We are committed to closing California’s $6.5 billion tax gap, defined as the difference between tax that is owed and tax that is paid. Our special agents work cooperatively with law enforcement agencies throughout California to uncover illegal behaviors that contribute to the tax gap. These behaviors include underreporting income, overstating deductions, failing to file returns, failing to pay taxes due, and making illegal cash payments to employees.
Tax fraud is not a victimless crime. You can report suspected tax fraud by calling FTB at 800.540.3453.
Leland Wong convicted of 14 felony counts including 3 felony state income tax counts
On July 25, 2008, former Los Angeles City Commissioner Leland Wong was convicted of 14 felony counts including 3 felony counts of state income tax fraud.
A jury convicted Wong, 51, of:
- One count of bribery (Penal Code 68).
- One count of perjury (Penal Code 118).
- Two counts of conflict of interest (Government Code 1090 ).
- Three counts of filing fraudulent state income tax returns (Revenue and Taxation Code Section 19705(a)).
- Seven counts of grand theft (Penal Code 487(a)).
According to court documents, Wong received bribes totaling $100,000. Wong failed to claim any of this illegal money, and was convicted of two counts on his 2002 state income tax return and one count on his 2003 state income tax return. All income is taxable, including income from illegal sources.
Wong's sentencing is scheduled for September 25, 2008. Restitution to FTB of more than $6,000 representing the unpaid tax, penalties, interest, and the cost of the investigation will also be ordered at that time.
Stockton dentists face state income tax charges
A married couple, both dentists, was arraigned on four felony counts of state income tax evasion.
Regis A. M. Atienza, Jr., 48, and Annabelle L. Atienza, 47, of Stockton, were self-employed during the years 2002 - 2005. According to FTB special agents, the Atienzas' sole proprietorship allegedly earned gross receipts of $1.5 million during these years, resulting in taxable income of $477,374. For these same years, the Atienzas failed to file their state income tax returns reporting this income. After FTB agents requested an interview with the Atienzas in October 2007, the delinquent returns were filed in May 2008. However, the Atienzas have yet to pay nearly $72,000 in taxes, penalties, interest, and the cost of the investigation.
Each tax count carries a maximum sentence of one year in state prison and a fine of up to $20,000 in addition to the restitution to the state.
Mission Viejo pair plead guilty to state income tax evasion
On August 1, 2008, a Mission Viejo man and woman pleaded guilty to three felony counts of failing to file state income tax returns and one felony count of making false statements.
Anthony E. Brennan, 52, and Carla Ann Brennan, 60, operated Brennan & Sons Painting as an independent subcontractor to other general contractors. The couple, now divorced, received compensation of more than $1 million during the years 1999 to 2001 and failed to file state income tax returns for these same years.
The court ordered FTB full restitution of $187,071 representing the unpaid tax, penalties, interest, and the cost of the investigation. The Brennans previously paid $100,000 of the restitution amount and are being allowed time to pay the remainder. Additionally, Anthony and Carla were each given 40 hours of community service and placed on formal probation for five years.
FTB discovered this case through its internal procedures. Each year FTB reviews income records from numerous sources, including the Internal Revenue Service, the California Employment Development Department, the Board of Equalization, employers, and banks. FTB compares this data with its database of tax returns filed to identify individuals who should have filed taxes but did not, or to find discrepancies between the income reported and income claimed. Annually, FTB contacts 800,000 individuals who have failed to file a California state income tax return.
Long Beach woman sentenced to prison for embezzlement, state income tax fraud
A Long Beach woman was sentenced on August 1, 2008, to four years in state prison on one felony count of grand theft, and one felony count of filing a false state income tax return.
Patricia A. Cruz, 46, pleaded guilty to the charges on July 3. According to court documents, Cruz was employed as a secretary for a local commercial construction firm. She abused her position of trust by writing fraudulent checks from the corporate bank account for her personal gain. Between 2003 and 2007, Cruz embezzled more than $500,000 from her former employer before the company owner discovered the theft. When confronted, Cruz admitted to the theft and then presented a spreadsheet detailing the amount and extent of her theft. Cruz used the stolen funds to purchase personal items.
In addition, Cruz failed to claim the embezzled funds on her 2004 - 2006 state income tax return. All income is taxable including income from illegal sources.
Cruz was also ordered to pay restitution of $572,672 to her former employer and $89,520 to FTB representing the unpaid tax, penalties, and interest.
Woodland Hills tax preparer arrested for preparing fraudulent state income tax returns
On August 11, 2008, special agents from the State Controller’s Office and FTB arrested a Woodland Hills man on 4 felony counts of filing fraudulent state income tax returns, 58 felony counts of causing fraudulent state income tax refunds to be issued, 1 felony count of grand theft, and 1 felony count of identity theft.
Roland G. Uy, 64, is a self-employed tax preparer. According to FTB special agents, Uy allegedly operated a refund fraud scheme to generate increased tax refunds for his clients. Uy filed both single and head of household state income tax returns on behalf of his married clients and falsely inflated the amounts of their child and dependent care credits. These actions fraudulently inflated the amount of each taxpayer's state income tax refund. Uy is also charged with identify theft for falsely using the identities of two individuals as daycare providers for the clients' children. These individuals never provided any daycare services for any of the children listed on the tax returns. Uy generated increased fees for his tax preparation services by billing his clients for two tax returns rather than the properly filed single or married filing joint return. The loss to the state is more than $527,000.
If convicted of all charges, Uy faces up to 20 years in state prison as well as being ordered to pay restitution to FTB of the fraudulent tax refunds plus the cost of the investigation. The case was discovered by FTB's internal fraud detection program.
This was a joint investigation between the State Controller's Office and FTB. Each year FTB receives more than 15 million income tax returns and the State Controller's Office issues more than 5 million paper refund warrants.
Santa Ana courier firm owner guilty of income tax and unemployment tax fraud
The owner of a Santa Ana based courier firm pleaded guilty to five felony counts of state income tax fraud, five misdemeanor counts of failure to withhold state income tax, and one felony count of workers’ compensation fraud.
Evell Stanley, 66, is the owner and operator of Orange Courier, Inc., a messenger and delivery company. According to court documents, the corporation underreported its net income for the years 1998 to 2002. Its actual net income for these years was more than $1.8 million and not the $169,706 reported on its corporate income tax returns. The underreporting of income is part of the $6.5 billion 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 paid.
The corporation failed to report more than $18 million in wages paid from 1998 to 2002. To evade the requirement to withhold state income tax, Stanley maintained two sets of corporate payroll registers for each year involved in the investigation. Employees were paid with two checks. One paycheck was calculated at the minimum wage with taxes properly withheld. Employees then received a second check paid out of the company's general fund and labeled "exempt earnings." No taxes were withheld from these second payments.
The company also misclassified the majority of the employees as office workers and not as drivers. This resulted in a lower workers’ compensation premium.
Stanley's sentencing and restitution determination are set for November 14, 2008. The total amount of restitution payable to the state will also be determined at that time.
This was a joint investigation between the Orange County District Attorney's Office, the Employment Development Department, and FTB.