Los Angeles, California – LAWFUEL – The United States Department of Justice and the IRS Criminal Investigation Division announced today that United States District Court Judge Audrey B. Collins sentenced a former officer of First Mountain Bank to serve a term of incarceration in federal prison followed by a period of supervised release. On September 25, 2006, defendant Vicky Melton pleaded guilty to one count of conspiracy to defraud the United States. Documents filed with the court set forth that 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.
Vicky Melton, who was the Bank’s former Senior Vice President and Senior Loan Officer, was sentenced yesterday to 6 months in prison, 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. In delivering her sentence, Judge Collins noted that Melton’s sentence reflected her relatively minor role in the conspiracy and the important facts that Melton began repaying her tax debts before the prosecution began and had not encouraged others to engage in similar obstruction of the IRS.
Defendants Dennis Shollenburg, the bank’s former President and Chief Executive Officer, Hazel Hagy, who was the bank’s former Executive Vice President and Chief Financial Officer, and Brenda Knudson, the bank’s former Assistant Vice President in charge of New Accounts, also plead guilty to the same conspiracy and are due to be sentenced later this year.
According to the indictment returned by a federal grand jury in July 2003, the defendants, along with another individual named Thomas 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. Thomas Miller, who was not an employee of First Mountain Bank, was recently sentenced to 44 months in prison for his role in the conspiracy. Through the Freedom Education Center, they offered “pure trust” documents and anti-tax books and literature for sale. The defendants and Miller instructed individuals on strategies that they claimed would allow their clients to lawfully stop paying taxes. They assisted clients with 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 these were TIN’s, Taxpayer Identification Numbers, issued by the IRS. This sophistication was intended to deceive the IRS and others and to make it difficult, if not impossible, to identify ownership of funds deposited into the “pure trust” bank accounts or the reportable income associated with such funds. They also assisted individuals with sending frivolous argument letters to employers and the IRS.
In their plea agreements, the defendants admitted to personally following the strategies which they promoted. For example, Shollenburg, Hagy, Knudson, and Melton sent documents to each other requesting that First Mountain Bank cease withholding state or federal taxes from their pay and then place their untaxed wages into “pure trust” accounts. They 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 IRS lawful functions.
“Beyond a handful of individuals cheating on their own taxes, Miller and his co-conspirators compounded the fraud exponentially by encouraging others to, in effect, drop out of the tax system,” commented Debra King, Special Agent in Charge of the Los Angeles Field Office, IRS Criminal Investigation. “The message is clear – this sentence is evidence that IRS Criminal Investigation will investigate and prosecute promoters of frivolous anti-tax schemes.”
Melton was ordered by Judge Collins to begin serving her sentence on March 12, 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” and “frivolous tax.”
Additional information about the Justice Department’s Tax Division and its enforcement efforts may be found at www.usdoj.gov/tax.
