison on the charge of mail fraud and a maximum of five years for conspiracy to defraud the IRS. She also faces a period of supervised release, restitution and monetary penalties.
Washington, D.C.: Douglas Edelman, 73, a former defense contractor, has pleaded guilty to tax crimes related to a scheme to defraud the U.S. and evade taxes on income he earned from his contracts with the Defense Department.
Edelman pleaded guilty to 10 felony counts: conspiracy to defraud the United States, seven counts of tax evasion and two counts of making a false statement. Trial on the remaining counts will be in 2026.
Edelman founded and owned half of Mina Corp. and Red Star Enterprises, a defense contracting business that received more than $7 billion from contracts with the U.S. Department of Defense for jet fuel for U.S. post-9/11 military efforts in Afghanistan and the Middle East.
Edelman engaged in a lengthy scheme to hide his Mina/Red Star profits to evade U.S. taxes, including by concealing his income in undisclosed foreign bank accounts, creating false documents and making false statements that one of his co-conspirators, a French citizen residing abroad and without U.S. tax obligations, founded and owned Mina/Red Star.
In 2010, the U.S. House began investigating allegations of corruption in connection with Mina/Red Star’s contracts with the Department of Defense. As part of this inquiry, the subcommittee became interested in the identity of Mina/Red Star’s owners.
At this time, Edelman had not filed U.S. returns to report the millions he’d earned and had not paid U.S. taxes on his income. Edelman caused his attorneys to tell Congress a false story that a French co-conspirator founded and co-owed Mina/Red Star with another individual. To corroborate the false story, Edelman and a co-conspirator created false and backdated paperwork.
To continue the scheme, Edelman lied about Mina/Red Star’s ownership to other arms of the U.S. government, including to the Department of Defense during contract negotiations in 2010 and 2011, to the IRS in a 2016 application to the Offshore Voluntary Disclosure Program and to the Justice Department in a 2018.
In conjunction with his 2016 application to the IRS program, Edelman filed false returns for several prior years that only reported income from gifts or purported consulting payments, continuing to conceal the millions he had earned from his company. He also concealed profits he had earned from a separate business to provide internet service to members of the armed forces in Afghanistan.
Instead of paying the taxes he owed, Edelman used the money to fund his lifestyle and additional investments. He invested in a music television franchise in Eastern Europe, a land venture in Mexico and a farm in Kenya, and purchased property around Europe, including a home in Spain and a townhouse in London.
He faces up to five years in prison for each of the 10 counts to which he pleaded. He also faces a period of supervised release, restitution and monetary penalties.
Bowling Green, Kentucky: Resident Kenneth Ray Moore has been sentenced to 46 months in prison, to be followed by two years of supervised release, for wire fraud, money laundering and tax evasion.
Between October 2009 and May 2020, he committed wire fraud by engaging in a scheme to embezzle $1,145,800 from his employer. Moore, who formerly held the position of vice president of finance, caused his employer to issue checks to “KBM Solutions,” a shell company he created to receive embezzled funds. Moore laundered money by transferring the embezzled funds to his personal accounts.
Moore also failed to file personal income tax returns between 2013 and 2020, and owed more than $300,000 in unpaid taxes, penalties and interest.
He was ordered to pay $1,158,194.80 in restitution for the embezzlement and $342,155.84 in restitution for tax evasion.
Boston: Former IRS employee Kathleen Mannion, of Lawrence, Massachusetts, has pleaded guilty to filing false returns to fraudulently obtain refunds and to stealing Social Security benefits.
From 1998 to 2009, Mannion worked as an IRS contact representative in Andover, Massachusetts. Between approximately July 2020 through April 2023, she prepared and filed income tax returns for other individuals with the IRS. Even though Mannion prepared these returns for others, she did not list herself as the preparer but instead prepared the returns to appear as if the taxpayers had done the returns on their own.
Mannion listed ineligible dependents on the returns, resulting in higher refunds for which the taxpayers did not qualify, all without the knowledge of the taxpayers. Mannion also filed forms with the IRS directing that a portion of the fraudulently obtained refunds be deposited in her personal accounts.
Between April and October 2020, Mannion applied for Social Security benefits via telephone for others. She directed the Social Security Administration to deposit the benefits in her personal accounts, which she also used for her personal benefit.
Aiding and assisting the preparation and filing of a false return provides for up to three years in prison, a year of supervised release and a fine of up to $250,000. The charge of theft of government money provides for a sentence of up to 10 years in prison, three years of supervised release and a fine of $250,000. Sentencing is Sept. 3.
St. Louis: Tax preparer Shasherese M. Reed, 53, has been sentenced to five years of probation and ordered to pay $230,000 in restitution for preparing fraudulent returns.
Reed, who
She falsely identified her daughter as the paid preparer on the returns and filed the returns under her daughter’s tax prep business, Majac Money. The IRS had revoked the PTIN of Reed and her business, Sha-Sha Taxes, in 2015 after the IRS determined Reed had submitted false tax returns.
During the recent investigation, Reed prepared a fraudulent return for an undercover IRS agent. Without ever asking if the agent had a business, Reed prepared a return that included a false Schedule C showing $26,242 in business expenses.
Reed made about $378,026 in fees for the 2017 to 2021 tax years.
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