Today’s story reads right out of a Hollywood screenplay. A Los Angeles businessman funds a small empire of ventures and a lavish lifestyle with a white-collar scheme that brings in hundreds of millions of dollars, only to be caught and turned on by his co-conspirators. The story includes promises of protection from a network of contacts within law enforcement, million-dollar mansions, and a gold Ferrari. But like most Hollywood crime movies, the story ends in arrest and prosecution. Although this story has an entertaining cast of characters, the storyline itself is not uncommon. The IRS and Department of Justice are actively seeking out those who attempt to defraud the government. If you find yourself on the wrong end of an IRS audit or criminal tax investigation, it is in your best interest to contact an experienced tax attorney today.
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Lev Aslan Dermen, also known as Levon Termendzhyan, was a Los Angeles businessman and according to a Department of Justice press release, was recently convicted of conspiracy to commit mail fraud, conspiracy to commit money laundering, and money laundering concealment, and expenditure money laundering by a federal jury sitting in Salt Lake City, Utah. The conviction stems from Dermen’s role in a tax credit scheme involving biodiesel fuel.
In an effort to encourage U.S. production of biodiesel fuel, Congress created, and the IRS administers a refundable tax credit relating to certain biodiesel fuel production activities. Prosecutors alleged at trial that Dermen, along with the Kingstons, a Utah Family, moved biodiesel fuel around the United States and even overseas and back again in an effort to appear to be producing and selling fuel and thereby fraudulently qualify for the biodiesel tax credit.
Dermen worked with the owners of Washakie Renewable Energy, a producer of biodiesel fuel. Washakie was run by the Kingstons, with Jacob Kingston serving as the CEO and various other relatives filling C-suite positions. As a group, Dermen and the Kingstons made more than $1 billion in biodiesel tax credit refund claims. The IRS paid out over half of those claims, totaling $511 million. Dermen promised the Kingstons protection from prosecution, indicating that he had an “umbrella” of contacts within law enforcement.
The way that the fraudulently-procured tax refunds were used was almost as egregious as the illegal methods upon which they were obtained. The Kingstons sent over $21 million to a real estate company owned by Dermen and $11 million to an acquaintance of Dermen. The Kingstons purchased a luxury vehicle for nearly $2 million and gifted it to Dermen. Dermen and the Kingstons exchanged high-priced gifts including gold Ferraris and chrome Lamborghinis. Dermen also laundered $3.5 million through his real estate company to purchase an estate in Huntington Beach.
After being investigated and once charges were filed, the Kingstons turned on Dermen, taking a plea deal in exchange for sentencing leniency. Jacob Kingston and his brother testified against Dermen at his seven-week trial. A sentencing date has not yet been determined but Dermen faces decades in prison, including potentially 20 years for conspiracy to commit mail fraud, conspiracy to commit money laundering, and concealment money laundering, and 10 years in prison for expenditure money laundering. He will likely also be sentenced to a term of supervised release to commence when his physical incarceration is completed.
Most taxpayers do not deal with biodiesel fuel and therefore are not particularly concerned about the associated tax credit. The takeaway from this story is not necessarily the type of tax credit that was being fraudulently claimed, but rather the investigatory and prosecutorial power of the Department of Justice and the IRS. Whether you have inflated tax credits, claimed tax credits you do not qualify for, or inflated expenses that result in improper deductions, the IRS has mechanisms of detecting and pursuing such activity. Taxpayers can see from the result of the case described above, the repercussions for cheating on your taxes is not pretty.
When a taxpayer receives a notice from the IRS that they are being audited, they should strongly consider contacting an experienced tax defense attorney. Although some taxpayers believe that they can go up against the IRS by themselves, they open themselves up to the risk of making an incriminating statement or providing more information than is legally necessary. Very often, information is disclosed in the initial stages of an examination that can be used against the taxpayer at a later date. A tax lawyer with experience representing taxpayers at audit, during investigations, and at trial will help prevent those types of missteps.
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If you have not yet been contacted by the IRS, but know that you have been non-compliant (whether you have not filed tax returns in the past or if you know that your filed tax returns were completed untruthfully), there are avenues that can be taken to come into compliance. Your tax attorney will work with you to establish the facts of your particular case and the most prudent way to move forward.
Note: As long as a taxpayer that has willfully committed tax crimes self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosure before the IRS has started an audit or criminal tax prosecution, the taxpayer can be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously receive a break on the civil penalties that would otherwise apply. It is imperative that you hire an experienced and reputable tax defense attorney to take you through the voluntary disclosure process. As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, Kovel CPAs and EAs, our firm provides a one-stop-shop to efficiently achieve the optimal and predictable results. See our Testimonials to see what our clients have to say about us!
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The tax and accounting professionals at the Tax Law Offices of David W. Klasing have extensive experience representing a diverse group of taxpayers. From individuals to middle-market businesses and beyond, our team of zealous advocates will assist in the development of a strategy to help you reach your specific goals and objectives. Whether you are under a tax examination or are in need of tax planning advice, contact the Tax Law Offices of David W. Klasing today, online or by phone at (800) 681-1295, for a reduced-rate consultation.
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