Examples of Abusive Tax Schemes

The following examples of abusive tax schemes investigations are excerpts from public record documents on file in the courts in the judicial district in which the cases were prosecuted.

Couple Sentenced on Conspiracy and Tax Evasion Charges

On November 16, 2006, in Erie, PA, Ronald J. and Carol A. Kapala were sentenced for conspiring to defraud the United States by impeding and impairing the lawful functions of the Internal Revenue Service.  Ronald Kapala was sentenced to 30 months in prison to be followed by three years of supervised release and ordered to pay a $100 assessment.  Carol Kapala was sentenced to three years probation and ordered to pay a $300 assessment.  According to the indictment, the Kapalas used a variety of schemes to attempt to obstruct the IRS in the collection and assessment of income taxes including failing to file income tax returns from 1990 through 1998 and 2002 through 2004; attempting to conceal their construction business activity through the use of nominee names; disguising ownership of assets by transferring them out of their names; forming a bogus tax-exempt religious organization for the construction business in the name "Mission Builders," and making fraudulent claims with the IRS concerning their obligation to pay federal income taxes.

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Creativity Consultant Gets Prison for Getting Creative with Tax Return

On November 3, 2006, in Buffalo, NY, Dr. Roger Firestien was sentenced to 15 months in prison, followed by two years supervised release, fined $5,000 and ordered to pay the costs of his incarceration.  Firestien pleaded guilty in May to one count of willfully evading his 1998 income taxes.  In December 2004, Firestien was indicted and charged with five counts of tax evasion and one count of filing a false tax return.  The indictment alleged that Firestien was a consultant, author, speaker, and writer in the field of creative problem solving.  In December 1997, Firestien purchased a Complex Business Organization (CBO) from an entity called Andersons Ark and Associates (AAA).  The CBO was a business structuring plan designed to assist Firestien in evading his income taxes.  Using the CBO, Firestien converted his sole proprietorship into an S Corporation called Innovation Resources, Inc. that was incorporated in New York State.  He also created a partnership in Nevada called Innovation Resources, Ltd. in which he listed himself as a 5 percent partner and a AAA entity called Sawtooth Enterprises as a 95 percent partner.  The purpose of forming this partnership was to fraudulently reduce Firestien’s taxable income by creating business deductions that shifted a portion of his income to a nominee, Sawtooth.  Firestien paid AAA a 5 percent fee to send some of the money that he deducted as business expenses to an account in Costa Rica that he accessed using a Visa debit card.  According to the statement of facts in the plea agreement, Firestien falsely deducted $132,700 in marketing and management expenses on tax returns filed with the IRS in April 1999.  As a result of these filings, Firestien evaded approximately $48,126 in taxes for 1998.  According to the government’s calculation, the tax loss associated with these false filings and others associated with this scheme ranged from $120,000 to $200,000.  To date, more than 30 people throughout the United States have been prosecuted in connection with the AAA scheme, including at least 21 clients such as Firestien.

Two Former Attorneys Sentenced in Tax and Investment Fraud Scheme

On November 2, 2006, in Salt Lake City, UT, former Attorneys Martin Arnoldini and Jerrold Boshma were sentenced to 53 months in prison to be followed by three years of supervised release and ordered to pay $900,000 in restitution. According to court documents, Arnoldini and Boshma were attorneys licensed to practice law in California and were partners in Century Law Offices in Valencia, California.  Arnoldini also holds an advanced degree in taxation.  On April 14, 2004, Arnoldini and Boshma pleaded guilty to conspiracy and admitted in their plea agreements that beginning in 1997, they promoted and sold a fraudulent "trust" scheme designed to evade federal income taxes through Century Law Offices, as licensees of World Contractual Services, and later through CornerStone West.  They and their co-conspirators promoted the scheme in seminars, promotional materials and opinion letters, which fraudulently misrepresented to customers that their tax liabilities could be lawfully reduced by transferring businesses, homes, investments and other assets into a trust's name.  Arnoldini and Boshma also admitted that their conduct cost the U.S. Treasury approximately $3.6 million in lost taxes.  In addition, both defendants admitted to participating in fraudulent offshore investment schemes that caused customers to lose approximately $1.3 million.  As a condition of their plea agreements, Arnoldini and Boshma surrendered their licenses to practice law.

Dentist Sentenced on Tax Charges

On October 19, 2006, in Grand Rapids, MI, Dr. Thomas William Minguske, a dentist, was sentenced to 12 months and one day in prison to be followed by three years of supervised release and ordered to complete 150 hours of community service in each year of supervised release.  In addition, Minguske was ordered to pay $132,042.65 in restitution to the Internal Revenue Service (IRS).  Minguske pleaded guilty on May 25, 2006, to an Information charging him with one count of tax evasion for the tax year 2001.  The Information charged that in 2001 Minguske had gross income in excess of $100,000 and that he had failed to file a federal income tax return reporting his income to the IRS.  It further charged that Minguske had utilized a sham trust to conceal his income from the IRS.  Testimony during the sentencing revealed that Minguske had stopped filing federal income tax returns in 1992 and had established a sham trust in 1994 to conceal his dental practice income from the IRS.  Minguske had obtained the trust through an individual named Barrie Konicov who is currently serving an 87 month prison sentence for violations of the Internal Revenue Laws.

Tax Preparers Sentenced to Prison Terms for Operating Tax Fraud Schemes

On October 6, 2006, in San Diego, CA, Susan E. O’Brien, a professional tax preparer who operated “The O'Brien Group,” was sentenced to 10 years and five months in prison and ordered to pay $113,179 in restitution. She was convicted on May 2, 2006, for tax evasion, defrauding the United States and aiding and assisting in the filing of fraudulent tax returns.  Co-defendants Robert Richard Evans and William Dean Cook were also sentenced to prison terms of 78 and 24 months, respectively.  In July 2003, O'Brien, Evans, Cook and five others were charged in a 78 count indictment with various tax crimes related to tax years 1996-2002.  According to the indictment and trial evidence, O'Brien prepared numerous income tax returns that claimed false business deductions and Evans promoted, sold and managed domestic trusts used by clients to hide their income and assets from the IRS.  O'Brien also was convicted of evading the payment of tax on her own income.  The tax evasion scheme resulted in a tax loss to the United States of more than $1 million.

Abusive Trust Scheme Promoter Sentenced in $8.5 Million Tax Fraud Scam 

On October 5, 2006, in Tacoma, WA, tax fraud promoter Michael Joseph Shanahan was sentenced to 36 months in prison and ordered to pay $8.5 million in restitution to the IRS.  Shanahan pleaded guilty to conspiring to defraud the United States in February 2006.  He also pleaded guilty to failing to file an income tax return for 1999.  Following a two-week trial, a jury convicted Shanahan's associate in the conspiracy, David Carroll Stephenson, of conspiring to defraud the United States and failing to file income tax returns for tax years 1998, 1999 and 2000.  In May 2006, Stephenson was sentenced to 96 months in prison and ordered to pay $8.5 million in restitution to the IRS.  According to the indictment and evidence introduced during trial, between 1994 and 2000 Shanahan and Stephenson assisted hundreds of taxpayers in forming and operating "pure equity trusts."  Shanahan falsely advised customers that they could avoid paying income taxes if they placed their income and assets into the trusts, even though they continued to control the use of the income and assets placed in the trusts.  According to evidence introduced at trial, Stephenson and Shanahan received more than $2 million in revenue from the sales of more than 400 of these trust packages.