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 behaviors 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.
Inglewood woman sentenced to prison on grand theft, state income tax charges
An Inglewood woman was sentenced to state prison on May 22, 2008, after pleading guilty to grand theft, forgery, and filing a false state income tax return.
Melva J. Young, 47, was sentenced to two years in state prison, and ordered to pay restitution to the FTB of $138,201 representing the unpaid tax, penalties, interest, and the cost of the investigation. According to court documents, Young was employed as a bookkeeper for a Hawthorne computer parts and supply store. She abused her position of trust by embezzling from her employer during the years 2002 - 2006. The owners discovered the theft when they located a discrepancy in the company books. Upon further investigation, the depth of Young’s embezzlement was discovered. FTB forensic auditors reconstructed Young’s income based upon bank records, and determined Young earned more than $918,000 in unreported income. She failed to claim any of the unreported income on her state income tax returns for the same period. All income is taxable, including income from illegal sources.
Young will be given credit for time served.
This was a joint investigation between the Los Angeles County District Attorney’s Office and the FTB.
Riverside brothers face state income tax fraud charges (Redacted)
On May 15, 2008, a pair of Riverside brothers was arrested on felony charges of filing false state income tax returns.
*****, also known as *****, 26, was arrested by FTB special investigators. *****, also known as *****, 29, surrendered Saturday to San Bernardino authorities. According to FTB investigators, ***** and ***** owned and operated several car modification shops in San Bernardino and Riverside. During 2001-2003, ***** allegedly failed to report more than $847,000 in income on his state income tax returns for these same years. He owes the state more than $74,700 in unpaid tax. ***** allegedly failed to report $135,000 on his 2003 state income tax return. ***** owes the state $13,075 in unpaid tax. Penalties, interest, and the cost of the investigation will be added to these amounts.
Each felony tax count carries a maximum term of three years in state prison.
This is a joint investigation between the Riverside County District Attorney’s Office and FTB.
Los Gatos businessman pleads guilty to tax evasion in underground economy case
On May 13, 2008, a Los Gatos businessman plead guilty to five felony counts of failure to file annual income tax returns, 17 misdemeanor counts of failure to file quarterly sales tax returns, and one count of operating without a seller’s permit. The Board of Equalization (BOE) and Franchise Tax Board (FTB) collaborated on the case, which was prosecuted by the Santa Clara County District Attorney’s Office.
Kurt C. Scanlin, 50, is the owner of System Form and Label Products of San Jose and California View Fine Arts of Los Gatos. Scanlin failed to report sales of more than $1.2 million during January 1, 2000 through September 20, 2002. In July 2003, Scanlin’s seller’s permit was revoked by the BOE for failure to file sales tax returns. In addition, he failed to file state income tax returns on the more than $870,000 in gross income he earned during 2000 – 2004. As part of the plea agreement, Scanlin will pay restitution to the BOE of $157,650, and $89,484 to the FTB. Scanlin is scheduled to appear for sentencing in Santa Clara County Superior Court on July 11, 2008.
Scanlin operated his business through a trust naming himself as trustee. Scanlin made all the business decisions and controlled the business. The courts routinely strike down the argument that trusts shield income from taxation. Legitimate trusts do not transform a business’ expenses into deductible expenses for tax avoidance.
Anyone who has knowledge of tax fraud may call the FTB’s informant hotline at 800.540.3453, or the BOE’s tax evasion hotline at 888.334.3300.