Los Angeles, CA, – LAWFUEL – IRS News – Today, United States District Court Judge Audrey B. Collins sentenced First Mountain Bank Officers Dennis Shollenburg and Hazel Hagy to federal prison for their roles in a conspiracy, with convicted trust scheme and anti-tax promoter Thomas Miller, to defraud the Internal Revenue Service. Dennis Shollenburg, who was the President and Chief Executive Officer of First Mountain Bank, was sentenced to serve 37 months in federal prison, followed by a period of 3 years of supervised release. Further, Shollenburg was ordered to pay restitution to the Internal Revenue Service in the amount of $303,679. Hazel Hagy, the bank’s Executive Vice President and Chief Financial Officer, was sentenced to 21 months in prison followed by 3 years of supervised release for her role in the conspiracy. Hagy was also ordered to pay restitution to the Internal Revenue Service totaling $69,802.
Previously, Thomas Miller was sentenced by Judge Collins in December 2006 to serve 44 months in federal prison followed by three years of supervised release for his role in the scheme. Additionally, First Mountain Bank’s Senior Vice President and Senior Loan Officer Vicky Melton was sentenced on January 23, 2007 by Judge Collins to serve 6 months in federal prison followed by 9 months of home-confinement and 2 years of supervised release. In addition to her prison sentence, Melton was ordered to pay a fine of $17,000.
Brenda Knudson, who was Assistant Vice President and Business Development Officer for the bank, is scheduled to be sentenced on April 9, 2007.
Shollenburg and Hagy, in association with Miller, formed the Freedom Education Center as part of an apparent anti-tax movement and opened an office across the street from the First Mountain Bank in Big Bear, California. Documents filed with the court set forth the goal of the conspiracy was to defraud the United States by impeding, impairing, obstructing, and defeating the assessment and collection of federal taxes by the Internal Revenue Service. Knudson and Melton assisted Shollenburg, Hagy and Miller with operating the anti-tax organization.
Through the Freedom Education Center, they offered “pure trust” documents and anti-tax books and literature for sale. Shollenburg, Hagy, Knudson and Melton, in conjunction with Miller, instructed individuals on strategies that they claimed would allow their clients to lawfully stop paying taxes. They assisted clients in forming “pure trusts,” falsely claiming there would be no tax consequences for funds placed into “pure trusts.” They further directed First Mountain Bank employees to open “pure trust” accounts using “Trust Identification Numbers” which they created to appear as if they were TIN’s, Taxpayer Identification Numbers, issued by the Internal Revenue Service. This sophistication was intended to deceive the IRS and others and to make it difficult, if not impossible, to identify ownership of $11,000,000 in funds deposited into the “pure trust” bank accounts. Further, this tactic made it difficult to determine the reportable income associated with such deposited funds. Shollenburg, Hagy, Knudson, and Melton also assisted individuals with drafting letters specifying frivolous arguments that the participants would send to employers and the IRS.
The defendants personally followed the strategies which they promoted. For example, bank employees Shollenburg, Hagy, Knudson, and Melton sent documents to each other requesting that First Mountain Bank not withhold state or federal taxes from their pay and then place their untaxed wages from working at First Mountain Bank into “pure trust” accounts. They subsequently sent documents to the IRS claiming, among other things, to be non-citizens of the United States and stating that they were exempt from paying federal taxes. All five conspirators admitted to failing to timely file income tax returns reporting income they earned in an attempt to further conceal their activities from the IRS and obstruct and defraud the Internal Revenue Service’s lawful functions..
Both Shollenburg and Hagy were ordered by Judge Collins to report to the Bureau of Prisons and begin serving their sentences on April 30, 2007.
This case is the result of an investigation conducted by Internal Revenue Service – Criminal Investigation. The prosecution was handled by the United States Department of Justice – Tax Division with the cooperation of the United States Attorney’s Office in Los Angeles.
The IRS cautions, “Don’t be misled by the word ‘trust.’ Just because the name ‘trust’ is associated with financial arrangements does not make it a legitimate trust.” (Source: IRS Publication 2193.) The IRS rejects frivolous arguments, such as the types of claims mentioned above, which have become recognizable trademarks of individuals involved with anti-tax movements. More information can be found at www.irs.gov using key word searches “abusive trust” or “frivolous tax.”