A tax shelter scheme operated by a Florida man who had business dealings in Mississippi has resulted in his guilty plea.
Stephen T. Mellinger III, a resident of Delray Beach, has confessed to masterminding a scheme that promoted an illegal tax shelter and involved wire fraud. Furthermore, he has admitted to aiding in the preparation of false tax returns for clients involved in the tax shelter.
Mellinger, as stated in court documents and testimony, was an active financial advisor, insurance salesman, and securities broker who conducted business in various states including Florida, Michigan, and Mississippi. His involvement in a conspiracy started in late 2013, where he collaborated with others to endorse an unlawful tax shelter. This tax shelter enabled clients to make false claims for tax deductions, specifically for fictitious “royalty payments”, with the intention of deceitfully reducing their taxes.
Mellinger was well aware that the so-called “royalty payments” were actually just a way to create the illusion of legitimate business expenses. The process involved clients sending money to bank accounts controlled by Mellinger and his co-conspirators, who would then send the money back to a different account belonging to the client, after deducting a fee. This deceptive practice allowed the participants to maintain control over the funds, all while fraudulently claiming the transfers as business expenses on their tax returns.
The IRS experienced an estimated $37 million tax loss due to over $106 million in false tax deductions being claimed.
Mellinger and one of his relatives, who was also involved in the scheme, managed to generate around $3 million in fees by promoting it.
In January 2016, Mellinger discovered that some of his clients were being investigated, and the United States had started to confiscate their funds. Subsequently, he and a relative embezzled over $2.1 million from a few of these clients, utilizing a portion of the money to purchase a residence in Delray Beach.
Mellinger is scheduled to be sentenced on September 16th. He could potentially receive a prison term of up to five years for his involvement in a conspiracy to defraud the IRS and commit wire fraud. Additionally, he could face a maximum of three years for aiding in the preparation of false tax returns. The ultimate decision on his sentence will be made by a federal judge, who will take into account factors such as the U.S. Sentencing Guidelines and other relevant statutory considerations.
The announcement was made by Acting Deputy Assistant Attorney General Karen E. Kelly of the Justice Department’s Tax Division, supervisory official Antoinette T. Bacon of the Justice Department’s Criminal Division, and acting U.S. Attorney Patrick A. Lemon for the Southern District of Mississippi.
The case is currently being investigated by IRS Criminal Investigation and the Department of Defense, Office of Inspector General, Defense Criminal Investigative Service.
The case is being prosecuted by trial attorneys Richard J. Hagerman, William Montague, and Matthew Hicks from the Tax Division, Assistant U.S. Attorney Charles W. Kirkham from the Southern District of Mississippi, and trial attorneys Emily Cohen and Jasmin Salehi Fashami from the Criminal Division’s Money Laundering and Asset Recovery Section (MLARS).