LYNNWOOD — A local tobacco store owner was sentenced Tuesday to 22 months in federal prison in connection with tax evasion schemes that cheated the state out of more than $9 million.
In January 2019, Tae Young Kim, 45, pleaded guilty in U.S. District Court in Seattle to one count of wire fraud and one count of filing a false federal tax return in the elaborate scheme that lasted for years, according to court documents.
Kim, of Las Vegas, owned smoke shops in Lynnwood and Federal Way through his company, TK Mac. The company was established in 2001, state records show.
In its first few years, TK Mac was a legitimate operation, Kim reportedly told investigators. Then it started losing money.
Hyung Il Kwon, 48, stepped in and infused some funds into the company, according to court papers. And while Kim remained the owner on paper, Kwon took over operations.
Together, the two men devised tax fraud schemes that led to Tuesday’s sentencing. They worked with Anthony Paul and Theodore Silva, according to court documents. Paul owned three Puyallup tribal smoke shops. Silva managed them.
The four men partnered in two schemes to defraud the state Department of Revenue of millions in excise taxes, according to federal prosecutors.
They used the preferential treatment for transactions involving tribal businesses, since those shops are exempt from state taxation. TK Mac could buy tobacco products from Paul’s stores and save money by not paying excise taxes on those purchases.
Under state law, non-tribal distributors are required to self-report such transactions when there wasn’t any excise tax.
Kim’s company would pay Paul’s shop in cash for tobacco to conceal wholesale purchases of untaxed products, prosecutors alleged. Those cash purchases weren’t reported, so Kim and Kwon could avoid their excise tax obligations.
Paul’s tribal smoke shops helped by giving Kim and Kwon two invoices: one for cash purchases and another for products bought via check. So if regulators came around, they could show the invoices for the purchases made by check and seem legitimate. However, a ledger from one of Paul’s shops showed over 80% of TK Mac’s purchases were paid for with cash, according to court papers.
Kim’s company still submitted monthly excise tax returns, but they reportedly didn’t include the products bought with cash.
That was the first scheme.
Now that TK Mac had avoided millions in tax, they could sell what investigators called “contraband” at below market value. But all that money could bring unwanted attention. So Kim and Kwon hatched another plan with Paul and his shops. They would create sham transactions showing TK Mac selling products to Paul’s stores, though no products were exchanged, according to court records. For fake transactions, they got a tax credit from the state. This allowed them to launder the money and avoid regulators and law enforcement.
TK Mac employees, however, eventually reported their bosses to police.
“This scheme to cheat on state taxes lasted for years and robbed the people of millions in funding for state programs,” U.S. Attorney Nick Brown said in a statement. “The co-conspirators used false documents to conceal their actions from regulators and law enforcement. Their deceit did more than cut their taxes, they obtained a competitive advantage over other tobacco retailers.”
Kim faced a sentence between 70 and 87 months, but prosecutors and the defense agreed to recommend a prison term well below those guidelines because he cooperated with investigators and expressed contrition.
Kwon, Paul and Silva had already been sentenced. Kwon was sentenced in January to 26 months in prison and was ordered to pay nearly $5.1 million in restitution. For Paul, it was 14 months and over $1.7 million in restitution. For Silva, four years probation, six months of home confinement and $25,000 in restitution.
Paul also faced criminal charges in Skagit County for alleged clam trafficking on the Tulalip Reservation, but the case was dismissed last month.
Despite being the first to plead guilty, Kim was the final defendant to be sentenced in connection with the tax fraud.
U.S. District Court Judge James Robart ordered Kim to pay over $4.3 million in restitution to the Department of Revenue, on top of the 22 months in prison.
Jake Goldstein-Street: 425-339-3439; jake.goldstein-street@heraldnet.com. Twitter: @GoldsteinStreet.
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