A Lynn man was arrested Tuesday on tax fraud charges in connection with a “10 percenting” scheme, in which he purchased millions of dollars’ worth of winning Massachusetts state lottery tickets at a discount in order to help the ticket holders avoid taxes on the winnings. In addition, two store owners have pleaded guilty in connection with the scheme.
Clarance Jones, 80, was arrested and charged in a criminal complaint unsealed today with conspiring to commit tax fraud and filing false tax returns. He was released on conditions following an initial appearance today in federal court in Boston.
Two conspirators previously charged by information have pleaded guilty. George Kinslieh, 68, was charged with one count of filing false tax returns. Kinslieh pleaded guilty on Oct. 10, 2018, before U.S. District Court Judge Leo T. Sorokin, who scheduled sentencing for Feb. 4, 2019. Bhavna Patel, 44, was charged with one count of conspiring to defraud the Internal Revenue Service. Patel pleaded guilty on Oct. 16, 2018, before U.S. Senior District Court Judge Douglas P. Woodlock, who scheduled sentencing for Feb. 7, 2019.
The charging documents allege that from at least 2013 through 2015, Kinslieh and Patel, who were store owners, and others, purchased winning lottery tickets from the ticket holders for cash, at a discount to the value of the tickets, thereby allowing the ticket holders to avoid reporting the winnings on their tax returns – a scheme known as “10-percenting.” Kinslieh and Patel gave the winning tickets to Jones, who presented them to the Massachusetts State Lottery Commission as his own, and collected the full winnings. Jones reported the winnings on his tax returns, but offset them with purported gambling losses. Jones and the store owners then shared the excess winnings.
It is alleged that for the tax years 2011 through 2017, Jones paid less than $16,000 in federal tax on a total of approximately $52,000 of reported income. During this period, Jones claimed that he was a professional gambler and that all of his winnings were offset by alleged gambling losses. Patel and Kinslieh did not report to the Internal Revenue Service or pay taxes on the income that they received from the ticket scheme.
The charge of conspiracy to commit tax fraud provides for a sentence of no greater than five years in prison, three years of supervised release and a fine of $250,000 or twice the gross loss or gain, whichever is greater. The charge of filing a false tax return provides for a sentence of no greater than three years in prison, one year of supervised release, a fine of $100,000. Sentences are imposed by a federal district court judge based upon the U.S. Sentencing Guidelines and other statutory factors.
United States Attorney Andrew E. Lelling; Kristina O’Connell, Special Agent in Charge of the Internal Revenue Service’s Criminal Investigation in Boston; and Colonel Kerry A. Gilpin, Superintendent of the Massachusetts State Police, made the announcement today. The Massachusetts State Lottery Commission provided assistance with the investigation. Assistant U.S. Attorney Sara Miron Bloom of Lelling’s Securities and Financial Fraud Unit is prosecuting the cases.
The details contained in the criminal complaint are allegations. The defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.