California Tax Preparers Sentenced in Conspiracy Case After Filing Fraudulent Returns with IRS

On Friday, February 23, 2018, 39-year-old Arsen Muhtarov, former resident of Sacramento, California, pleaded guilty in district court to conspiring to defraud the United States. The allegations arose from an investigation into Muhtarov’s suspected role assisting three co-defendants – former tax preparer Aleksandr Kuzmenko and brother Petr Kuzmenko, in addition to co-conspirator Valeriy Nikitchuk – in a tax fraud scheme which involved filing fraudulent tax returns in order to claim tax credits that would otherwise be unattainable. Nikitchuk and both Kuzmenko brothers have already been sentenced, while Muhtarov, last among the defendants to plead guilty, will be sentenced June 2018 before U.S. District Judge Garland E. Burrell Jr. If the sentences which have been handed down to Nikitchuk and the Kuzmenkos are any indicator, then Muhtarov – like most taxpayers who attempt to swindle the Internal Revenue Service (IRS) – will be facing years in federal prison, plus hundreds of thousands of dollars in criminal fines and restitution orders. 

Defendants Sentenced After Filing False Returns Claiming Homeowner Tax Credits 

According to the first in a series of three press releases issued by the Department of Justice (DOJ) – the second and third of which can also be viewed through the DOJ website – Muhtarov conspired with Nikitchuk and the Kuzmenko brothers to fraudulently claim tax credits related to homeownership. This led the IRS to issue inflated tax refunds, which were then “electronically deposited into various bank accounts controlled by Kuzmenko’s co-defendants.”  

The press release states that, during the period from February 2009 to November 2009, Kuzmenko and his co-conspirators filed approximately 90 fraudulent income tax returns through VK Tax Services, where “Kuzmenko worked as a tax preparer,” in Citrus Heights. On these returns, Kuzmenko claimed a popular tax credit known as the First-Time Homebuyer Credit (FTHBC), which the IRS states is available for an “eligible buyer who purchased a home as [his or her] primary residence in 2008, 2009 or 2010.” The third press release, linked in the preceding paragraph, explains that Kuzmenko and his co-conspirators accomplished their scheme, at least for a time, by “using stolen identification information and fictitious addresses.”  

The FTHBC can be substantial, allowing qualified taxpayers to claim a credit of (and thereby, avoid paying) as much as $7,500. According to the initial press release, “The fraudulent claims totaled approximately $695,724, of which the IRS paid approximately $573,000.” Considering that approximately 90 claims were filed, that would mean the IRS paid approximately $6,367 per fraudulent claim. 

The initial release, which was published on October 28, 2016, announced that Aleksandr Kuzmenko was sentenced to more than two years in prison and ordered to pay the IRS restitution totaling $573,332, further noting, “Co-defendants Petr Kuzmenko and Valeriy Nikitchuk have pleaded guilty to conspiring to defraud the United States and they are currently scheduled to be sentenced on December 2, 2016,” adding, “Co-defendant Arsen Muhtarov has entered a plea of not guilty.”  

At the aforementioned December 2 sentencing, discussed in the second press release above, Petr Kuzmenko received a sentence exceeding six years and was ordered to pay restitution totaling $573,332. Nikitchuk’s sentencing was rescheduled for December 16, at which point he was ordered to serve a prison sentence of 10 months. 

The third and final press release reveals that Muhtarov, who initially pleaded not guilty, later changed his tune, entering a guilty plea in district court on February 23, 2018. Truly “last but not least,” Muhtarov may be the last defendant to be sentenced – but he will certainly not be facing the least potential for penalties. On the contrary, “Muhtarov faces a maximum statutory penalty of 10 years [in] prison and a $250,000 fine.”  

Addressing journalists after Petr Kuzmenko’s sentencing by U.S. District Judge Garland E. Burrell Jr. on December 2, Michael T. Batdorf of the IRS Criminal Investigation Division, which investigated the case, issued a stern warning to taxpayers: “We want everyone who files a tax return to take advantage of the deductions and credits to which they are entitled by law. However, no one is entitled to defraud the government. Today’s sentencing sends a clear message to those who not only intentionally undermine our tax system, but help others [to do] so as well: You will not go undetected, and you will be held accountable.”  

Criminal Tax Defense Attorneys Representing CPAs  

Regardless of whether a tax return pertains to a taxpayer or a business entity – a renter or a homeowner –  a single individual or a married couple filing jointly – the information contained therein must be accurate, up-to-date, and complete. Otherwise, imposition of civil and/or criminal penalties is likely to be the outcome – particularly in cases where incomplete or inaccurate information is intentionally, or “willfully,” reported to the IRS. In addition to costly fines, debilitating restitution orders, and months or years of incarceration, tax professionals face the added threat of damaging, potentially irreversible sanctions that could spell the end of one’s financial career.  

Whether you are a tax preparer who needs a criminal tax defense lawyer in matters concerning criminal tax exposure for CPAs, a homeowner who wants to take advantage of deductions and tax credits like the FTHBC, or simply a taxpayer or business owner who needs help navigating a changed tax landscape in the wake of federal reforms, trust the award-winning tax attorneys at the Tax Law Office of David W. Klasing to provide the support and representation you require this tax season. Remember, Tax Day 2018 is Tuesday, April 17. Contact us online today, or call our tax law offices at (800) 681-1295, for a reduced-rate consultation – before time runs out. 

Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles, the Tax Law Offices of David W. Klasing now have offices in San Bernardino, Santa Barbara, Panorama City, and Oxnard! You can find information on all of our offices here.  

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