We are committed to closing California's $6.5 billion tax gap, defined as the difference between tax that is owed and tax that is paid. Our special agents work cooperatively with law enforcement agencies throughout California to uncover illegal behaviors that contribute to the tax gap. These include underreporting income, overstating deductions, failing to file returns, failing to pay taxes due, and making illegal cash payments to employees.
Tax fraud is not a victimless crime. You can report suspected tax fraud by calling FTB at (800) 540-3453.
Cases prosecuted in the last month are described below.
Huntington Beach man sentenced in embezzlement, tax case
A Huntington Beach man was sentenced on October 20, 2006, on felony charges of tax evasion related to the theft of more than $2.2 million from "The Gas Company."
Joseph Pierro, 68, was sentenced to two years in a California Restitution Center and ordered to pay FTB $99,108 in restitution. (Restitution Centers are established and operated by the Director of Corrections, and authorized by Chapter 9.2 of the California Penal Code: "The purpose of restitution centers is to provide a means for those sentenced to prison to be able to pay their victims financial restitution as ordered by the sentencing court, or as agreed upon by the defendant and his or her victims.")
Pierro was one of seven individuals arrested in September 2004 for embezzling more than $2.2 million from The Gas Company (see "Criminal Corner," Tax News, November/December 2005). According to court documents, this group was involved in a scheme where more than 300 fraudulent invoices were issued between December 7, 1995, and January 3, 2002. The payments on the invoices were to an individual, a corporation, and five sham corporations that allegedly split the proceeds with the scheme's ringleader or paid his personal expenses. Pierro operated IDI Technologies, which was involved with more than $400,000 in fraudulent invoices.
Trina Jesson sentenced for her role in tax evasion scheme
On October 20, 2006, the wife of a convicted tax evader was ordered to pay more than $437,000 in restitution, and placed on three years formal probation for her role in the filing of false state income tax returns.
Trina Jesson, 43, was involved with her husband, George H. (Nick) Jesson, in a promotion questioning the legality of withholding personal income taxes (see "Criminal Corner," Tax News, September 2006). Mr. Jesson is currently in federal prison in Lompoc after pleading guilty to federal and state tax charges. The Jessons owned and operated three corporations in Huntington Beach: Capacitor Specialist International, Inc., No Time Delay Electronics, Inc., and C&D Electronics, Inc. According to court records, the Jessons failed to report more than $2.9 million from these corporations on their state income tax returns for 1997-1999 by zeroing out the amount fields on their tax returns.
The Jessons believed that withholding personal income taxes violated the Constitution, and that their employees could request to have no tax withheld from their paychecks. Mr. Jesson and others placed an ad in a national newspaper stating their refusal to withhold taxes from employee paychecks. The courts routinely strike down frivolous anti-tax arguments like this.
Trina Jesson was ordered to pay restitution to the FTB of $437,611 including tax, penalties, and interest. A hearing on the cost of the investigation is scheduled for December 15, 2006.