One Irving Man's Art of Pleading Guilty to Defrauding the I.R.S. Out of $400,000

This Chucho Reyes piece is available right here, right now, for $765.
This Chucho Reyes piece is available right here, right now, for $765.

Mexican folk artist Jesús "Chucho" Reyes Ferreira died in 1979, leaving behind an estimable collection of works -- some of which, over the years, have turned up at auction at places like Sotheby's and New York's Swann Galleries. But according to the U.S. Attorney's Office, most landed in the possession of an art collector from Irving named Edward Stanton. Matter of fact, Stanton claims to have bought 1,500 pieces from the man better known as Chucho Reyes in 1990, paying him $1 million for the whole collection -- which is around $666 a piece. Ay dios mio!

No one could really say how much the paintings were, you know, worth -- the market hadn't set a value. So Stanton did, claiming, according to the feds, "that the value of the paintings were increasing every year even though there were no sales of similar Reyes works to justify the purportedly increased value." Which isn't how the art market works?

Anyway. On the other side, the U.S. Attorney's Office picks up the narrative -- which, for Stanton, does not have a happy ending.

Because, you see, the Irving man was in U.S. District Court in Los Angeles this morning pleading guilty to a single count of defrauding the Internal Revenue Service out of close to $400,000 using what the feds say was a "charitable-giving scheme in which fraudulent tax returns claimed bogus deductions for artworks donated to charity in exchange for appraisals that inflated the value of the gifts." It's a felony that could land him in prison for three years max. And just how did this happen? Find out on the other side.

Say the feds, the scam worked like this:

Stanton started selling and gifting some of the paintings to customers in 1999, telling the recipients of the artwork that they could donate the pieces to a non-profit organization and receive a sizable tax deduction.

After selling or giving the paintings, Stanton suggested a charity to his customers. In the plea agreement filed today, Stanton admitted that as part of the donation process he provided inflated price estimates -- what he called "claimed values" -- to an appraiser, knowing that the appraiser would rely on his estimates.

In the plea agreement, Stanton admits recirculating some of the artwork through the sale-donation process. After being sold by Stanton for $4,000 and donated to the charity with an appraised value of $23,000, Stanton purchased some of the paintings back from the charity for $1,000 each, "re-titled" the artworks and then sold the pieces for $4,500 to different customers, who in turn donated the paintings to the same charity and obtained inflated appraisals.

In his plea agreement, Stanton admitted that he helped three taxpayers obtain inflated appraisals that were the basis of deductions on their 2004 tax returns. As a result of the improper deductions, the government suffered a tax loss of approximately $370,938. Stanton agreed in the plea agreement to make full restitution to the IRS.

"The IRS and the Department of Justice are working vigorously to stop abusive charitable contribution schemes," said Leslie P. DeMarco, Special Agent in Charge of IRS-Criminal Investigation in Los Angeles. "These activities unfairly shift the tax burden to honest American taxpayers. As our tax filing season winds down, today's court filings should serve as a reminder to taxpayers to be wary of any scheme that purports to allow inflated charitable contribution deductions."

Stanton is expected to make his first court appearance in this case on April 25 in United States District Court in Los Angeles.

The case against Stanton is the result of an ongoing investigation by IRS - Criminal Investigation.

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