Facts About Fraud In The Automotive Sales Industry
by Special Agent Janet Oakes, Public Information Officer
IRS Criminal Investigation Division, St. Paul Field Office
As financial investigators, IRS special agents look into allegations of fraud and check out scams for compliance in a variety of industries. No exception to this is the automotive sales industry. These investigations range from tax evasion, employment tax fraud, to money laundering.
One of the most effective tools the government has to stem illegal activity, such as money laundering in the automotive industry, is a law that requires people to report cash payments of more than $10,000.
Automotive Sales Industry and Anti-Money Laundering
Automotive dealers are required to file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, with the IRS when they receive more than $10,000 in cash in one transaction (or two or more related transactions).
The Form 8300 is an information return that must be filed by the fifteenth day after the date the cash transaction occurs.
Normally, when the Form 8300 is filed, a correlating Form 4789, Currency Transaction Report, is filed by a financial institution when the same cash is deposited with the financial institution.
For example, if an automotive dealer receives a cash payment of over $10,000 for a vehicle, the dealer must file a Form 8300 with the IRS. When the dealer deposits the cash into a financial institution, the financial institution is also required to report the $10,000 or over cash transaction to the IRS by filing a Currency Transaction Report, Form 4789.
When a discrepancy is found between the filings of Forms 8300 for cash sales and the filings of Forms 4789 for currency deposits, it is often an indication of a possible violation of the currency reporting laws. Nationally, a scheme regarding the Form 8300 has surfaced that describes a "dumping clause" or an "IRS Form 8300 Exemption Certification" that can be filled out by the potential client to exclude the business from filing the required form. The IRS says, "There is no such clause or certificate."
Locally, special agents in the St. Paul Field Office have been looking into fraud allegations in the automotive industry. The following case summaries are excerpts from public record documents on file in the court in the judicial district in which the cases were prosecuted:
Milwaukee Used Car Sales Manager Sentenced for Filing False Forms with the IRS
On January 8, 2007, James Letizia, Jr., Milwaukee, received a six-month prison sentence and a $15,000 fine as part of his sentence for filing a materially false Form 8300 with the IRS. The case involved activities at Diamond Jim’s Auto Sales, a used car lot on South 27th Street in Milwaukee. The IRS obtained information that Diamond Jim’s had previously evaded requirements for filing accurate 8300 forms on cash transactions over $10,000. The IRS utilized an undercover scenario to investigate these allegations through a car purchase. A number of statements were made in recorded conversations between the undercover agent, a confidential informant (CI), and Letizia, which implied the undercover agent wanted the car titled in someone else’s name for illegal purposes and that they did not want any problems with the IRS. They said they did not want anyone messing with them because they had no jobs, although the undercover agent would be paying cash for the car. Letizia Jr. readily agreed to cooperate in this endeavor to title the vehicle in someone else’s name and assured him that there was no reason for anyone to harass him over the vehicle when it was in someone else’s name. Letizia Jr. prepared all of the necessary paperwork for a Cadillac Escalade to be purchased utilizing someone else’s identity. He signed and filed a false Form 8300 with the IRS which reported the false identity as the individual for whom the purchase was conducted and from whom $19,606 in cash was received in more than one payment at Diamond Jim’s Auto Sales.
Minnesota Car Dealership Owner Sentenced to Federal Prison for Defrauding Bank
On January, 25, 2007, in Minneapolis, Minnesota, Michael Burt Karnitz was sentenced to 17 months in prison for bank fraud and money laundering. In August of 2002, Karnitz, doing business as M&K Auto Sales, was given a $l.3 million line of credit from First Farmers and Merchants National Bank in Minneapolis. Karnitz was to use the line of credit to buy used vehicles for resale at his car dealership. The financing arrangement required Karnitz to pledge the used vehicles he purchased as collateral for the amounts advanced under the line of credit and to repay the advances after reselling the vehicles. Karnitz admitted to defrauding the bank by misrepresenting the purchase prices of vehicles to obtain line-of-credit advances substantially higher than the amounts he actually paid to buy the cars. Karnitz also admitted he resold the vehicles without subsequently paying off the loans, as required by the financing agreement. Instead, he used the proceeds from those sales for other purposes.
Money obtained through illegal activities needs a place to be spent and a way to be disguised. The automotive industry has certainly seen its share of abuse in this area. There are laws in place to help ensure that fraudulent transactions in the automotive industry do not go undetected. IRS special agents are working to enforce those laws to put the spotlight on otherwise hidden illegal activities.
