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San Juan Capistrano Couple Surrender on State Tax Charges

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Public Affairs Office
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For Immediate Release

03.21.2011

Sacramento – A San Juan Capistrano businessman and his wife surrendered to authorities on numerous felony counts related to workers' compensation insurance fraud, payroll tax fraud, and state income tax fraud, the Franchise Tax Board (FTB) announced.

James J. Klinger, Sr., 64, and Dorothy L. Klinger, 63, are listed as owners of Modern Tree Service, Inc. According to FTB special agents, Klinger allegedly filed false 2004 – 2009 California S corporation returns and the couple filed false personal income tax returns for the same years. Klinger failed to report more than $3.6 million in corporate income during these years. They owe more than $49,000 in corporate income tax and more than $340,000 in personal income tax.

The couple also allegedly violated California Insurance Codes and Unemployment Insurance Compensation Codes by committing premium fraud and underreporting payroll wages during these same years. The State is seeking total restitution of more than $3 million.

The couple is free after posting $50,000 bail each. Orange County Superior Court Judge Gerald Johnston presided over the March 15 bail hearing. Orange County Deputy District Attorney (OCDA) Debra Jackson is prosecuting the case. This is part of the OCDA's Premium Fraud Task Force, which involves the Department of Insurance, Employment Development Department, and FTB. The task force investigates cases dealing with workers' compensation insurance fraud, payroll tax fraud, and state income tax fraud.

Underreporting income is part of the tax gap California faces each year. The tax gap is defined as the difference between the tax that is owed and the tax that is voluntarily paid. It is also a method used by businesses operating in the underground economy to avoid or pay less in workers' compensation and withholding tax. This allows these businesses to underbid their honest competitors.

For more information on other taxes and fees in California, visit: taxes.ca.gov.

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