Court Affirms Former Trucking Company CEO's 90-Month Prison Sentence for Tax Evasion and Bank Fraud

(Parker Tax Publishing February 2017)

The Tenth Circuit upheld a 90-month prison sentence and $21 million restitution order handed down to the CEO of a trucking company after he had been found guilty of tax evasion and bank fraud. The CEO had inherited the company after his father's untimely death and then proceeded to run it into the ground by spending lavish amounts on himself, committing bank fraud, and not paying payroll taxes and other bills. Pielsticker v. U.S., 2017 PTC 47 (10th Cir. 2017).

In 1968, Jim Pielsticker bought Arrow Trucking, a small Tulsa, Oklahoma trucking company. He built it into a major corporation with more than 1,400 employees and $250 million a year in revenue. In October of 2001, Jim and several other wealthy Oklahomans were involved in a tragic plane crash while on a hunting trip. Jim, the pilot, and the CEO of another company died in the crash. Jim's son, James Douglas Pielsticker, took over Arrow Trucking almost immediately.

By 2008, Arrow was struggling to pay its expenses. It bounced checks to its lenders, employees, and vendors. Despite this, Pielsticker received an annual salary of $1.2 million and drew personal expenses from Arrow totaling more than $3.5 million, for such things as payments for his Porsche, Bentley, and Maserati automobiles.

In November 2008, Transportation Alliance Bank (Alliance) entered into an agreement with Arrow in which Arrow sold its accounts receivable to Alliance to obtain advanced funds. Before Alliance purchased Arrow's accounts receivable, it required that Arrow submit its customer invoices, listing among other information the total amount owed, the account debtor's name, and the payment's due date. After receiving the invoices, Alliance would pay Arrow a percentage of the total amount owed in exchange for the exclusive right to collect on the accounts.

In January 2009, Arrow's payroll-service provider dropped Arrow as a client after Arrow missed a payment. Rather than hire another provider, Pielsticker and Jonathan Moore, Arrow's chief financial officer, decided to self-report. For the rest of the year, Arrow withheld payroll taxes from its employees' salaries but never sent these collections to the IRS or filed the corresponding tax returns. In total, Arrow withheld and failed to remit to the IRS over $9.5 million in payroll taxes.

In March 2009, an Arrow billing clerk sent Alliance an invoice accidentally overstating an account receivable by about $100,000. Alliance advanced this sum to Arrow. When Moore learned of the overstated invoice, he told Arrow's legal counsel, Joseph Mowry. Mowry advised against notifying Alliance. In May 2009, during a meeting about Arrow's finances, Pielsticker told Moore, "[w]e just need to create another invoice like we did the first time," referencing the mistakenly overstated invoice. In previous meetings, Moore suggested that Pielsticker decrease his personal expenses, but Pielsticker refused. So based on Pielsticker's request and the need to cover cash-flow shortages, Moore directed an Arrow billing clerk to overbill an invoice before sending it to Alliance. Arrow then began intentionally overbilling invoices.

By September 2009, Alliance was suspicious and demanded verification of the accuracy of Arrow's invoices by calling Arrow's account debtors directly. Initially, Pielsticker refused to allow this, but when Alliance insisted, Pielsticker, Mowry, and Moore devised a scheme to have Arrow employees answer Alliance's calls. They provided Alliance with a list of account debtor's fictitious phone numbers. In fact, all of the phone numbers belonged to out-of-state cell phones that Pielsticker, Mowry, and Moore had obtained to deceive Alliance. Then, they staged four to five Arrow employees who would answer Alliance's calls, identify themselves as account debtors, and confirm the overbilled invoices. In December 2009, Pielsticker, Mowry, and Moore executed the scheme a second time after Alliance wanted to verify more invoices. That same month, the bank-fraud conspiracy ended when Mowry told Alliance about the fraudulent invoices. In total, Arrow submitted false invoices to Alliance totaling approximately $21 million.

Three days before Christmas 2009, Arrow closed its doors and laid off all its employees. With their Arrow credit cards cancelled and no paychecks in sight, hundreds of truckers were stranded throughout the United States with no money to get home.

From 2009 to 2011, Pielsticker underreported his wages and failed to pay his federal income taxes, creating a personal tax debt of more than $1 million.

By January 2010, Moore had begun cooperating with law enforcement and, in 2014, he pleaded guilty to conspiracy to defraud the United States and to commit bank fraud. Newspaper reports of Moore's testimony said he attested to Pielsticker's lavish spending while the company struggled, saying Pielsticker spent $70,000 for a portrait of his wife and $80,000 for a baby nursery. Mowry died before facing charges.

In 2015, Pielsticker pleaded guilty to one count of conspiracy and one count of tax evasion. The conspiracy charge set forth two independent crimes: (1) conspiracy to defraud the United States by not providing the IRS payroll taxes collected from Arrow's employees; and (2) conspiracy to commit bank fraud by obtaining bank funds with fraudulently inflated invoices for Arrow's accounts receivable. An Oklahoma district court imposed a 90-month prison sentence and ordered Pielsticker to make restitution for approximately $22 million. Pielsticker appealed.

On appeal, Pielsticker disputed the district court's loss calculation and the amount of restitution. He also challenged the increased prison time resulting from the court's imposition of an aggravating-role adjustment for his acting as a manager or supervisor of at least five participants in the bank-fraud conspiracy.

The Tenth Circuit held that the district court did not err in calculating the amount of loss and that the record supported its factual findings. The court also affirmed the 90-month prison sentence imposed on Pielsticker.

For a discussion of the penalties for tax evasion, see Parker Tax ¶265,110.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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