Lynnwood tobacco store owner gets 22 months for tax fraud

It “lasted for years and robbed the people of millions in funding for state programs,” the U.S. attorney said.

Lynnwood

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.

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Local News

Customers enter and exit the Costco on Dec. 2, 2022, in Lake Stevens. (Olivia Vanni / The Herald)
Costco stores could be impacted by looming truck driver strike threat

Truck drivers who deliver groceries and produce to Costco warehouses… Continue reading

Two Washington State ferries pass along the route between Mukilteo and Clinton as scuba divers swim near the shore Sunday, Oct. 22, 2023, in Mukilteo, Washington. (Ryan Berry / The Herald)
Ferry system increases ridership by a half million in 2024

Edmonds-Kingston route remains second-busiest route in the system.

Alina Langbehn, 6, center, and Vera A., 6, right, sit on a swing together at Drew Nielsen Neighborhood Park after school on Tuesday, Jan. 28, 2025 in Everett, Washington. (Olivia Vanni / The Herald)
Everett council votes to renovate Drew Nielsen Park

Construction on the $345,000 upgrade could start as early as this fall.

Northshore School District bus driver Stewart O’Leary pictured next to his buses shattered drivers side windshield on Friday, Feb. 14, 2025 in Bothell, Washington. (Olivia Vanni / The Herald)
‘Put me in, coach’: Bus driver back at work after struck by metal bar

Stewart O’Leary, a Northshore employee, has received national attention for his composure during a frightening bus trip.

Lynnwood councilor Joshua Binda speaks during a Lynnwood City Council meeting on Wednesday, Nov. 20, 2024. (Olivia Vanni / The Herald)
Does the Lynnwood Council VP live in Lynnwood? It’s hard to say.

Josh Binda’s residency has been called into question following an eviction and FEC filings listing an Everett address. He insists he lives in Lynnwood.

Robin Cain with 50 of her marathon medals hanging on a display board she made with her father on Thursday, Jan. 2, 2025 in Lake Stevens, Washington. (Olivia Vanni / The Herald)
Running a marathon is hard. She ran one in every state.

Robin Cain, of Lake Stevens, is one of only a few thousand people to ever achieve the feat.

People line up to grab food at the Everett Recovery Cafe on Wednesday, Dec. 4, 2024 in Everett, Washington. (Olivia Vanni / The Herald)
Coffee, meals and compassion are free at the Everett Recovery Cafe

The free, membership-based day center offers free coffee and meals and more importantly, camaraderie and recovery support.

The Everett Wastewater Treatment Plant along the Snohomish River on Thursday, June 16, 2022 in Everett, Washington. (Olivia Vanni / The Herald)
Everett water, sewer rates could jump 43% by 2028

The rate hikes would pay for improvements to the city’s sewer infrastructure.

The bond funded new track and field at Northshore Middle School on Thursday, Oct. 24, 2024 in Bothell, Washington. (Courtesy of Northshore School District)
Northshore School District bond improvements underway

The $425 million bond is funding new track and field complexes, playgrounds and phase one of two school replacements.

An American Robin picks a berry from a holly tree on Thursday, Feb. 13, 2025 in Edmonds, Washington. (Olivia Vanni / The Herald)
Calling all birders for the annual Great Backyard Bird Count

The Audubon Society will hold its 28th annual Great Backyard… Continue reading

A view of one of the potential locations of the new Aquasox stadium on Monday, Feb. 26, 2024 in Everett, Washington. The site sits between Hewitt Avenue, Broadway, Pacific Avenue and the railroad. (Olivia Vanni / The Herald)
Initial prep work for AquaSox stadium to start, with $200k price tag

The temporary agreement allows some surveying and design work as the city negotiates contracts with designers and builders.

Aaron Kennedy / The Herald
The Joann Fabric and Crafts store at 7601 Evergreen Way, Everett, is one of three stores in Snohomish County that will close as part of the retailer’s larger plan to shutter more than half of its stores nationwide.
Joann store closure plan includes Everett, Arlington, Lynnwood locations

The retail giant filed a motion in court to close approximately 500 stores in the U.S.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.