White Plains accountant Joseph Cervone has been charged with obstructing the IRS for allegedly concealing his income and fabricating client tax returns.
The U.S. Attorney”™s Office claims that Cervone reported income of $25,342 for 2010 and 2011 while concealing $506,600. He allegedly paid personal expenses through limited liability companies and partnerships knowing that the entities would not report the payments to the IRS.
He also is accused of inflating credits, losses and deductions for clients”™ partnerships, from 2009 to 2012.
Cervone and his attorney, Glenn H. Morak of Abramson & Morak in Manhattan, declined to comment.
“We will let the proceedings play out in court,” Morak said.
Cervone has been licensed as a certified public accountant in New York since 1978 and has operated Peopleworks Inc. tax preparation service since 1993.
The criminal case, filed on March 2 in U.S. District Court in White Plains, does not detail how Cervone allegedly fabricated client tax returns, but the charge is similar to allegations in two lawsuits.
Last year, John Madden of Sag Harbor sued for professional malpractice and breach of contract in state Supreme Court in White Plains.
Madden is a civil engineer and lawyer who mediates complex construction and engineering disputes from offices in New York and Dublin, Ireland.
Around 2005, the lawsuit states, Cervone advised Madden to form an Ireland corporation and to deposit funds in an Ireland bank. He claims that Cervone advised him that fees paid in Ireland would not be subject to U.S. income taxes until the firm was dissolved and then they would be taxed at a lower rate as capital gains.
He formed Madden Mediation & Arbitration Ltd. and he had Cervone prepare federal and state tax returns for 2005 to 2011.
In fact, the lawsuit states, the U.S. requires citizens to disclose their interests in foreign corporations and bank accounts. As a result of negligently prepared tax returns, the lawsuit states, Madden was assessed significant interest and penalties. He claims damages of at least $204,000.
Cervone denied the allegations in a court filing. The case is pending.
In 2012, Leonard and Kristine Franco sued Cervone in state Supreme Court accusing him of negligence and fraud. They claimed Cervone advised them to invest in Fxlyg LLC, a “clean coal” company that qualified for tax credits.
They invested $658,713, the lawsuit states, and they claimed a tax credit for 2010 and amended their tax returns back to 2005 for additional credits. They received substantial tax refunds.
The Francos got suspicious when the IRS issued a summons for their records, the lawsuit states, and indicated that the agency was investigating Cervone. The Francos came to believe that Fxlyg LLC never existed, and if it did it was a sham designed to get them to invest their money.
Cervone contested the allegations in a motion to dismiss the case. The Francos discontinued the lawsuit six months after it was filed.
Cervone also struggled with personal income tax obligations from 2000 to 2002, according to a federal tax lien that claimed he owed $478,057. He satisfied the debt in 2004.
The criminal case charges him with obstructing or impeding the IRS and subscribing to false tax returns. He pleaded not guilty, but a change of plea hearing has been scheduled for March 29.
Cervone was released from custody on a $200,000 personal recognizance bond, secured by a property in Hartsdale.
U.S. Magistrate Judge Lisa Margaret Smith ordered that he may not work as a CPA, but he may file tax returns for clients so long as he notifies them that he is facing federal income tax charges.
What I found most interesting is that he really could get away with it for half a decade!