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Tax News
Criminal Corner

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.

State prescribes prison in Medicare fraud

A Southern California couple pleaded guilty on January 30, 2007, to felony charges of filing false state income tax returns, insurance, and workers' compensation fraud, in a bogus billing scheme involving a Lemon Grove medical clinic.

Rafik Manukyan, 51, and his wife, Anush, 46, of Van Nuys, were arrested in 2006 for their involvement in a scheme with Dr. Arthur Vallejo, 47, of Downey, to fraudulently reimburse Medicare billings for medical treatments that were not rendered from the Lemon Grove Medical Clinic. Vallejo pleaded guilty on January 12, to three felony counts of filing a false state income tax return, insurance fraud, workers' compensation fraud, and a misdemeanor labor code violation.

The Manukyans pleaded guilty to one count each of filing a false return and insurance fraud. Rafik pleaded guilty to workers' compensation fraud and a misdemeanor labor code violation. According to court documents, the Manukyans failed to report more than $88,000 in income for the 2004 tax year. Vallejo did not report more than $93,000 in income for 2004.

State prison terms for the trio range from five years for Anush Manukyan, and seven years for Rafik Manukyan, to 30 years for Vallejo.

Total restitution for the Manukyans and Vallejo could total more than $1 million, including costs of the investigation, with $234,754 due to FTB.

Four arrested in state income tax refund fraud scheme

Three Los Angeles area men and one woman have been arrested on charges of grand theft and filing false state income tax returns in a case involving a fraudulent refund ring.

Kessler Wyatt, Jr., 66, aka Corky Kessler, aka Erick Kessler, was arrested February 14, 2007. He is a self-employed job placement recruiter, and the alleged ringleader. According to investigators, Wyatt allegedly used his knowledge of payroll systems and recruiting skills to create a refund fraud scheme.

During the period of 1999 - 2002, Wyatt prepared false wage and withholding statements, and filed them with the Employment Development Department (EDD). Wyatt then recruited four individuals to file more than 50 fraudulent state income tax returns during these years, resulting in more than $500,000 in fraudulent refunds being issued. The FTB verifies withholding amounts claimed on tax returns with EDD records. Wyatt faces charges of grand theft, filing false state tax returns, and negotiating false income tax refund checks.

The scheme was discovered through an investigation conducted by FTB special investigators.

Three of the four co-conspirators were arrested for their alleged roles in the scheme, and face charges of filing false state income tax returns, negotiating fraudulent state income tax warrants, and grand theft. Arrested were Donna R. Goldring, 41, of Los Angeles; Frederick Johnson, aka Keg Johnson, 67, of Los Angeles; and Darnell Williams, 56, of Lake View Terrace. An arrest warrant has been issued for a fifth member of the scheme.

Wyatt was booked into the Los Angeles County Inmate Reception Center. Court hearings for each will be determined at a future date. The total amount of restitution will also be determined at a future date.

Transportation operators charged with workers' compensation insurance fraud and tax evasion<

From the Santa Clara County District Attorney's Office

A joint investigation by the Santa Clara County District Attorney's Office, the California Department of Insurance, the FTB, and the Employment Development Department (EDD) resulted in the bust of a major insurance fraud and tax evasion scheme in Santa Clara County. Gerald Quint, 50, of San Jose, and Susan Stommel, 50, of Pleasanton, have been charged with 14 felonies, including workers' compensation insurance fraud, grand theft, income and corporate tax evasion, and unemployment insurance tax evasion. They were arrested on February 14, 2007. The alleged illegal actions caused an estimated total loss of nearly $2.2 million to the State of California and the workers' compensation insurance carriers. Including interest and penalty assessments, the figure is more than $3 million.

The two defendants own and operate New Century Transportation, Inc., a Nevada corporation registered in California. With approximately 30 employees, New Century provides transportation services throughout Santa Clara Valley. It contracts with Santa Clara County's Valley Transportation Authority to provide Altamont Commuter Express (ACE) shuttle services and Downtown Area Shuttle (DASH) services. In addition, it contracts with corporations to run shuttle buses from major transportation hubs and light rail stations to corporate offices. New Century also operates the shuttle buses for Villa Montalvo concerts and charters to various casinos.

The joint investigation revealed that between 2004 and 2006, New Century failed to report more than $4.5 million in paid wages to EDD as required by law. In fact, the defendants deducted personal income taxes and disability taxes from employees' wages during that time, but pocketed the funds instead of remitting them to EDD. As a result of this scheme, the defendants defrauded EDD of more than $280,000. In addition, because paid wages are used as the primary basis to calculate a business' workers' compensation insurance premium, such gross underreporting in payroll also illegally and substantially lowered the workers' compensation insurance premium for New Century. The estimated total amount of premium defrauded between 2003 and 2006 is more than $1.3 million. Finally, the investigation showed that the defendants failed to report nearly $11 million in New Century's revenue from 2002 through 2005, resulting in evasion of more than $480,000 in state corporate and personal income taxes.

By avoiding millions of dollars in required taxes and insurance premium, the defendants not only profited illegally, but also gained an unfair advantage over honest business competitors.

If convicted of all counts, the two defendants face a total of 15 years and four months in state prison. Restitution to the State of California and insurance carriers would also be ordered.