LOS ANGELES – A Downey man who operates second-hand clothing stores in Los Angeles County has been sentenced to one year and one day in federal prison for not reporting nearly $4 million in corporate income to the Internal Revenue Service.
Jose Martin Andrade Flores, 53, the owner and operator of American Superior Used Clothing, Inc., also was ordered by United States District Judge Christina A. Snyder on Monday to pay a $10,000 fine.
Flores pleaded guilty in September to one count of subscribing to a false corporation income tax return that he filed for American Superior for 2013. In that year, American Superior had income of approximately $3,440,769, but Flores instead reported only $2,505,183, omitting income of $935,586.
According to court documents, part of American Superior’s business model was to recycle used clothing, then resell it at retail stores located on Melrose Avenue, Hollywood, Echo Park and Pasadena. The company also engaged in bulk wholesale transactions with international buyers and sold merchandise at Rose Bowl swap meets and on East Los Angeles sidewalk locations.
From 2012 through 2016, Flores concealed from his corporate tax preparer cash sales and deposits into foreign bank accounts that were made on behalf of American Superior. As a result, the tax returns he filed for American Superior for those five years failed to report a total of $3,966,473 in income to the IRS.
In early 2017, Flores put American Superior up for sale, advertising the company’s sale on BizBuySell, a website where companies are bought and sold, according to the government’s sentencing memorandum. The advertisement listed a selling price of $3.5 million and estimated revenue of $4 million – twice the revenue the company reported to the IRS in its tax returns.
Prospective buyers then met in person with Flores on three occasions, and engaged in multiple telephone calls with him. During a May 2017 meeting with the prospective buyers, Flores said American Superior generated $800,000 to $1 million in cash each year, but reported only enough money on its tax returns to give the appearance it was breaking even. Flores also told them that he made between $300,000 and $400,000 each year from American Superior.
According to court documents, Flores also told the prospective buyers, “There is no better business than this business. When you report, you can always break even. It’s a recycling business. They won’t touch you.”
Two months later, the IRS executed a search warrant and seized the company’s true cash receipts that Flores had described and shown to the prospective buyers. The agents also seized cash and text messages sent to Flores from employees reporting the daily sales at one of his retail stores.
As part of this case, Flores agreed to pay all back taxes, interest and penalties associated with his willful failure to accurately report American Superior’s income. Flores has paid the IRS $1,189,331, which includes $439,632 in penalties.
This matter was investigated by IRS Criminal Investigation.
This case is being prosecuted by Assistant United States Attorney Ranee Katzenstein, Chief of the Major Frauds Section.
Release No. 18-198