The owners of a defense contracting company in Woodbine have pleaded guilty to federal tax-evasion charges for using outdated government equipment and a worthless patent to launder money in a series of donation/lease-back schemes.
One of the defendants, Dr. Ambrose Hochrein Jr., also used his summer home in Rehoboth Beach, Del., to justify massive depreciation deductions for rental property, but rented it only once to a beach-goer while he claimed the deductions, according to court documents.
Hochrein, 51, of Olney, and Dr. Alagu P. Thiruvengadam, 56, of Ellicott City, entered their pleas to Judge Norman P. Ramsey in U.S. District Court in Baltimore Wednesday. The judge set sentencing for Feb. 13.
Thiruvengadam is president and 60 percent owner of Daedalean Inc., a Woodbine company primarily involved in government defense contract work. Hochrein is executive vice president and 40 percent owner of the company.
Assistant U.S. Attorney Susan M. Ringler said Thiruvengadam and Hochrein also are partners in Cooksville Land Development Co. and Technology Associates Partnership, companies they used in the schemes.
Cooksville Land Development's only function is ownership of the land and buildings used by Daedalean Inc.
Technology Associates is a sham company that served as a money-laundering conduit for false business expenses and depreciation deductions claimed by the defendants on their tax returns. The bogus firm has no employees and never did any legitimate work, Ringler said.
In a statement of facts presented in court, Ringler said Thiruvengadam claimed income of $30,245 on his 1984 tax return and paid $4,866 in taxes. He really owed the IRS $71,152 in taxes on taxable income of $179,533.
Ringler said Hochrein paid $6,668 in taxes on income of $36,729 the same year, when he really owed $51,844 on taxable income of $146,862.
The prosecutor said Hochrein and Thiruvengadam generated phony tax deductions by falsely inflating the worth of at least three pieces of expensive equipment and donating the equipment to Technology Associates or Cooksville Land Development. They had acquired the equipment at Daedalean with government funds for work on defense contracts.
The two men took false depreciation deductions on the "donations" based on the inflated prices of the equipment, which they contended was worth hundreds of thousands of dollars, Ringler said. Then they leased the equipment back to Daedalean at inflated rental fees.
Ringler said the depreciation deductions offset the income the defendants received from Technology Associates and Cooksville Land Development for the rentals.
In a related scam, the defendants sold a worthless patent to Daedalean for $1, then sold the patent to Technology Associates for $526,000 and used the sale price as a tax write-off for their income from that company.