Baltimore, Maryland – Yesterday U.S. District Judge Paula Xinis sentenced Ercin Kalender, age 61, of Alexandria, Virginia and Lizette Kalender, age 44, of Alexandria, Virginia to one year and one day in federal prison, followed by three years of supervised release, for conspiracy related to tax fraud within their corporate filings and business taxes. Judge Xinis also ordered the Kalenders to pay restitution of $2,219,602.
The sentence was announced by United States Attorney for the District of Maryland Erek L. Barron and Special Agent in Charge Darrell J. Waldon of the Internal Revenue Service – Criminal Investigation, Washington, D.C. Field Office.
“Ercin and Lizette Kalender committed tax fraud for many years by purposely hiding their company’s true income to avoid paying their fair share, and then brazenly shared their criminal activity with potential buyers when trying to sell their business,” said IRS-CI Special Agent in Charge Darrell Waldon, Washington, D.C. Field Office. “Our IRS-CI special agents will continue to seek out those who illegally benefit from unreported income and create unfair business advantages for themselves in the community.”
According to their guilty pleas, Ercin Kalender owned and operated Butch’s, a very successful Capital Heights, Maryland auto body shop. Lizette Kalender worked at the autobody shop as a manager and bookkeeper. In that capacity, she handled tax reporting matters and regularly worked with an outside tax preparation and accounting agency, which prepared the taxes for Butch’s and the personal tax returns for Ercin and Lizette.
For the fiscal tax years of 2015, 2016, 2017, and 2018, Butch’s reported its income and expenses to the federal government by filing Forms 1120 with the Internal Revenue Service. During this period, the Kalenders conspired with each other to include materially false information on their Form 1120s filed with the IRS on behalf of Butch’s. The false information included on the Form 1120s included a significantly lower report of gross income and taxable income.
The Kalenders jointly worked to divert revenue from Butch’s and avoid significant revenues being deposited into Butch’s corporate bank accounts and reported to the IRS. As part of the conspiracy, the Kalenders kept two sets of financial records for Butch’s, one that reported the actual revenues and profits of the business and a second set that reported lower figures which were used for tax purposes. The Kalenders’ conspiracy to submit false tax returns also involved cashing checks, received at Butch’s at a Prince George’s check cashing facility (Business A). The checks cashed at Business A were not reported on Butch’s tax returns and resulted in the underreporting of Butch’s annual income for fiscal years 2015, 2016, 2017, and 2018 by more than $6.6 million. The corresponding tax loss to the IRS for the four years was $2,219,602.
As stated in their plea agreements, in August 2018, the Kalendars sought to sell Butch’s. As part of the investigation, an undercover federal agent posed as a potential buyer and had contact with the Kalenders. During their conversations, Ercin and Lizette explained the profitability of Butch’s and revealed their practices of the underreporting of revenues and income from Butch’s. During one conversation, while Lizette was present, Ercin informed the uncover agent that he had a regular practice of taking checks intended to pay for auto body repair work and cashing them at Business A. Some of the checks were made payable to Butch’s while other customer checks were written to Butch’s customers, or jointly payable to Butch’s and the customers.
Further, Ercin explained that while Butch’s filed tax returns showed $2.2 million in gross receipts, the actual gross receipts were closer to $3.1, $4.2, and $3.9 million for the fiscal years for 2015, 2016, and 2017; respectively. He also stated that his father had done this for years before he had taken over Butch’s operations and that his father used Business A to cash checks for 30-35 years. Ercin continued to explain the conspiracy by informing the undercover agent that he regularly cashed $50,000-60,000 at a time in off the books checks at Business A but estimated that he had reduced the amounts in recent years to approximately $30,000 to $35,000 cashed per visit to Business A. Ercin also informed the agent that Lizette also reported sizeable W-2 income, which helped them evade scrutiny by the IRS.
While working with the outside tax preparation and accounting agency, Lizette deliberately hid the money flowing through Business A. Lizette sent bank statements for the corporate accounts, check stubs, credit card statements, payroll records, and other business records but withheld the revenue received through the checks cashed at Business A. Thus, underreporting taxable income to the tax preparation and accounting agency.
During conversations with the undercover agent, Lizette showed records to the undercover agent displaying total sales of $4.3 million and $3.9 million for the fiscal years 2017 and 2018. Lizette also talked about pulling out invoices for additional customers from business records to cause business records to match their bank records.
As detailed in their plea agreements, the Kalenders knowingly caused a portion of the employee’s wages to be paid in cash and falsely reported the wages of Butch’s employees on Forms 941 filed with IRS. In a conversation with the undercover agent, Ercin stated that he paid all his employees’ extra compensation in cash to avoid tax obligations except for one secretary who was not paid under the table. This system of paying employees in cash deprived the State of Maryland of tax revenue and subverted the taxation systems of the IRS and Maryland. In 2019, after the Kalenders became aware of the IRS’s investigation, Butch’s reported gross receipts of more than $4.5 million, an increase of more than $2.2 million over the fiscal year 2018.
United States Attorney Erek L. Barron commended the IRS-CI for their work in the investigation. Mr. Barron thanked Assistant U.S. Attorney Harry M. Gruber, who prosecuted the case.
For more information on the Maryland U.S. Attorney’s Office, its priorities, and resources available to help the community, please visit www.justice.gov/usao-md and https://www.justice.gov/usao-md/community-outreach.
# # #