IRS Abusive Tax Scheme Investigations I
October 10, 2004

The following examples of abusive tax schemes fraud investigations are excerpts from public record documents on file in the courts in the judicial district in which the cases were prosecuted.

Michigan Couple Sentenced for Tax Fraud
On September 27, 2004, in Grand Rapids, MI, Andrew Stuart Ouwenga and Karen Ann Ouwenga were sentenced following a May 26, 2004, jury conviction on several tax-related felony offenses. Andrew Ouwenga received 60 months imprisonment and Karen Ouwenga received 51 months imprisonment, which are each followed by two years' supervised release. They must also cooperate with the Internal Revenue Service, file back tax returns and make arrangements to pay all taxes due and owing, along with any interest and penalties. They must also pay court cost of $5,016. The Ouwengas were convicted of conspiracy to defraud the United States by impeding and obstructing the lawful functions of the Internal Revenue Service, evading their 1997 federal income tax, and two counts of willfully and unlawfully disobeying a grand jury subpoena. In addition, Andrew Ouwenga was also found guilty on three counts of tax evasion involving his 1998, 1999, and 2000 tax years. The Ouwengas' accountant prepared their 1994 federal income tax return, which claimed more than $75,000 in income, however, the defendants instead filed a frivolous tax return claiming they had no income and requested a tax refund of their 1994 withholdings of more than $10,000. Andrew Ouwenga informed his accountant that he would not file tax returns or pay income taxes because "the Sixteenth Amendment was never ratified." Despite gross deposits of over $6.3 million and gross business receipts of $1.7 million into their bank accounts, the Ouwengas failed to file their tax returns. From 1993 through 1999, the Ouwengas created at least nine sham trusts, which enabled them to conduct their personal and business affairs while evading their income tax obligation.

Attorney Pleads Guilty for Role in Offshore Tax Evasion Schemes
On September 17, 2004, in San Diego, CA, B. Roland Frasier, an attorney for a prominent San Diego ophthalmologist, Dr. Glenn Kawesch, pleaded guilty to tax evasion, filing false returns, and money laundering. Frasier admitted that he transferred $1.25 million of Dr. Kawesch’s profits from his medical practice to an offshore account at the Bank of Nevis to avoid paying incomes taxes. Frasier also admitted he underreported $3.3 million of his own income for the tax years 1997 through 2001, which resulted in a tax loss of $934,000. In addition, Frasier admitted he entered into a series of sham agreements involving a business he helped take public. He did not disclose to the company's president about his ownership of a corporation in Nevis that received $300,000 and 7 million shares. Frasier had telemarketers sell more than 1.3 million of the shares which netted more than $1 million.

Consultant Used Abusive Trust Arrangements to Hide Income
On September 16, 2004, in Grand Rapids, MI, John F. Napieralski was sentenced to 30 months in prison to be followed by 2 years supervised release and ordered to pay a fine of $5,000. Additionally, Napieralski was ordered to cooperate with the IRS in filing all back tax returns and paying all taxes due and owing, along with any interest and penalties.

On June 17, 2004, Napieralski pleaded guilty to four counts of tax evasion for the tax years 1997 through 2000. He admitted that he created a sham trust called, “The Educational Systems Trust” (T.E.S.T.) and instructed payments, from his consulting services to Sto-Ex, Inc., to be made payable to T.E.S.T. During 1997 through 2003, more than $950,000 was deposited into T.E.S.T.’s bank account, with more than $600,000 in income coming from Sto-Ex., Inc. Napieralski admitted that he willfully attempted to evade and defeat a substantial portion of his income tax due and owing by failing to file tax returns reporting his business gross income received from Sto-Ex, Inc., coupled with affirmative acts of evasion.