FUEL TAX EVASION HIGHLIGHTS

A Report on the Activities of the

Joint Federal/State Motor Fuel Tax Compliance Project

U.S. Department
of Transportation

Federal Highway Administration

Volume 6, Number July 1997

IN THE NEWS
Four men and 1 woman have been indicted in a Federal investigation into a 3-state fuel tax scam. Arrested and charged are John Doherty, with conspiracy and falsifying tax records; James Gaudet, with conspiracy; Douglas Hatter, with 2 counts of perjury; and James Lee, with conspiracy. Ann Gaudet Young is a fugitive. The Advocate, Baton Rouge, LA, 1/13/97

David H. Werdine of Schmock Oil Corporation, Michigan City, IN, was arrested on charges of failing to remit fuel taxes. The Indiana Department of Revenue's Criminal Investigation Division uncovered Werdine's blending scheme where he mixed kerosene with diesel fuel, charged the customers the fuel tax, but did not report or remit the taxes on the kerosene. The alleged acts took place in 1993, 1994, and 1995. He is charged with 28 counts of failing to remit special fuel tax, failure to pay taxes on blended fuel, and theft. If convicted, he could face from 1 1/2 to 3 years in prison and a possible fine of $10,000 on each count. Indiana Department of Revenue, 1/15/97; Oil Price Information Service, 2/28/97
Dana P. Brewer, president of Petroglobe Inc., was sentenced to 2 years in prison for failure to pay approximately $1 million in fuel taxes. He was convicted on May 13, 1996, of conspiracy to defraud the Treasury during 1993. Brewer admitted to falsely representing Petroglobe as being registered with the IRS so he could buy diesel without paying the tax up front. He then purchased nearly 5 million gallons of fuel which Petroglobe and a second company, Hiway Enterprises, sold tax paid. Youssef Kamel Keroles, owner of Hiway, was convicted of conspiracy and sentenced to 27 months in prison and 3 years supervised release, and to pay a $45,000 fine and $864,315 in restitution. Peter J. Nudo, CFO for Petroglobe, was convicted of corruptly obstructing and impeding the IRS. Business Wire, 1/14/97Carroll R. Moore, former owner and operator of Moore's Waste Oil Service in Chesapeake, VA, was sentenced to 180 days home detention, 3 years probation, $2,700 restitution to the IRS and a $100 special assessment. Moore pled guilty to charges that he knowingly marketed "off-specification" oil and failed to report income derived from the sales. The off-spec oil was sold through Domestics Industries Corporation of Virginia, a home heating oil business, as heating oil from August 1990 through July 1992. William "Buddy" Jones and 3 others were convicted on various charges relating to the theft of oil and a scheme to fraudulently supply contaminated and off-grade fuel. The investigation was conducted by the Defense Criminal Investigative Service (OIG, DOD), the Naval Criminal Investigative Service, the FBI and IRS. Audit assistance was provided by Defense Contract Audit Agency. Office of the Inspector General, Department of Defense, 1/15/97

Farmers are accusing the IRS of entrapment resulting from an IRS investigation to find out if the farmers were using the non-taxable fuel in their personal vehicles. The investigation took place at a farm show in Fort Wayne, Indiana. States News Service, 1/16/97

Four men were charged with conspiring to defraud the United States and failing to pay taxes in connection with a $17 million gasoline excise tax fraud scheme. Gregory Goldenberg, Garry Braverman, Igor Glazer, and Paul Kraus, each were charged with 1 count of conspiracy and 12 counts of tax evasion. From 1989 to 1991, the 4 were involved in a daisy chain scheme in the New York metropolitan area, selling more than 133 million gallons of gasoline on which no excise tax was ever paid. Each face up to a maximum of 5 years for conspiracy, and 5 years plus $100,000 fine for each count of tax evasion. The Criminal Investigation and Examination Divisions of the IRS conducted the investigation. Department of Justice Press Release, 1/29/97

The Travis County (Texas) Grand Jury returned 2 additional indictments against Michael Chagnon and Eddie Reynolds. Reynolds, along with Bill Melot and Dennis Dickerson, were indicted late last year on 2 counts of engaging in organized criminal activity, and 12 counts of failure to remit fuel taxes. Two new charges of aggravated perjury stem from their testimony before the grand jury during the course of the investigation. Texas State Comptroller, 2/13/97; Odessa American, 2/14/97, The Tax Enforcer, Winter/Spring 1997

Charges of fuel tax evasion, theft, possession of stolen property, in addition to other charges are expected to be filed against an employee of Carousel Oil, a diesel fuel wholesaler. Approximately $2,500 in motor fuel taxes were collected from retailers by Carousel oil, but were not remitted to the Department of Licensing. The Washington State Patrol and the Department of Licensing had been monitoring the company since 1996 when they applied for the special fuel dealers license. The investigation has resulted in 2 additional arrests, a man and a woman, who face various charges. Washington State Patrol, 3/6/97

A South Attleboro, Massachusetts, woman was sentenced to 6 months home detention, 3 years probation, and a $5,000 fine for willfully attempting to evade and defeat Federal diesel fuel excise taxes. Deborah J. Roberts, formerly Deborah J. Fales, president of D. Fales Oil Service Co., Inc., was selling home heating oil as diesel motor fuel, and had filed false and fraudulent tax returns. The tax loss was estimated at between $70,000 and $120,000. The case was investigated by the Criminal Investigation Division of the IRS and the U.S. Department of Transportation, Office of the Inspector General. PR Newswire, 3/6/97

Texas prosecutors dropped charges of excise tax evasion against Lawrence "Fat Sal" Iorizzo, Sr. when he threatened to reveal "state secrets." Iorizzo, who is now serving 15 years in a Federal penitentiary for conviction of Federal tax theft charges, threatened to reveal details of plutonium sales to the Russian Mafia.

This is the second time he has avoided prosecution by a State. The first occurred when Washington declined to prosecute on charges he bilked the State out of $51,377. U.S. Oil Week, 3/17/97

State tax representatives met in March to share ideas on ways to protect their revenue streams which are being threatened by increased sales of tax-free fuel on American Indian lands. Oklahoma, New York, Kansas, Nebraska, and New Mexico presented their methods for reducing their losses as well as the problems they have encountered in attempting to address this issue. U.S. Oil Week, 3/17/97

In Bowling Green, Kentucky, Ewert Wilson pled guilty to 1 count of conspiracy to obstruct the IRS in the collection of Federal excise taxes on gasoline. As part of the plea, 26 counts of aiding and assisting in the filing of false returns were dismissed. The investigation, conducted by the IRS, discovered that during late 1987 through September 1992, Wilson and another were involved in a scheme where they purchased fuel and fuel blending stock tax free after certifying the intended product would not be fuel/gasoline. Wilson and associate then blended the materials to make gasoline and sold it to retailers and distributors, collecting the tax but not remitting them to the IRS. Wilson was sentenced to 30 days in jail, 2 years supervised probation which requires filing all State and Federal tax returns correctly, and a $25,000 fine. Kentucky IRS Press Release, July 25, 1996

William S. Nappo, his son, William K. Nappo, and 11 others have been charged in a bootlegging scheme that took place in New York and New Jersey. The Nappos operate a terminal in Inwood, NJ, and are believed to be key players in a scheme that cheated New York out of at least $10 million in fuel taxes. Authorities believe that the 13 are connected to the scam 2 years ago where 11 truck drivers were charged with tax cheating. Of the 13 indicted, 9 have been arrested and 4 are at large. The Nappos pleaded innocent at their arraignment and were released on $5,000 bail. Oil Price Information Service, 3/24/97

Arkady Shuster, alleged Russian organized crime kingpin, has admitted his involvement in a 1989 fuel tax evasion scam. Shuster was indicted for skimming more than $3.3 million in excise taxes. He pled guilty to 1 count each of conspiracy and false use of IRS gasoline registration, as well as 2 counts of tax evasion. The government dropped the 2 tax evasion charges, totaling $600,000, in exchange for a plea. Shuster could receive a maximum sentence of 20 years and fines up to $305,000. Eight others were indicted with Shuster. Eight of the 9 have either pled guilty or been convicted. U.S. Oil Week. 3/24/97

WANT TO KNOW MORE?
Fuel Tax Evasion Highlights will be available by electronic mail to those who have an Internet address. For more information or updates to the mailing list, call Linda Morris, (202) 366-9234, Federal Highway Administration (HPTS), 400 Seventh Street, SW, Washington, DC 20590.