Former New York City Council Member Sentenced To Prison For Tax Fraud

 

 Audrey Strauss, United States Attorney for the Southern District of New York, announced that CHAIM DEUTSCH, a former New York City Council Member, was sentenced today in Manhattan federal court to three months in prison for filing a false tax return in connection with outside income he received from his real estate management corporation.  DEUTSCH previously pled guilty before United States Magistrate Judge James L. Cott, who imposed today’s sentence.

U.S. Attorney Audrey Strauss said: “Chaim Deutsch, a former New York City Council Member, violated his oath of office and the law when he defrauded the IRS in connection with income from his real estate business.  At the same time he was serving as an elected official and community leader, Deutsch concealed his true business income to avoid paying his fair share of taxes.  Appropriately, Deutsch has been sentenced to prison for his criminal conduct.” 

According to the allegations contained in the Information to which DEUTSCH pled guilty, other court filings, statements made during public court proceedings, and publicly available information:

From in or about January 2014 through April 2021, DEUTSCH served as the New York City Council Member for the 48th District, which includes portions of Brooklyn.  DEUTSCH was also the sole owner of Chasa Management, Inc., a real estate management business, and he received more than $120,000 annually in outside income from that business, until the end of 2017 when a change in the law prohibited council members from maintaining outside employment.  On or about April 27, 2021, subsequent to his plea in the instant case, DEUTSCH was determined to have vacated his elected office as a result of violating his oath of office by defrauding the federal government in connection with the instant tax offense.

During the tax years 2013 through 2015, DEUTSCH filed false individual and corporate tax returns that decreased his tax liability by claiming false and fictitious business deductions.  In particular, DEUTSCH falsely deducted personal expenses as business expenses, including rental payments for an apartment that he maintained in the 48th District in order to obtain residency for his council position; utility, water, repair, maintenance, automobile, and phone expenses; as well as routine living expenses such as groceries and clothing.  In addition, DEUTSCH further decreased his tax liability by filing fraudulent schedules to his personal income tax forms that declared fictitious business expenses, including for additional purported rent, vehicles, phones, and utility expenses. 

As a result of the false deduction schemes, DEUTSCH received federal tax refunds in each of the relevant tax years.  Specifically, in tax year 2013, DEUTSCH’s false filings generated a federal tax refund of $1,937; in tax year 2014, DEUTSCH’s false filings generated a federal tax refund of $262; and in tax year 2015, DEUTSCH’s false filings generated a federal tax refund of $7,511.

In preparing his personal tax returns and the books and tax returns of Chasa Management, DEUTSCH employed a tax preparer and accounting firm based in Brooklyn, and DEUTSCH would direct the firm to classify or reclassify expenses as business-related to decrease his tax liability.  Only after DEUTSCH was satisfied that the purported business expenses had sufficiently decreased his tax liability were the tax returns finalized and filed.  After DEUTSCH learned of the investigation, he used a different tax preparer to assist in the preparation of his subsequent years’ tax returns.

In total, for tax years 2013 through 2015, DEUTSCH claimed approximately $157,000 in false business expenses on Chasa Management’s returns and an additional approximately $111,000 in false business expenses on his individual income tax returns.  DEUTSCH’s failure to properly pay taxes on his business income evaded approximately $82,076 in taxes due to the Internal Revenue Service (“IRS”), not including interest and penalties. 

In addition to the prison term, Judge Cott ordered DEUTSCH, 52, of Brooklyn, New York, to serve one year of supervised release, to pay a fine in the amount of $5,500, and to pay restitution to the IRS in the amount of $107,007.05. 

Ms. Strauss praised the outstanding work of IRS Criminal Investigation and the Special Agents of the U.S. Attorney’s Office.  Ms. Strauss also thanked the New York City Department of Investigation for its assistance in the investigation.