Question

Please visit www.irs.gov and answer the following:

1) What percentage of bankruptcy petitions does the IRS estimate contain some kind of fraud?

2) What are the major goals of the CI division’s bankruptcy fraud program?

3) Read two or three examples of bankruptcy fraud and discuss.

Answer 1

1) U.S. bankruptcy laws provide for the development of a plan that allows a debtor, who is unable to pay his creditors, to resolve his debts through the division of his assets among his creditors. Bankruptcy fraud is committed when individuals and corporations conceal and misstate assets, mislead creditors, and illegally pressure bankruptcy petitioners during a bankruptcy proceeding. Bankruptcy laws can be found in Title 11 of the U.S. Code. Criminal sanctions can be found in Title 18 of the U.S. Code, Section 152 and Section 157.

The IRS Criminal Investigation’s Bankruptcy Fraud Program investigates bankruptcy fraud cases and, if necessary, recommends some of those cases for prosecution by the Department of Justice.

In 2006, the IRS initiated 32 bankruptcy fraud investigations. Twenty-four were prosecuted and ten sentenced. The average sentence was 29 months in either federal prison or another form of detention.

According to the United States Bankruptcy Court, bankruptcies are steadily increasing and reached 1.7 million in fiscal year 2003. The increasing number of bankruptcy petitions filed has been accompanied by a correlative increase in bankruptcy fraud. In fact, the Department of Justice estimates that 10 percent of all bankruptcy petitions contain some elements of fraud.

2)

The goals of IRS Criminal Investigation’s Bankruptcy Fraud Program are to:

Increase voluntary compliance with federal tax laws through the prosecution of those committing significant crimes in the bankruptcy arena

Enhance IRS presence among bankruptcy professionals and practitioners for the dual purpose of increasing compliance and providing contact points to report allegations of fraud

Foster enhanced cooperation between the IRS Operating Divisions and Criminal Investigation in attaining mutual compliance goals.

3)

A) Connecticut Couple Sentenced for Bankruptcy and Tax Fraud Schemes

On Aug. 3, 2015, in Hartford, Connecticut, Jason Sheehan, of New Haven, was sentenced to 37 months in prison and three years of supervised release for engaging in an extensive bankruptcy and tax fraud scheme. Sheehan’s wife, Glorvina Constant was sentenced to one year of probation for participating in a related mortgage fraud scheme. Restitution will be determined at a later date. On Oct. 8, 2014, Sheehan pleaded guilty to willful failure to collect, account for and pay tax, embezzlement from a bankruptcy estate and making a false declaration statement under penalty of perjury in a bankruptcy case. On Oct. 7, 2014, Constant pleaded guilty to conspiracy to commit bank fraud. Sheehan was the sole member of a limited liability company known as Infinistaff, LLC, which provided temporary workers to employers. In September 2010, Infinistaff filed a voluntary chapter 11 bankruptcy petition. As part of the bankruptcy case, Sheehan filed operating reports that falsely claimed that another company was being paid to process Infinistaff’s payroll checks, and prepare and file its payroll tax returns and tax payments although the arrangement was terminated at that time. Sheehan filed these reports in order to conceal his embezzlement of more than $1 million from Infinistaff’s bankruptcy estate. In addition, between 2011 and 2013, Infinistaff failed to account for and pay to the IRS more than $2.5 million in employment taxes the company had withheld from employee paychecks, and also failed to pay approximately $1.4 million in employer payroll taxes. Constant received Infinistaff payroll checks totaling $354,000 during the bankruptcy proceedings even though she performed no work for the company. Additionally, in 2013, Constant purchased a home using proceeds from a mortgage loan she obtained from a local bank, as well as approximately $260,000 embezzled by Sheehan from the Infinistaff bankruptcy estate. On two mortgage loan applications Constant falsely stated that she was employed by Infinistaff and earned a substantial salary.

B) Former Chief Executive Officer of the Hindu Temple of Georgia Sentenced for Bankruptcy Fraud

On May 1, 2015, in Atlanta, Georgia, Kumar Chinnathambi was sentenced to 24 months in prison, three years of supervised release and jointly ordered to pay $318,781 in restitution. Chinnathambi previously pleaded guilty to conspiracy to commit bankruptcy fraud. Around Oct. 12, 2008, Chinnathambi was listed as the Chief Executive Officer of the Hindu Temple of Georgia, a position previously held by co-conspirator, Annamalai Annamalai. On or about Aug. 30, 2009, another individual was listed as the Chief Financial Officer and Secretary. About Aug. 31, 2009, the Hindu Temple filed for Chapter 11 bankruptcy. Annamalai signed the voluntary petition for bankruptcy on behalf of the Hindu Temple as President and Chief Executive Officer. About Nov. 9, 2009, five days after a trustee was appointed to oversee the Hindu Temple's property in bankruptcy, Chinnathambi registered a new temple with the Georgia Secretary of State, called Shiva Vishnu Temple of Georgia, Inc. (Shiva Vishnu), which listed the other individual as the Chief Executive Officer. About Nov. 12, 2009, Annamalai, Chinnathambi and anther individual opened a bank account in the name of Shiva Vishnu. From about Nov. 25, 2009, through about Oct. 25, 2010, Annamalai and Chinnathambi caused funds that were intended for the Hindu Temple to be diverted and deposited into Shiva Vishnu's bank account, without disclosing the funds to the trustee charged with control of the debtor Hindu Temple's property in bankruptcy, or creditors of the Hindu Temple or the United States Trustee. Annamalai was sentenced to 327 months in prison on April 13, 2015 for his role in the conspiracy.

C) Former Leader of Hindu Temple of Georgia Sentenced for Fraud and Obstruction

On April 13, 2015, in Atlanta, Georgia, Annamalai Annamalai, aka Dr. Commander Selvam, aka Swamiji Sri Selvam Siddhar, former leader of the now defunct Hindu Temple of Georgia and a resident of Baytown, Texas, was sentenced to 327 months in prison. Following a two-week jury trial, Annamalai was convicted on Aug. 25, 2014, for bank fraud and tax fraud offenses. According to court documents, Annamalai generated income through the Hindu Temple of Georgia by charging fees to his followers in exchange for providing spiritual or related services. In a typical transaction, a follower agreed to purchase a particular service for a communicated price, and provided a credit card number by telephone to guarantee payment. Annamalai caused the followers’ credit card numbers to be charged on multiple occasions, in excess of their agreed amount and without authorization. If the followers disputed the charges with their respective credit card companies, Annamalai submitted false documentation to the credit card companies in support of the unauthorized charges. Annamalai later filed spurious lawsuits against followers who disputed his charges and manipulated audio recordings to make it sound as if the followers had agreed to the disputed charges. The income generated by the Hindu Temple through these credit card charges was used to fund the personal lifestyle of Annamalai and his family, who owned or controlled numerous homes and real properties, luxury vehicles, and foreign bank accounts in India. Annamalai was also convicted of bankruptcy fraud offenses in connection with the Hindu Temple’s petition for bankruptcy protection in August 2009. Annamalai concealed assets from creditors and others by diverting credit card receipts and donations intended for the Hindu Temple to a bank account in the name of a different entity. Annamalai was also convicted on obstruction and false statements in connection with the grand jury investigation and the bankruptcy proceeding. Annamalai transmitted a fraudulent email to an IRS CI Special Agent, which was falsely made to appear as if the email had been written and authored by a witness of the criminal investigation. Annamalai submitted a false affidavit to the grand jury, and a false affidavit to the Bankruptcy Court in connection with the Hindu Temple’s bankruptcy proceeding. Finally, Annamalai was convicted of conspiring with his spouse and others to conceal the arrest of co-defendant Kumar Chinnathambi. Chinnathambi, also of Baytown, was arrested and pleaded guilty to conspiracy to commit bankruptcy fraud on July 17, 2014. He will be sentenced at a later date.