IRS Agents Arrest Four in Fuel Tax Fraud Ring : Schemes: Operators take advantage of exemptions for certain uses, buying diesel gasoline and reselling it at cut rates.


Federal agents this week arrested the suspected organizers of a diesel fuel tax fraud ring as part of a crackdown on schemes that authorities estimate deprive the state and U.S. governments of at least $100 million a year in California.

The move, carried out Tuesday and Wednesday and involving 100 agents, was dubbed “Operation Diesel Storm.”

“If we can take out the organization these people are associated with, then we will have dealt a severe blow to motor fuel excise tax evasion in Southern and Central California,” said Dennis E. Crawford, chief of the tax agency’s criminal investigation division in Los Angeles.


The fraud costs the state government at least $50 million a year, said Matthew K. Fong, a member of the State Board of Equalization. “The conclusion is that this is a very strong underground economy we’re going after,” he said.

A similar amount is lost to the federal government, whose fund for maintaining bridges and highways is being deprived of an estimated $1 billion a year nationwide.

The scheme, first hatched on the East Coast, takes advantage of tax exemptions for the sale of diesel fuel for off-road vehicles, farm tractors and home heating purposes.

Using shell companies and falsified IRS forms, tax cheats buy fuel and sell it to truck stop operators at cut rates, pocketing the money that was supposed to go to the state and federal governments. Excise taxes generally make up about a third of the cost of a gallon of diesel fuel.

Sometimes crooks simplify the transaction by renting vacant gas stations along an interstate and selling the diesel fuel themselves, undercutting legitimate truck stop operators by as much as 13 cents a gallon, authorities said.

“It’s devastating,” said William P. (Pat) Marchbanks, owner of Bruce’s Truck Stop in Bakersfield and chairman of the board of the National Assn. of Truck Stop Owners. “They’re selling it at 4 cents below my cost.”

Four suspected organizers of the scheme were arrested in Los Angeles, Crawford said. Two more are being sought. Agents also seized records and equipment as far north as San Francisco, Crawford said.

Just after 6 a.m. Tuesday, Internal Revenue Service agents arrested Lazar Kumpan, 45, Meir Itaev, 38, Grigor Termendjian, 30, and Lavon Termendjian, 26, at apartments in Hollywood and North Hollywood. Crawford said he did not know if the Termendjians were related.

Kumpan’s neighbors said they had their suspicions about him since shortly after he moved into the Hollywood apartment building last year.

Describing himself as a self-employed electrical contractor, he did not appear to have a job, they said, and he received daily visits by four to eight young men who talked into cellular phones while in the hallways and on the sidewalk.

Tax evasion seems to be the special province of newcomers from the old Soviet Union, authorities said.

Lydia Rosner, a professor at the John Jay College of Criminal Justice in New York, who has studied organized crime among Soviet immigrants, said fuel taxes provide a natural opportunity for unscrupulous veterans of the old Soviet economy.

“They are good at bureaucratic circumvention, so any field that has a lot of bureaucracy and paperwork and movement makes sense for them to get involved in,” she said.

Kumpan has said he immigrated from the former Soviet Union, according to a person who has done business with him who spoke on condition of anonymity. Diesel fuel tax schemes are especially inviting because the system relies on retailers to send in tax money without much supervision.

Similar abuse has been stopped on the sale of ordinary gasoline because taxes on it are collected at the refinery. President Clinton has proposed a similar procedure for diesel fuel.