Mass. Man Pleads Guilty to Tax Evasion Scheme in RI

Mass. Man Pleads Guilty to Tax Evasion Scheme in RI

Gerald Diodati, a Seekonk, Massachusetts man, pled guilty to one count of evading payment on taxes in U.S. District Court yesterday.

Diodati allegedly concealed from the Internal Revenue Service (IRS) at least $586,000 he earned through his construction business. According to court documents, he converted the proceeds of his businesses to cash and utilized check cashing services for the purpose of evading assessment of income tax from 2003 to 2006.

Each year Diodati allegedly prepared and filed false income tax returns, concealing additional taxes he rightfully owed—an attempted evasion of more than $194,000 in federal income taxes.

FBI sets up 'undercover' company

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According to the U.S. Attorney Peter Neronha, the case originated from an undercover investigation set off by the FBI’s Providence Field Office. To investigate, the FBI established an “undercover” company, Hemphill Construction, that sought the work of union construction companies. Diodati began working as a consultant to Hemphill in 2002, operating his own businesses out of the construction company’s office in Johnston, R.I.

In 2003, Hemphill Construction received a subcontract to perform demolition work at the Rising Sun Mills rehabilitation project in Providence. Hemphill then subcontracted the work to Diodati’s company, RI Demolition Inc.

Diodati then allegedly suggested to Hemphill in late 2003 that Hemphill take 20 percent and pay him the balance in cash in order to reduce his taxable income stating that, “Uncle Sam doesn’t have to know about it, so it keeps me down in the lower bracket.” In the scheme, Diodati said that both RI Demolition and Hemphill made out and that, “the only one who is losing is the government.”

How he did it:
Trial Attorney Scott Lawson said Diodati opened a safety deposit box at a local bank and requested that he be paid in cash in installments rather than by business checks—in just four months he received more than $230,000 in cash into his safety deposit box for construction work.

Diodati’s RI Demolition underreported business receipts to the IRS in 2003 by $244,486. He later tried to evade the assessment of a substantial income tax by creating a false individual income tax return for tax year 2003 that reported zero taxable income, which meant no taxes were due, when in fact his actual tax liability was $58,503.

A sentencing hearing has been scheduled for February 10, 2011. Diodati has agreed to pay restitution in the amount of $194,031 but still faces a maximum sentence of five years in prison and a $250,000 fine and three years of supervised release following his prison term.