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Financial Fraud Law

For Whom the Bell Tolls: City’s Former Chief Administrative Officer to Plead Guilty to Conspiracy and Tax Charges

 Robert A. Rizzo, who for years was the top administrator in the California city of Bell and who became a symbol of municipal corruption, has agreed to plead guilty to federal charges in a scheme that resulted in hundreds of thousands of dollars in unpaid federal income tax, federal prosecutors said.

In a plea agreement filed in federal court, the 59-year-old Rizzo agreed to plead guilty to two felony charges: conspiracy and filing a false federal income tax return with the Internal Revenue Service. In the plea agreement, Rizzo admitted that he created a corporation to fraudulently claim losses on his income tax return, which served to illegally reduce his tax liability on the significant income he was receiving from Bell.

According to the plea agreement and the information, which is the charging document in the case and also was filed in court, Rizzo, sometime in 2002, created an S Corporation that he called R.A. Rizzo Incorporated (RARI). Prosecutors said that Rizzo was assisted in the scheme by co-conspirators that included his tax preparer, Robert J. Melcher, who has pleaded guilty to aiding and abetting the filing of a false tax return.

Rizzo used RARI to claim bogus losses in relation to a purported rental property in Auburn, Washington. RARI’s corporate tax return fraudulently deducted more than $409,731 in losses for the years 2006 through 2009, according to prosecutors.

Rizzo also admitted in his plea agreement that he used a RARI account to pay for more than $80,000 in personal expenses in 2009 and $120,000 in construction work on his residence in Huntington Beach in 2010. RARI’s tax returns falsely claimed that these expenses were related to rental property.

“It is regrettable that some public officials believe they are above the law,” said IRS Criminal Investigation Chief Richard Weber. “Instead of filing accurate tax returns, Mr. Rizzo claimed bogus corporate losses on his income tax return to illegally reduce his tax liability. Pursuing public servants who corruptly endeavor to circumvent the tax laws to fund their lavish lifestyles is a top priority for IRS Criminal Investigation.”

As part of his plea agreement Rizzo agreed to file amended individual and S Corporation tax returns for the years 2006 through 2010 that will correctly report all income and expenses. He also agreed to pay all additional taxes and penalties, including the 75 percent fraud penalty.

According to the government, as a result of their actions, Rizzo and his co-conspirators caused the IRS to suffer losses of more than $300,000 for the 2006 through 2010 years.

Rizzo faces a maximum statutory sentence of eight years in federal prison.

Melcher, who as a result of his guilty plea faces a sentence of up to three years in prison, is scheduled to be sentenced next year by U.S. District Judge George H. King.

The cases against Rizzo and Melcher are part of an ongoing investigation being conducted by special agents with IRS Criminal Investigation and the Federal Bureau of Investigation.

Learn more: After ‘Reign of Fraud’ that Left City Nearly Bankrupt, a Jury Convicts for Public Corruption

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