Donut shop owner takes stand, blames accountant

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Dippin Donuts owner John Zourdos took the stand in his own defense in Federal Court on Monday and told the jury that his longtime accountant gave him the advice to take money out of his business and give it to himself.

Zourdos testified that he trusted this accountant — Vincent J. Gilroy, of Utica — to then keep track of that money and file it with the appropriate tax returns. Zourdos said this went on for nearly 20 years.

“I didn’t look at anything because I had complete trust in him,” Zourdos told the jury Monday afternoon.

“I didn’t have time to go through the tax returns, and even if I did, I wouldn’t understand a lot of it.”

When Gilroy testified last week, he denied giving Zourdos that advice, denied knowing about the diverted money and denied including that money on any personal or business tax returns. Gilroy told the jury last week that he “trusted” that the Zourdos family was giving him all of the appropriate financial records for their tax returns over those 20 years.

Zourdos, his wife, Helen, and their son, Dimitrios, all of Rome, are on trial this month on accusations that they funneled upwards of $1 million in cash sales from Dippin Donuts into their personal bank accounts between 2013 and 2017 and never reported that money to the IRS. They are also accused of paying some employees under the table in cash for overtime work, avoiding even further taxes.

They are all charged with one count of conspiring to defraud the United States, seven counts of tax evasion and seven counts of aiding and assisting in the filing of false corporate income tax returns, according to the U.S. Department of Justice, Tax Division. They each face at least three to five years in federal prison if convicted on the charges.

The prosecution rested their case Monday morning. The first defense witnesses were called Monday afternoon, with the defense expected to finish their testimony on Tuesday. The jury could begin deliberations as early as Tuesday afternoon.

On the stand

Zourdos, age 68, told the jury on Monday that he was born in Greece and moved to the U.S. in 1969 to work at his uncle’s McDonald’s. Zourdos said he graduated from Utica College with a degree in accounting. He married Helen and they had two children: Dimitrios and Rose.

The family opened the first Dippin Donuts store on Erie Boulevard West in Rome in 2001 — and Zourdos said Gilroy was his accountant when he opened the business. The Dippin Donuts on Black River Boulevard was opened in 2005, and the store in New Hartford was opened in 2011.

At the start of the business in 2001, Zourdos told the jury that Gilroy advised making Dippin Donuts a “C Corporation” when it came to taxes.

“There was advice that this was what he wanted to do,” Zourdos testified.

In a C Corporation, according to testimony over the course of the trial, both the business files a corporate tax return on sales and then the owner files a personal tax return on money they paid themselves through the business. The opposite is an “S Corporation”, where all sales flow through to the owner who then includes that money when they file their personal tax return.

Zourdos testified that, in order to spare himself the “double taxation” of a C Corporation, he was advised to only leave enough money in the business bank accounts to cover operating costs.

“And if there was anything leftover to take as cash for myself,” Zourdos told the jury. “Compensation. It wasn’t a loan...it was to avoid paying double taxation.”

Zourdos said on the stand that “the money came to me. It went to mine and my wife’s personal checking accounting...and some of it went to my kids. It was a gift” to Dimitrios and Rose.

Zourdos could not remember the exact year that he started diverting cash into personal bank accounts.

According to testimony over the course of the trial, the legal way for the owner of a C Corporation to take money from their business is to issue themselves bonus checks, which are properly documented and taxed.

Another business decision Zourdos said he made at the start of Dippin Donuts was to try and save money by not paying time and a half for overtime work.

“We tried to cut down on labor as much as possible...by not paying time and a half,” Zourdos testified.

Zourdos said he encouraged employees not to work more than 40 hours in a week. When employees did work overtime, he said the employees “would be paid in cash mostly” in order to “cut down on costs”. He denied that he paid the employees in cash to avoid paying payroll taxes, or to avoid paying social security and Medicare matches.

Zourdos said any employee working more than 40 hours was considered an independent contractor and “It was their responsibility to pay” taxes on the cash. He said he “never” told an employee not to report the cash on their taxes.

Zourdos also admitted that all of his donut bakers were paid almost entirely with cash.

Tax returns

John Zourdos testified on Monday that a system had been developed between himself and Gilroy’s office where one of the accountants, Heather O’Rourke, would swing by the Dippin Donuts on Erie Boulevard roughly once a month to pick up the corporate bank account statements. Zourdos testified that O’Rourke had full access to the office, including the calendar books used to track daily sales and daily cash deposits.

“I had complete trust in her,” Zourdos said of O’Rourke.

Zourdos told the jury that he believed Gilroy and O’Rourke had full knowledge of the cash he was depositing in his personal bank accounts and had full knowledge of those calendar books. He testified that he had discussed those books with Gilroy.

When it came time to file his tax returns, Zourdos testified that Gilroy’s office sent him a copy of the returns to review and a form for Zourdos to sign granting them approval to file the returns electronically.

“I didn’t look at anything because I had complete trust in him,” Zourdos told the jury. He said he just filed away his copy of the tax returns and signed the form. “I didn’t have time to go through the tax returns, and even if I did, I wouldn’t understand a lot of it.”

Zourdos said Gilroy never sat down and explained to him the figures in the tax return or what the form meant. He said Gilroy did meet with him several times a year to go over the company’s financial records.

Zourdos said he never corrected Gilroy on either the tax returns or the financial records when those numbers did not include the cash deposits into the personal bank accounts.

“I didn’t even look at the numbers, that’s the truth,” Zourdos testified.

“It was money coming to me. It was a C Corporation and I can take money out.” Zourdos added that “If my accountant had done his job” then the cash deposits would have been listed on the tax returns.

Previously in the trial, an IRS agent testified about finding nearly $300,000 in cash hidden in the Zourdos family home. John Zourdos testified on Monday that he was holding on to cash because “we just didn’t trust putting all of our money in the bank” after the financial crisis of 2008. He added that some of that money had been given to them by his in-laws, that the cash wasn’t all from Dippin Donuts.

How much money?

The final witness for the prosecution Monday morning was Michael Petrick, a revenue agent with the IRS. Petrick testified about looking over all of the financial records, tax returns and the calendar books and summarizing all of the money amounts in this case.

According to Petrick, based on the daily sales calendar books, the Zourdos family diverted a total of $2.8 million in cash from the two Rome Dippin Donuts between 2013 and 2016. Of that $2.8 million, Petrick said he was able to trace $1.7 million in cash deposits into more than a dozen family bank accounts.

Petrick said John and Helen Zourdos owe the IRS roughly $627,550 in back taxes for 2013 to 2016, and Dimitrios Zourdos owes $43,910.

Petrick also testified that after John and Helen Zourdos were interviewed by IRS agents in August 2017 as part of the investigation, they started paying themselves and their children several hundred dollars more per week in company wages instead of via cash deposits.

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