A Florida man, Stephen T. Mellinger III, has pleaded guilty to orchestrating a scheme that promoted an illegal tax shelter and involved wire fraud. The scheme spanned nearly a decade and included assisting in the preparation of false tax returns for clients.
Court documents reveal that Mellinger, who worked as a financial advisor, insurance salesman, and securities broker across several states including Florida and Michigan, conspired with others starting in late 2013. They promoted an illegal tax shelter allowing clients to claim false deductions through "royalty payments," which were not genuine business expenses but rather a circular flow of money. Clients transferred funds to accounts controlled by Mellinger and his associates, who then returned the money minus a fee to another account controlled by the client. This arrangement allowed participants to maintain control over their funds while falsely deducting these transfers on their tax returns.
The total false deductions claimed amounted to over $106 million, resulting in approximately $37 million in lost taxes for the IRS. Mellinger and a relative earned about $3 million from fees related to this scheme.
In January 2016, upon learning that some clients were under investigation and had their funds seized by the U.S., Mellinger stole more than $2.1 million from them, using part of it to purchase a home in Delray Beach.
Mellinger's sentencing is scheduled for September 16th. He faces up to five years in prison for conspiracy charges related to defrauding the IRS and committing wire fraud, along with three years for aiding in preparing false tax returns. A federal district court judge will determine his sentence after considering various guidelines and statutory factors.
The announcement was made by Acting Deputy Assistant Attorney General Karen E. Kelly of the Justice Department’s Tax Division; Supervisory Official Antoinette T. Bacon of the Justice Department's Criminal Division; and Acting U.S. Attorney Patrick A. Lemon for the Southern District of Mississippi.
The case is being investigated by IRS Criminal Investigation along with the Department of Defense's Office of Inspector General's Defense Criminal Investigative Service. Prosecutors include Trial Attorneys Richard J. Hagerman, William Montague, Matthew Hicks from the Tax Division; Assistant U.S. Attorney Charles W. Kirkham for Mississippi's Southern District; as well as Trial Attorneys Emily Cohen and Jasmin Salehi Fashami from MLARS within the Criminal Division.
