A Report on the Activities of the

Joint Federal/State Motor Fuel Tax Compliance Project

U.S. Department
of Transportation

Federal Highway Administration

Volume 7, Number February 1998

IN THE NEWS
A California fuel tax evasion case decision may allow the IRS to hold distributors responsible for tax-free fuel sold illegally further down the distribution chain. Federal prosecutors argue in USA vs. Self that supplier and broker who sold tax-free fuel to a jobber who then allegedly sold it tax-paid should have known about, and should be held liable for, illegally sold fuel. In 1995, the Federal investigators charged jobber Steven Self, fuel broker David Wayt, and salesman Henry Gould with 3 counts of tax evasion. Allegedly, Gould sold tax-free marine diesel to Wayt who then sold it to Self who blended it with tax-paid diesel and sold it as taxable fuel. This occurred between October 1990 and June 1991. Federal officials say Wayt and Gould "should have known" Self was selling the tax-free diesel as tax- paid fuel. Attorneys for Gould and Wayt say their clients had no idea what Self was doing and should not be held responsible. Deciding who is liable for illegally sold fuel is difficult since fuel tax laws have changed dramatically between 1988 and 1995, according to Self's attorney.

On June 9, 1997, Self, Wayt, and Gould were acquitted. US Oil Week 5/19/97, Defense Fuel Supply Center, 6/9/97

Ammar Tabbaa of Orange, California, and Khaled Tabbah, of San Clemente, California, pleaded guilty to charges of conspiracy to commit mail fraud by evading over $8.5 million in diesel fuel excise taxes owed to the California State Board of Equalization, (BOE) as well as with attempted evasion of Federal excise taxes. The California evasion charges are a result of a daisy chain scheme that was in operation between April 1992 and September 1995. Federal tax charges stem from the sale of over 1 million gallons of jet fuel (which has a lower tax rate than diesel) as diesel fuel, between July and September 1995, resulting in approximately $25,325 in evaded Federal excise taxes. Khaled Tabbah also pleaded guilty to attempting to bribe a BOE tax auditor. Under the terms of the plea agreement, Tabbaa and Tabbah agreed to forfeit to the US Government the fleet of oil tank trucks, valued at $500,000, used in the evasion schemes as well as pay $1 million in financial penalties prior to sentencing. The 2 guilty pleas follow earlier guilty pleas in this case by Abdul Tabbaa of Rancho Cucamonga, California, of bribery; and by Nayel Badereen of Pasadena, California, of failure to keep tax records. Press Release, United States Attorney, LA 3/6/97; Los Angeles Times, 3/6/97

A reserve deputy for the Los Angeles County Sheriff's Department and his father have been charged with evading millions of dollars in State diesel taxes. Elias Tawil and his father Maurice Tawil were arrested after a Federal grand jury returned a 28-count indictment charging them with conspiracy, mail fraud, and money laundering. Elias Tawil was also charged with falsely testifying before the grand jury. The Tawils ran Metco Petroleum, a wholesaler in Claremont, California, that sold diesel to stations and truck stops operated by Ammar and Khaled Tabbaa. The Tabbaas both pleaded guilty to evading more than $8.5 million in diesel taxes in March. The indictment alleges that the Tawils evaded tax on diesel sold at the Tabbaa stations for 3 years starting in February 1992, and that they created burn companies and used bogus wholesaler permits so they could purchase the fuel tax-free. They avoided paying millions in taxes. In the month of December in 1994, they evaded about $90,000 in State taxes. Oil Price Information Service, 5/19/97

On June 2, 1997, Robert Shakarian, owner of Hye Gas, was sentenced to 12 months in prison, 36 months probation, a $6,000 fine, $75,614 restitution, and a $150 special assessment as a result of his guilty plea in January 1997. He was charged with mail fraud and making false statements in a tax return. Shakarian was involved with the Keroles Group, a number of whom were indicted in August 1995 in connection with the fraudulent obtaining, theft and sale of $8 million worth of fuel in a 3-month period. An undetermined amount of that fuel was obtained from the Defense Fuel Supply Center in San Pedro, California. Shakarian used the mail to further the group's scheme to defraud the US Government. The investigation was conducted by the Defense Criminal Investigative Service, the FBI, the IRS, the Los Angeles and Long Beach Police Departments, the California Department of Justice, and the Office of the Inspector General (OIG) of the US Department of Transportation. Assisting in the investigation was the California Board of Equalization. Defense Fuel Supply Center, 6/9/97, US Oil Week, 6/9/97

Fugitive Yehuda Shaked has returned from Israel and pleaded guilty to 1count each of conspiracy and tax evasion stemming from the 1993 Ampetrol motor fuel tax evasion case. Shaked is the second fugitive to return from Israel. Arami Segal returned in April and pleaded guilty to his part in the scheme. Joe Reisch who fled after pleading guilty, is still in Israel. US Oil Week 6/16/97

Gary Lazar, convicted fuel tax thief, will spend another 51 months in prison for bankruptcy fraud. He will be transferred to Federal prison in December after pleading guilty to 2 counts of fraud for hiding $6.6 million in assets during his 1991 bankruptcy case. Divine Grace Lazar was sentenced on September 29, 1997. The Lazars ran 200 California gas stations that sold gasoline mixed with transmix, faked tests on underground storage tanks, and failed to pay $25 million in taxes. US Oil Week 9/8/97

Paul Kramer was sentenced to 6 years in prison and 10 years probation as a result of his conviction on cheating the State of Wisconsin out of $1.8 million in motor fuel tax revenue. Patrick Gedig, also convicted in the scam, was sentenced to 1 year in prison and 10 years probation. (See related story in December 1996 FTE Highlights) The Tax Enforcer, Winter/Spring 1997

Gideon Misulovin, convicted fuel tax evader, has been sentenced to 10 years in prison, 3 years supervised release, $150,000 fine and restitution of $300,000. Misulovin, a fugitive, has been on the run since jumping bail following his arrest in New Jersey for selling untaxed fuel as taxable fuel. If caught, Misulovin could face additional charges related to his fleeing. Petroscan 3/31/97, US Oil Week 6/2/97

Gary Saab, president of Detroit Fill Up Inc., and Haysam Sleiman, attendant at Saab's gas station, were charged with cheating customers on fuel purchases. Authorities from the Michigan Department of Agriculture said that the digital dispensing equipment was electronically altered to deliver less gasoline than was displayed on the pump by converting gallons to liters. Customers were being shorted between 6% to 36% on their unleaded gasoline purchases. Saab was charged with 15 felony counts and may have to pay $150,000 in fines and serve up to 5 years in jail if convicted. Sleiman was charged with 5 felony counts and if convicted faces $50,000 in fines and up to 5 years in jail. Oil Price Information Service 5/20/97

Numerous provisions relating to motor fuel taxes were included in the budget package signed by Congress and the President. The tax or dye provision for kerosene requires all off-road kerosene to either be taxed or dyed. The Society of Independent Gasoline Marketers of America support the provision stating that it closes a major loophole in motor fuel excise tax law. However, the Petroleum Marketers Association of America argue that it will raise the price of kerosene by as much as 12 cents per gallon. Other provisions include: transferring the 4.3 cents per gallon of motor fuel used for deficit reduction to the Highway Trust Fund; repealing excise tax on recreational motor boat diesel fuel; restoring the leaking underground storage tank (LUST) tax; and treating chain retailers as wholesale distributors under the gasoline refund rules. US Oil Week 8/4/97

Ghugas Yamukian, a truck stop operator charged as part of the Operation Gas Gangsters case, was found guilty on 1 count of conspiracy to commit mail fraud for submitting false State tax returns. Yamukian's truck stop in La Puenta, California, was supplied by "burn" companies from which he bought the fuel tax-free and sold it as tax-paid and pocketed the difference. He faces up to 25 years in prison. US Oil Week 9/15/97

Another member of the Mikaelian Organization has been sentenced. Paylak Broutian was sentenced to 36 months probation, 10 months home confinement, a $50 special assessment, and 100 hours of community service. He was indicted on April 28, 1997, on 1 count of false representation regarding liability for Federal excise tax and pled guilty to the indictment in July. Broutian owned a service station that sold stolen fuel to the public. The investigation was conducted by the Defense Criminal Investigative Services, FBI, IRS, Los Angeles and Long beach Police Departments, California Department of Justice and Board of Equalization, and the OIG of the Department of Transportation. Department of Defense, 9/15/97

The Federation of Tax Administrators met in St. Louis, Missouri, September 21 through 24 to discuss numerous issues including: fuel tax uniformity activities among States; electronic data interchange; fuel tracking systems; dye diesel enforcement; Native American taxing issues; and fuel tax evasion below the rack. Speakers were from the IRS, EPA, FHWA, FTA, State Departments of Revenue, and industry. Tax Administrators News, October 1997

WANT TO KNOW MORE?
Fuel Tax Evasion Highlights will be available by electronic mail to those who have an Internet address. If you would like to be included on the e-mail list, please e-mail your request to Linda.Morris@fhwa.dot.gov. 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.