A Florida man has admitted to orchestrating a long-running scheme to promote an illegal tax shelter and commit wire fraud. Stephen T. Mellinger III, from Delray Beach, pleaded guilty to these charges and also admitted to assisting in the preparation of false tax returns for clients involved in the tax shelter.
Court documents reveal that Mellinger was a financial advisor, insurance salesman, and securities broker operating across several states including Florida, Michigan, and Mississippi. Starting in late 2013, he collaborated with others to promote a fraudulent tax shelter scheme. This scheme involved clients claiming false tax deductions for "royalty payments" to illegitimately reduce their taxes.
Mellinger knew these "royalty payments" were not genuine business expenses but merely a circular flow of money designed to create that illusion. Clients would transfer money to bank accounts controlled by Mellinger and his associates who then returned it — minus a fee — to different accounts controlled by the clients. This allowed participants in the tax shelter to maintain control over their funds while falsely deducting these transfers as business expenses on their tax returns.
The scheme resulted in over $106 million in false tax deductions being claimed, causing an estimated $37 million loss to the IRS. Mellinger and a relative earned approximately $3 million from promoting this fraudulent activity.
In January 2016, after learning that some of his clients were under investigation and facing asset seizures by U.S. authorities, Mellinger stole more than $2.1 million from certain clients' funds. Part of this stolen amount was used to purchase a home in Delray Beach.
Mellinger's sentencing is set for September 16. He faces up to five years in prison for conspiring to defraud the IRS and commit wire fraud, plus three years for aiding in the preparation of false tax returns. A federal judge will determine his sentence based on U.S. Sentencing Guidelines and other legal factors.
The announcement was made by Acting Deputy Assistant Attorney General Karen E. Kelly of the Justice Department’s Tax Division, Supervisory Official Antoinette T. Bacon of the Justice Department's Criminal Division, and Acting U.S. Attorney Patrick A. Lemon for the Southern District of Mississippi.
The case is being investigated by IRS Criminal Investigation alongside the Department of Defense's Office of Inspector General's Defense Criminal Investigative Service.
Trial Attorneys Richard J. Hagerman, William Montague, and Matthew Hicks from the Tax Division are prosecuting the case with Assistant U.S. Attorney Charles W. Kirkham from the Southern District of Mississippi and Trial Attorneys Emily Cohen and Jasmin Salehi Fashami from MLARS.