D.C. restauranters plead guilty to 1.35 million in tax evasion, separate COVID relief fund fraud

9 months ago 209

Ristorante Piccolo in the Georgetown section of the nation's capital offers al fresco dining, when it's open. Currently the business is closed, but not because of its owners tax- and COVID-related guilty pleas this week. It sustained fire damage back in June. (Photo from Piccolo's Facebook page)

The restaurant sector was particularly hard hit during the height of the COVID-19 pandemic. Many were able to survive in part thanks to federal emergency relief programs.

But some eateries took criminal advantage of Uncle Sam's help.

And one such couple this week pleaded guilty to using $738,000 in coronavirus assistance money for personal expenses instead of to keep their restaurant in the Washington, D.C., Georgetown neighborhood operating.

The Vienna, Virgina, couple also admitted to evading $1.35 million in taxes from 1998 to 2018 on the Georgetown restaurant, as well as two other now-closed D.C. eateries.

Non-business expenditures: The Department of Justice announced that as part of his plea, 63-year-old restauranteur Gholam "Tony" Kowkabi admitted that he did not spend all the federal funds he received to help Piccolo restaurant, which he has owned and operated since 1986, open.

Those relief funds, distributed to Kowkabi from May 13, 2020, to July 27, 2021, totaled more than $1.6 million, according to the DoJ. Court records show the money came from Paycheck Protection Program (PPP) loans totaling $474,000; an Economic Injury Disaster Loan (EIDL) for $499,900; and a Restaurant Revitalization Fund (RRF) grant of $631,823.28.

Kowkabi, however, used $738,000 of the COVID money to pay for a waterfront condo in Ocean City, Maryland, as well as personal investments, vacations for his family, and college tuition for his child.

He pleaded guilty to the COVID relief funds theft at a Washington, D.C., federal court hearing on Aug. 15.

Tax evasion, too: During that same court appearance, Kowkabi and his 64-year-old wife Karen Kowkabi pleaded guilty to willfully failing to pay more than $1.35 million in federal taxes. The couple admitted that the unpaid tax amount included both federal income and business employment taxes.

Court filings show that Kowkabi admitted to concealing assets and obscuring the large sums of money he took from his businesses by, in part, purchasing property in the name of a nominee entity and causing false entries in the businesses' books and records to hide personal purchases using business bank accounts. His wife admitted that she, too, failed to pay the due taxes.

Restitution and possible jail time: Kowkabi pleaded guilty at the hearing to wire fraud and tax evasion. His wife pleaded guilty to five counts of willfully failing to pay taxes.

The wire fraud plea by Kowkabi carries a statutory penalty of 20 years and financial penalties. His tax evasion plea could result in a penalty of five years and financial penalties.

His wife's plea for failing to pay tax carries a statutory penalty of one year and financial penalties.

In addition, the couple has agreed to pay $1,351,038.51 in restitution to the Internal Revenue Service.

As for the COVID money charges, federal officials say Kowkabi has agreed to pay $738,657.18 in restitution to the Small Business Administration (SBA). He also has agreed to forfeit waterfront condo and the two joint ventures funded with COVID-19 relief funds.

Restitution is designed to recover proceeds that a defendant obtained, but which were legally due to the U.S. Treasury. Criminal forfeiture is the taking of assets and/or property a defendant used in a crime or bought with the proceeds of a crime.

A formal sentencing hearing for the couple is scheduled for Dec. 1.

Multi-agency investigative effort: The Kowkabi pleas were announced by U.S. Attorney Matthew M. Graves; Acting Deputy Assistant Attorney General Stuart M. Goldberg, of the Justice Department’s Tax Division; and Acting Special Agent in Charge Kareem Carter of the Internal Revenue Service Criminal Investigation (IRS-CI) Washington, D.C., field office.

All three commended the work of those in their divisions and the cooperating agencies who investigated the tax and COVID cases. They also cited the assistance provided by the SBA Office of Inspector General.

"This defendant robbed a program intended to help fellow restauranteurs and other small business owners who were struggling to stay afloat amid the devastating economic impacts of the COVID-19 pandemic," said Graves.

He also noted the tax evasion charges, describing it as "an elaborate scheme to hide assets and play a shell game with the IRS," and vowed that his office "will continue to vigorously prosecute such frauds."

IRS-CI's Carter echoed those sentiments.

"Tax evasion and misappropriation of COVID-19 relief funds undermine the integrity of our tax system and harm honest taxpayers," Carter said. "IRS Criminal Investigation remains steadfast in its commitment to upholding tax compliance and pursuing those who attempt to evade their tax responsibilities."

Federal law enforcement officials also reminded the public that anyone with information about allegations of COVID-19 fraud can report it by calling the DoJ's National Center for Disaster Fraud (NCDF) Hotline toll-free at (866) 720-5721. Reports also can be submitted using the online NCDF Web Complaint Form.

Tax Felon Friday: Unfortunately, it seems that the COVID-19 pandemic just won't go away, either medically (cases are rising again) or when it comes to tax implications like this case. Expect to see more, as the fraud schemes often are elaborate, meaning investigations take a while to resolve.

In the meantime, you can return here at the end of each work week for the latest item in the ol' blog's new end-of-week feature Tax Felon Friday.

You also can catch up on previous tax crime posts, including those that were published long before I gave them a special designation, in the, what else, tax crimes category. You'll find this post at the top of that collection right now, so just scroll down for more.

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