SANTA FE, NM – A Santa Fe, N.M., woman and her husband have pleaded guilty to conspiracy to defraud the federal government, and she has been ordered to pay over $1.7 million in taxes from operating an adult entertainment Internet business.

Carolynne Tilga, 50, and her husband Michael Chandler, 51, pleaded guilty last Thursday to conspiring to defraud the United States by impeding the lawful functions of the Internal Revenue Service before United States Magistrate Judge W. Daniel Schneider.

Tilga and Chandler each pleaded guilty to Count 1 of a 10-count indictment charging them and their codefendant Helen Geer, also of Santa Fe, under plea agreements with the U.S. Attorney’s Office.

At sentencing, which has yet to be scheduled, Tilga and Chandler each face up to five years imprisonment. Under the terms of her plea agreement, by her sentencing date, Tilga must file amended tax returns for tax years 1998 through 2004 and pay a minimum of $1,735,025 to the United States to cover her outstanding tax debt for those years.

The agreement also requires that Tilga file amended tax returns for tax years 2005 through 2009, and pay any taxes due and owing on the amended returns. The indictment in the case, which was filed on April 9, 2009, alleges that, from 1998 through 2006, Tilga owned and controlled various businesses involved in adult entertainment Internet services.

Chandler worked with Tilga in several of Tilga’s businesses during this period, according to prosecutors, and Tilga employed Geer as an in-house accountant for her businesses from 2002 through 2004.

The indictment further alleges that, from 1998 through 2006, Tilga and Chandler took steps to conceal from the IRS a significant amount of taxable revenue generated by Tilga’s adult entertainment Internet businesses, and that Geer aided the couple’s unlawful conduct from 2002 through 2004.

According to the indictment, Tilga and Chandler purchased numerous off-shore entities designed and used to conceal Tilga’s income and assets from the IRS. They did not report the revenue, and they filed false tax returns with the IRS. Tilga and Chandler then used the money in the off-shore entities to purchase real estate and vehicles, including multi-million dollar residences in Santa Fe and Kilauea, Hawaii; a residence and other real estate in Taos, N.M.; real estate in Telluride and Mount Crested Butte, Colo.; and a Lexus and a Mercedes Benz.

In her plea agreement, Tilga admitted that, since the late 1990s, she has been a minority owner of certain Canadian Internet businesses that provide computer billing services to entrepreneurs who market online pornographic materials to adults.

Tilga also admitted that the Canadian businesses generated substantial revenues between 1999 and 2006, and that she directed her share of the revenues to the off-shore entities identified in the indictment. Tilga did not report the revenue generated by the Canadian businesses or pay taxes on that revenue. Instead, Tilga used the revenue to purchase real estate properties, to renovate real estate properties she purchased, and to purchase vehicles, including the real estate and vehicles identified in the indictment.

Tilga admitted that, as a result of her unlawful conduct, she owes, and will pay by her sentencing date, taxes in an aggregate amount of $1,735,025.00 to the IRS.

In his plea agreement, Chandler admitted that, beginning in 1998 or 1999, he agreed to assist Tilga in moving money from off-shore trusts to purchase property in the United States, and that he knew that the off-shore trusts were used to evade their tax obligations.

Their co-defendant, Geer, has entered a not guilty plea to the indictment and her trial is pending.

An indictment is merely an accusation, and a defendant is presumed innocent unless proven guilty, prosecutors noted.

By Accounting Today Staff