OAKLAND – LAWFUEL – The Law News Network – United States Attorney Kevin V. Ryan announced that Ralph Joseph Small pleaded guilty today to income tax evasion and making and subscribing a false corporate income tax return and was sentenced to 24 months in prison, and ordered to pay a $3,000 fine and $238,478.44 in restitution.
Mr. Small, 58 of Lafayette, California, was indicted by a federal grand jury on March 13, 2003. He was charged with two counts of income tax evasion in violation of 26 U.S.C. § 7201 and four counts of making and subscribing false income tax returns in violation of 26 U.S.C.§ 7206(1). Under the plea agreement, Mr. Small pleaded guilty to one count of income tax evasion with respect to his 1998 individual income tax return and one count of making and subscribing a false corporate income tax return with respect to Neuro Diagnostics Associates, Inc. (NDA).
According to the plea agreement, Mr. Small, who has a medical degree from Johns Hopkins University School of Medicine, admitted to operating eleven physical therapy clinics in the eastern part of the United States, each of those clinics was a wholly-owned corporation of NDA. Mr. Small owned 100% of the shares of NDA. Mr. Small paid a substantial portion of his personal expenses through the checking accounts of the physical therapy clinics, and fraudulently coded these payments as business expenses on the checking account ledgers of those clinics. He used corporate funds to pay for non-deductible medical expenses for himself and friends. Mr. Small also used corporate funds to extensively remodel his personal residence in California. He spent corporate funds on a swimming pool, iron fencing, extensive deck work and landscaping, architecture services, personal automobile maintenance and gasoline, food, clothes, home furnishings and travel, including personal travel to Hawaii, England, Ireland, Australia, Las Vegas and Kenya. In addition to these payments, Mr. Small also pocketed the proceeds of the sale of a limousine, insurance payments on a Porsche, and a security deposit on a rental home, when the sources of the original payments were corporate checks that were treated as business expenses on the corporation’s general ledger.
Mr. Small admitted that he personally maintained all of the check books and wrote all checks drawn on the corporate checking accounts. He classified each payment and forwarded this information to his bookkeeper, who prepared summaries that were provided to Mr. Small’s tax return preparer.
According to the plea agreement, the fraudulent payment of Mr. Small’s personal expenses by the corporation and his diversion of corporate income to himself totaled $136,332 in 1996, $204,958 in 1997, and $484,088 in 1998. As a result, Mr. Small fraudulently omitted $484,088 in income from his1998 income tax return and under-reported his personal income tax liability for that year by $99,278. NDA’s corporate income tax return for 1998 fraudulently reported $147,120 in business expenses, which represented his personal expenses, resulting in the underreporting of corporate income tax by $51,492.
The sentence was handed down by U.S. District Court Judge Sandra Brown Armstrong following a guilty plea on one count of income tax evasion in violation of 26 U.S.C. § 7201 and one count of making and subscribing a false corporate income tax return in violation of 26 U.S.C. § 7206(1). Judge Armstrong also sentenced the defendant to a three year period of supervised release. The defendant will begin serving the sentence on April 14, 2006.
David L. Denier is the Assistant U.S. Attorney who is prosecuting the case with the assistance of Kathy Tat. The prosecution is the result of a three year investigation by agents of the Internal Revenue Service.
Further Information:
A copy of this press release may be found on the U.S. Attorney’s Office’s website at www.usdoj.gov/usao/can.
Electronic court filings and further procedural and docket information are available at https://ecf.cand.uscourts.gov/cgi-bin/login.plhttps://ecf.cand.uscourts.gov/.
Judges’ calendars with schedules for upcoming court hearings can be viewed on the court’s website at www.cand.uscourts.gov.
All press inquiries to the U.S. Attorney’s Office should be directed to Luke Macaulay at (415) 436-6757 or by email at [email protected]
