Source: United States Department of Justice News
The Defendants evaded more than $1.35M in Taxes and Spent more than $738K in COVID Relief Funds on a Waterfront Condo, Personal Investments, Vacation, and College Tuition
WASHINGTON – Gholam “Tony” Kowkabi, 63, and Karen Kowkabi, 64, of Vienna, Virginia, pleaded guilty in federal court today to tax offenses relating to their failure to pay more than $1.35 million in taxes, arising from their operation of several restaurants in the Washington, D.C. area. Gholam Kowkabi also pleaded guilty to stealing more than $738,000 from the emergency small business relief funds his Georgetown restaurant—Ristorante Piccolo—received during the COVID pandemic. As part of his plea, Mr. Kowkabi acknowledged having spent money, which was intended to help his business, on a waterfront condo in Ocean City, Maryland, as well as personal investments, vacations for his family, and college tuition for his child.
The announcement was made by U.S. Attorney Matthew M. Graves, Acting Deputy Assistant Attorney General Stuart M. Goldberg, of the Justice Department’s Tax Division, and Acting Special Agent in Charge Kareem Carter of the Internal Revenue Service (IRS)-Criminal Investigation, Washington, D.C. Field Office.
“This defendant robbed a program intended to help fellow restauranteurs and other small business owners who were struggling to stay afloat amid the devastating economic impacts of the COVID-19 pandemic,” said U.S. Attorney Graves. “He also created an elaborate scheme to hide assets and play a shell game with the IRS so he could avoid paying the more than one million dollars in taxes that he and his business owed. Our Office will continue to vigorously prosecute such frauds.”
“Tax evasion and misappropriation of COVID-19 relief funds undermine the integrity of our tax system and harm honest taxpayers,” said Acting Special Agent in Charge Kareem Carter of the Washington D.C. Field Office. “IRS Criminal Investigation remains steadfast in its commitment to upholding tax compliance and pursuing those who attempt to evade their tax responsibilities.”
Gholam Kowkabi pleaded guilty in the U.S. District Court for the District of Columbia to wire fraud and tax evasion. Wire fraud carries a statutory penalty of 20 years and financial penalties. Tax evasion carries a statutory penalty of five years and financial penalties.
Karen Kowkabi pleaded guilty in the U.S. District Court for the District of Columbia to five counts of willfully failing to pay taxes. Failing to pay tax carries a statutory penalty of one year and financial penalties.
Sentencing hearings are scheduled for December 1, 2023. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.
The Tax Evasion Scheme
According to the statements of offense submitted to the Court and admitted by Gholam Kowkabi and Karen Kowkabi, the Kowkabis have owned and operated Ristorante Piccolo in Georgetown since 1986. The Kowkabis also owned and operated restaurants Catch 15 and Tuscana West in Washington, D.C. From 1998 to 2018, the Kowkabis amassed an unpaid tax balance of $1,351,038.51, including federal income and employment taxes and Trust Fund Recovery Penalties. Gholam Kowkabi admitted to willfully attempting to evade payment of those taxes by concealing assets and obscuring the large sums of money he took from the businesses by, among others, purchasing property in the name of a nominee entity and causing false entries in the businesses’ books and records to hide personal purchases using business bank accounts. Karen Kowkabi admitted that she willfully failed to pay these taxes as well.
Gholam and Karen Kowkabi have agreed to pay $1,351,038.51 in restitution to the IRS.
The Scheme to Steal COVID-19 Relief Funds
Further, from May 13, 2020, to July 27, 2021, Gholam Kowkabi obtained more than more than $1.6 million in COVID-19 relief funds including $474,000 from first draw and second draw Paycheck Protection Program (PPP) loans, an Economic Injury Disaster Loan (EIDL) for $499,900 and a Restaurant Revitalization Fund (RRF) grant for $631,823.28.
First Draw PPP loans could be used to help fund payroll costs, including benefits, and could also be used to pay for mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations. Second Draw PPP loans could be used to help fund payroll costs, including benefits. Second Draw PPP loan funds could also be used to pay for mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations. EIDL loan proceeds could be used for working capital to make regular payments for operating expenses, including payroll, rent/mortgage, utilities, and other ordinary business expenses, and to pay business debt. Restaurant Revitalization Funds could be used for specific expenses including business payroll costs (including sick leave), payments on any business mortgage obligation, business rent payments (not including prepayment), business debt service (not including prepayment), both principal and interest, business utility payments, business maintenance expenses, construction of outdoor seating, business supplies, business food and beverage expenses, covered supplier costs, business operating expenses.
In these applications and loan agreements, Gholam Kowkabi fraudulently and falsely promised that the PPP, EIDL, and RRF proceeds would be used only for business-related and eligible purposes as specified in the applications. Instead, Gholam Kowkabi used a portion of the PPP funds, EIDL funds, and RRF funds for unauthorized purposes and for his own personal enrichment, including the purchase of a waterfront condo in Ocean City, Maryland for more than $500,000, two joint venture investments totaling more than $237,000 for the construction of homes in Great Falls, Virginia, and more than $78,500 to open Divan Restaurant in McLean, Virginia. Gholam Kowkabi spent more than $11,000 of COVID relief funds on his home mortgage, more than $14,000 on vacations, more than $62,000 on personal legal expenses, more than $20,000 on home improvement, and more than $5,500 on college tuition payments.
Gholam Kowkabi has agreed to pay $738,657.18 in restitution to the SBA. Gholam Kowkabi has agreed to a money judgment in the amount of $738,657.18 and to the forfeiture of the waterfront condo and the two joint ventures funded with COVID-19 relief funds.
In announcing the plea, U.S. Attorney Graves, Acting Deputy Assistant Attorney General Stuart Goldberg, and Acting Special Agent in Charge Carter commended the work of those who investigated the case from IRS-CI. They expressed thanks for assistance provided by the SBA Office of Inspector General during the investigation of this case. This case is being prosecuted by Assistant U.S. Attorney Leslie A. Goemaat of the Fraud, Public Corruption, and Civil Rights Section and Trial Attorney Sarah Ranney of the Department of Justice, Tax Division.
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On May 17, 2021, the Attorney General established the COVID-19 Fraud Enforcement Task Force to marshal the resources of the Department of Justice in partnership with agencies across government to enhance efforts to combat and prevent pandemic-related fraud. The Task Force bolsters efforts to investigate and prosecute the most culpable domestic and international criminal actors and assists agencies tasked with administering relief programs to prevent fraud by, among other methods, augmenting and incorporating existing coordination mechanisms, identifying resources and techniques to uncover fraudulent actors and their schemes, and sharing and harnessing information and insights gained from prior enforcement efforts. For more information on the department’s response to the pandemic, please visit https://www.justice.gov/coronavirus.
Anyone with information about allegations of fraud related to COVID-19 can report it by calling the Department of Justice’s National Center for Disaster Fraud Hotline at 866-720-5721 or via the NCDF Web Complaint Form at: https://www.justice.gov/disaster-fraud/ncdf-disaster-complaint-form.