The $35,000 Lie

John Kungu owned a successful business, Advanced Nursing Care, in Townsend, Delaware. He also owed the IRS nearly $1.2 million, and he decided to lie his way out of it. 

In this episode of Final Notice, tax attorney Jason Carr breaks down how Kungu ran his scheme on two fronts: filing false personal and corporate returns that disguised hundreds of thousands of dollars in personal spending as business expenses, then submitting multiple false sworn statements to the IRS during collections claiming he couldn't pay. 

The defining moment: Kungu offered to settle his entire tax debt for $35,000, said he'd need a loan to do it, and was holding more than $5.1 million in hidden accounts the whole time. He was sentenced to 18 months in federal prison, three years of supervised release, a $75,000 fine, and full restitution of $1,186,573.62. 

Jason explains the legitimate tools Kungu ignored: the Offer in Compromise, installment agreements, currently-not-collectible status, penalty abatement, and real tax planning, and why every one of them starts with honest, fully disclosed financials. 

This episode is for business owners, taxpayers facing IRS collections, bookkeepers, enrolled agents, CPAs, and tax preparers who want to understand exactly where an unpaid tax bill turns into a criminal case. 

Key Takeaways 

• The IRS will settle a tax debt for less than you owe, but only through an Offer in Compromise built on fully disclosed, honest financials. 
• Lying on a sworn collection statement is what converts a civil collections problem into a federal criminal case. 
• Running personal spending through your business as "expenses" is not a deduction. It is evidence. 
• Hiding records from your own bookkeeper or tax preparer is the moment to call a tax attorney, not to dig deeper. 
• What you tell a tax attorney is privileged. What you tell your bookkeeper is not. 
• A large unpaid tax bill is a solvable problem. The solution is disclosure plus strategy, never a sworn lie. 

Resources Mentioned 

• DOJ / IRS-CI case source: https://www.justice.gov/usao-de/pr/delaware-business-owner-sentenced-18-months-federal-prison-multi-year-tax-evasion-scheme 
• The Law Office of Jason Carr, PLLC: https://carrtaxlaw.com 

Transcript

SPEAKER_00 0:06

You're listening to Final Notice. Real tax cases exposed with Jason Carr. Each week we break down real Department of Justice tax fraud prosecutions and reveal what should have been done to avoid them. And now here's your host, Jason Carr.

SPEAKER_01 0:28

He told the IRS he was broke, offered to scrape together $35,000 to settle his tax debt, said he'd have to take out a loan to do it, and the whole time he was sitting on $5.1 million in accounts he never mentioned. Meet John Kungu, 62 years old, out of Townsend, Delaware. He owned a business called Advanced Nursing Care, and by every account, it worked. He built something real, he made real money. What he didn't do was pay his taxes. Over a multi-year run, Kungu dodged nearly $1.2 million in taxes, and he did it on two fronts. The first was on the front end when the returns got filed. From 2018 through 2020, Kungu filed false personal and corporate returns. He took hundreds of thousands of dollars in personal benefits and payments to himself and dressed them up as business expenses. Personal money, relabeled as business spending, so the taxable income shrank. To pull that off, he kept his own people in the dark. He intentionally withheld financial records from his bookkeeper and his tax repair. Think about that. The professionals he hired to keep him straight, he starved them of the information that would have done it. But the front end is not what sent him to prison. The back end did. By 2018, the IRS wanted its money. And this is where most tax problems actually get decided, the collection stage. The part where you sit across from the government and account for what you can pay. Kungu had a move for that too. Between 2018 and 2021, he submitted multiple false sworn statements to the IRS. Yep, sworn, under penalty of perjury. In those statements, he claimed he couldn't afford to pay his tax liabilities. And here's the moment that defines the case. On one occasion, Kungu offered to settle his entire tax debt for $35,000. He said he'd need to take out a loan just to come up with that money. A poor mouth, hat in hand, I have nothing offer. At the exact same time, he was holding more than $5.1 million in hidden accounts. Let that sit for a moment. He told the United States government under oath that $35,000 borrowed dollars was the best he could do, while five million set in accounts he never disclosed. That's not a tax problem anymore. When you put a false financial picture in front of the IRS in a sworn statement, you've handled criminal investigation a clean case. The math is simple for them. Here is what he swore he had. Here is what he actually had. The gap is the crime. IRS criminal investigation out of Philadelphia worked this case and it ended in a federal indictment and a conviction. Here's what gets me about this one. Everything he was reaching for has a legal version. I do the legal version for a living. Start with the collection problem, because that's the heart of it. Kungu wanted to settle a $1.2 million debt for pennies. There is a real legitimate tool for exactly that. It's called an offering compromise. You file it on a Form 656 with a Form 433A or B, the collection information statement. You lay out your income, your assets, your real ability to pay. And if the numbers genuinely support it, the IRS will settle for less than the full amount. People do it every day. The difference between an offering compromise and what Kangu did is one word, disclosure. The offering compromise rewards you for telling the truth about your finances. Kangu wanted the discount without the disclosure, so he lied on the sworn statements instead. Same goal, opposite outcome. One path is a settlement, the other is an indictment. And if an offering compromise didn't fit, he had other doors. An installment agreement to pay over time, currently non-collectible status if he were generally strapped, penalty abatement to knock down the add-ons. Every one of those starts the same way, honest financials, fully disclosed. Now the front end problem, the personal expenses that he ran through the business, there's a legal version of that too, and it's not exotic. It's called tax planning. A business owner can structure reasonable compensation, set up an accountable plan for legitimate business expenses, and take real deductions for real costs. If you're a business owner listening to this, the line is bright and it is simple. A business expense has to be ordinary and necessary for the business. Your personal spending dressed up in a business costume is not a deduction, it's evidence. And one more thing, he hid records from his own bookkeeper and tax preparer. When you find yourself hiding information from the professionals you hired to protect you, that is the moment to stop and call a tax attorney instead. Not to help you hide it, to help you fix it before it's a crime. What you tell someone like me is privileged, what you tell your bookkeeper is not. If the facts are bad, privilege is the thing that lets you get honest advice without building the government's case for them. Now here's the lesson in this case. The IRS will settle. It will take less than you owe. It will give you time. But every one of those doors opens with the truth about your finances, not a lie about them. Kungu had a collections problem, a civil one, the kind I solve. He turned it into a criminal one by lying his way through it. 18 months in federal prison, three years of supervised release, a $75,000 fine, and he paid back the full $1.186 million anyway. He could have had the settlement. Instead, he got the sentence. If you owe the IRS more than you can pay, that's a solvable problem. The solution is disclosure plus strategy. It's never a sworn lie. I'm Jason Carr, Tax Attorney. If you want to make sure you never end up on this podcast, you know where to find me, Cartaxlaw.com. Link is in the show notes. This has been Final Notice, Real Tax Cases Exposed.

SPEAKER_00 6:10

If you enjoyed today's episode, share it with a friend or colleague who needs to hear it. Subscribe so you never miss a case. For show notes and more, visit CarTaxlaw.com. This podcast is legal education and commentary, not legal advice, and listening does not create an attorney client relationship. Full disclaimer at Cartaxlaw.com.