A Twinsburg man was sentenced to nearly five years in prison and ordered to pay approximately $1.2 million in restitution for his role in a tax-fraud
A Twinsburg man was sentenced to nearly five years in prison and ordered to pay approximately $1.2 million in restitution for his role in a tax-fraud conspiracy, said U.S. Attorney Steven M. Dettelbach and Kathy Enstrom, IRS-Criminal Investigation Special Agent in Charge.
Brian D. Krantz, 47, previously pleaded guilty to one count of conspiracy to make false claims for income tax refunds and five counts of making such false claims. U.S. District Judge Sara Lioi sentenced him to 57 months in custody.
The conspiracy included filing false income tax returns claiming false refunds totaling more than $8.8 million.
Based on those false claims, the U.S. Treasury issued 17 refund checks totaling approximately $3,615,586 payable to Krantz and various corporations controlled by Krantz and his co-conspirator, Bryan D. McCallum, according to the court documents.
Krantz owned and controlled two corporations that engaged in financial services and/or real estate investment business activities.
McCallum, of Parma Heights, worked as an accountant/ bookkeeper at the companies, according to court documents.
From approximately April 2009 through June 8, 2010, Krantz and McCallum conspired to make false claims for tax refunds using income tax returns filed with the IRS in the names of Krantz, companies formed by Krantz and McCallum, and several "shelf" companies purchased by Krantz.
A "shelf" company is a corporate or other formal non-operating business entity established for the purpose of being held for sale to another person, according to court documents.
The scheme involved the use of fake IRS Forms 2439, titled "Notice to Shareholder of Undistributed Long-Term Capital," purportedly issued by some of the shelf companies to the persons and companies in whose names the false returns were filed. A Form 2439 is to be issued by a regulated investment company (RIC) or real estate investment trust (REIT) to report undistributed capital gains and taxes withheld from those gains on behalf of RICs or REITs shareholders.
Under federal tax law, RICs and REITs are entities that are not taxed on their earnings but instead pass those earnings to their shareholders who, in turn, have the obligation to report those earnings and any resulting tax liabilities on the shareholders' income tax returns.
The returns filed pursuant to the conspiracy claimed substantial amounts of Form 2439 withholding credits, when, in fact, none of the companies listed as RICs or REITs on the forms were actually RICs or REITs or had any undistributed capital gains or withheld taxes, according to court documents.
Krantz used more than $1 million of the refund proceeds to finance a real estate venture he established with other partners, known as Phoenix Ventures Partners LLC. Krantz and McCallum misled Krantz's real estate partners to believe that a group of Colorado-based hard money lenders had provided the funds.
McCallum previously pleaded guilty to a two-count information charging him with the same false claims conspiracy and with making 30 false claims. He was sentenced to three years in prison and ordered to pay approximately $1.2 million in restitution.
"Those individuals who engage in this type of financial fraud should know they will not go undetected and will be brought to justice," Dettelbach said.
"This sentence sends an important message to America's taxpayers who play by the rules that we have no tolerance for those who make up their own rules," Enstrom said.
The government's case was prosecuted by Assistant United States Attorneys John M. Siegel and Justin J. Roberts, following an investigation by the Internal Revenue Service, Criminal Investigation.