Architect of Huge Tax Fraud Scheme Sentenced to Prison

A Glendale tax consultant who devised what is believed to be the largest unemployment tax fraud scheme in state history was sentenced Friday in Los Angeles Superior Court to five years in prison and ordered to pay $60,000 in fines.

James P. Lund, 68, who lives in Westlake Village, was convicted in April on 40 felony counts of forgery and preparing and filing false tax documents in connection with his scheme. He and his clients accumulated an estimated $3.2-million profit in state money over 10 years.

Lund was ordered by Superior Court Commissioner Florence Marie Cooper to report to Chino State Prison on Aug. 1.

Los Angeles Deputy Dist. Atty. Richard A. Rosenthal said he believed Lund should have received the maximum 10-year prison sentence because the crime was so lucrative and “probably the most sophisticated ever discovered.”

“It’s our belief the sentencing laws are completely inappropriate for white-collar crime,” Rosenthal said.

“It was a brilliant scheme,” the prosecutor said. “I refer to it as the Hula-Hoop of tax fraud: real simple when you look at it, but nobody thinks of it.”

Lund registered phony companies with the state and used the names of dead relatives as employees of the firms.

Because the bogus companies did not generate claims for unemployment insurance or workers’ compensation, they qualified for low state business tax rates. When the dummy companies attained the lowest possible rate, Lund would shift entire payrolls of legitimate companies into them, earning his tax clients phenomenally low tax bills, Rosenthal said.

When the state, on the basis of legitimate claims, would raise a company’s tax rate to a higher level, Lund would have another phony company set up at low rates to pick up the employees, Rosenthal said.

Authorities said there was no evidence that Lund’s tax clients were aware that their low tax rates were illegally achieved, Rosenthal said.

The $3.2 million represents tax money owed to the state. Prosecutors are unsure how much money Lund actually made off the scheme.

“We have no information that he was living luxuriously,” Rosenthal said.

Rosenthal said Lund’s attorney, Harold Blaisch, argued that his client believed he had discovered a legitimate loophole in tax laws and simply took advantage of it to benefit his clients.

“I said nobody in the courthouse, let alone in the city or state, believes that using dead people on their taxes is legal,” Rosenthal said. “I had the death certificates.”

Neither Blaisch nor Lund could be reached for comment Friday.

Lund’s companies were registered in the names of his deceased father-in-law, mother-in-law, mother-in-law’s sister and the sister’s husband, Rosenthal said, as well as several living relatives who said they were unaware of the scheme.

Lance Rideout, chief tax lawyer for the state Employment Development Department, said the Lund case is almost certainly the largest state unemployment tax fraud scheme ever uncovered in California. “I’ve been here 29 years, and it’s the largest in my time,” Rideout said.

State EDD officials said a computer program has been designed to prevent anyone else from using Lund’s formula to defraud the state.