The United States Attorney for the Northern District of California announced that a Ronald William Palermo and Diane Palermo were arrested Wednesday on tax charges. 

The couple were indicted by federal grand jury on April 13, 2004.  The indictment charges Mr. Palermo, 67, and Ms. Palermo, 53, both formerly of San Jose and currently of Scottsdale, Arizona, with conspiracy and filing false tax returns.  The Palermos are each charged with one count of conspiracy to defraud the IRS in violation of Title 18 U.S.C. § 371 and two counts of filing false federal tax forms in violation of Title 26 U.S.C. § 7206(1).

According to the first count of the indictment, Mr. Palermo is alleged to have formed Marketing Ventures in July, 1997, and he and Ms. Palermo are alleged to have formed R & D International Ventures LLC in June, 1997.  The defendants are accused of conspiring to defraud the United States by using these sham companies in an attempt to defeat and obstruct the lawful functions of the IRS to ascertain and collect federal income taxes owed by the defendants, using deceit, craft, trickery and dishonest means.  As part of the conspiracy, the Palermos mailed the IRS a 1997 Form 1045, Application For Tentative Refund, claiming refunds for the years 1994, 1995, and 1996, that aggregated $115,276.

According to the second count of the indictment, the defendants filed a false joint federal income tax return for calendar year 1997.  The return was false in that it claimed a $609,948 loss from Marketing Ventures.  The third count in the indictment charges both defendants with filing a false Application for Tentative Refund for calendar year 1997.  This document was false in that is claimed nonexistent carryback net operating loss deductions of $424,224 for 1994; $284,483 for 1995; and $148,875 for 1996; and a decrease in tax of $35,620 for 1994; $36,697 for 1995; and $42,959 for 1996.  If a business loss exceeds total income for the year, any unused portion of the loss, which is known in the tax laws as a net operating loss (NOL), may be used to offset income and reduce taxes in another year.

Mr. and Ms. Palermo were arrested without incident at their home in Scottsdale, Arizona by IRS Special Agents at approximately 7 p.m. on Wednesday of this week.  An officer from the Scottsdale Arizona Police Department was also present for the arrests.  The defendants had their initial appearance before U.S. Magistrate Judge Silver in Phoenix, Arizona this afternoon.  Each defendant was released on $200,000 bond.  Their next scheduled appearance is at the Federal Courthouse in San Francisco, California before Magistrate Judge Elizabeth Laporte on May 4, 2004, at 9:30 a.m.

The maximum statutory penalty for the conspiracy count in violation of 18 U.S.C. § 371 is five years in prison and a fine of $250,000.  The maximum statutory penalty for each count in violation of 26 U.S.C. § 7206(1) is three years in prison and a fine of $250,000.  However, any sentence following conviction would be dictated by the Federal Sentencing Guidelines, which take into account a number of factors, and would be imposed in the discretion of the Court.  An indictment simply contains allegations against an individual and, as with all defendants, Ronald William Palermo and Diane Palermo must be presumed innocent unless, and until, convicted.

The prosecution is the result of a lengthy investigation by the Internal Revenue Service, Criminal Investigations Division.  Thomas Moore is the Assistant U.S. Attorney prosecuting the case. 

All press inquiries to the U.S. Attorney's Office should be directed to Assistant U.S. Attorney Matthew J. Jacobs at (415) 436-7181.