According to the FTB, two professionals cost the state more than $7.6 million due to their involvement promoting an abusive tax avoidance transaction (ATAT). Each faces three felony counts of aiding in the preparation of false state income tax returns and one felony count of conspiracy.
Continue reading for the official FTB Press Release:
September 21, 2012
Franchise Tax Board News Release
tel . | Public Affairs Office For Immediate Release
cell . | Daniel Tahara
Los Angeles Tax Professionals Arrested for Illegal Tax Schemes Costing State $7.6 Million
Sacramento – A Cerritos CPA and Los Angeles attorney were arrested today on felony charges of conspiracy and tax evasion, the Franchise Tax Board announced.
Victor George Kawana, 53, and Blair Stover, 51, each own one-third of Kruse Mennillo, LLP. According to FTB special agents, Kawana and Stover allegedly promoted an abusive tax avoidance transaction (ATAT) to more than 100 clients during the years 2002-2005. The fraudulent activity cost the state more than $7.6 million in tax liability.
They each face three felony counts of aiding in the preparation of false state income tax returns and one felony count of conspiracy. Each tax count carries a maximum sentence of three years in state prison.
They instructed their clients to utilize an ATAT involving the creation of Nevada corporations and Roth IRA or Employee Stock Option Plans (ESOP) as the sole shareholders. The ATAT was formed with a series of related transactions with no valid business purpose other than tax evasion.
Kawana and Stover were recently arrested and both pleaded not guilty at their arraignments. A preliminary hearing is scheduled for both individuals on October 18.
Los Angeles County Deputy District Attorney (Major Fraud Division), Lana Kim is prosecuting the case.
Legislation enacted in 2003 and 2011 provided FTB with more enforcement tools to crack down on abusive tax shelters such as increasing the time period to conduct audits, greater registration requirements, and increased penalties for both investing in and promoting illegal tax shelters.
FTB’s audit program identified and referred this case to the department’s criminal investigation program. FTB continues to attack the use of abusive tax shelters which cost California hundreds of millions in lost revenue.
FTB’s criminal investigation program identifies and investigates cases of tax evasion and tax fraud to encourage compliance with California income tax laws and maintain the public trust.
The charges and allegations contained in the criminal complaint are merely allegations, and the defendant is presumed innocent unless and until proven guilty.