Jury selection will begin in Federal Court in Utica on Monday for three members of the Zourdos family — owners and operators of the Dippin Donuts franchise — who are charged with tax fraud in excess of $1 million.
John, 68, his wife Helen, 64, and their son Dimitrios, 37, all of Rome, are 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.
All three are scheduled to stand trial together before U.S. District Court Judge David N. Hurd. John and Helen are represented by attorney David Garvin, and Dimitrios is represented by attorney Gabriel Nugent. Prosecuting the case will be Assistant Chief John N. Kane of the Tax Division and Assistant U.S. Attorney Michael F. Perry.
The trial is expected to last roughly a week and a half.
Prosecutors said that between 2013 and 2017, the Zourdos family concealed more than $1 million in cash sales from the IRS by depositing the cash directly into their personal bank accounts instead of their business bank accounts. Prosecutors said the family then hid these personal deposits from their tax preparer, leading to false individual and corporate tax returns filed with the IRS.
Prosecutors said the family spent the “skimmed” cash on numerous luxury items, including multiple Porches, a Rolex watch, a vintage 1963 Ford and annual vacations in Greece.
A final pre-trial hearing was scheduled for Friday.
The Zourdos family owns three Dippin Donuts locations: two in Rome on Black River and Erie boulevards, and one in New Hartford on Seneca Turnpike, according to court records. John and Helen managed the donut shop on Erie Boulevard West and Dimitrios managed the shop on Black River Boulevard, with another, unnamed person running the shop in New Hartford, records stated.
Prosecutors said the Zourdos family “only skimmed cash” from the Rome stores because the New Hartford store was the “least profitable” and was “more or less breaking even.”
All three stores remain in business.
“On a basic level, the individual returns underreport the defendants’ income by substantial amounts, especially when compared to the small amount of wages they were paying themselves,” wrote the prosecutors in their pre-trial paperwork.
“That the defendants put themselves on the official payroll and paid themselves small amounts through this method suggests that they were intentionally concealing the cash deposits they made into their personal accounts, since they simply could have increased their own wages instead.”
Prosecutors said the Zourdos family kept daily notebooks on how much money was received at either the front counter or the drive through window of each store. Prosecutors said the daily notations listed how much money was then deposited in the company bank accounts, but that figure did not match how much money was coming in.
Prosecutors said the family also paid their employees’ overtime with cash. They used a payroll service for normal paychecks, but would then have employees clock out while continuing to work, obscuring the amount of overtime they would be paid in cash, prosecutors said.
“While the Zourdoses’ personal accounts did receive a small amount in payroll checks and third-party checks, the bulk of the deposits into the accounts were in cash,” prosecutors wrote, noting that cash deposits “dwarf” the wages reported on the family’s tax returns.
For example, according to prosecutors, John and Helen reported $57,200 in wages from Dippin Donuts on their 2016 tax return, while their personal bank accounts showed $148,071.85 in cash deposits for the same year.
A search warrant executed on the home of John and Helen Zourdos uncovered slightly less than $300,000 in cash, leading prosecutors to say that likely not all of the “skimmed” cash was deposited into their personal bank accounts.
“The Zourdoses were able to conceal the diverted cash receipts by providing their tax preparer business bank account statements and checks; they did not provide any other record of total sales,” such as personal bank account statements, cash register tapes or the daily notebooks, prosecutors wrote.
“As a result, the Zourdoses caused their tax preparer to file false individual and corporate tax returns that failed to report the stores’ true receipts and the defendants’ true income,” prosecutors wrote.
Prosecutors went on to say that they believe the tax fraud was ongoing before 2013 and after 2017, the years laid out in the current case. Prosecutors said the Zourdos family altered their conduct after becoming aware of the IRS investigation.
Prosecutors also said that John Zourdos operated a Dunkin Donuts franchise in the 1990s and “engaged in a similar fraud scheme...which cost him his franchise agreement.”
Defense attorneys Garvin and Nugent filed joint pre-trial paperwork seeking to keep three issues from being used at trial: John Zourdos’ prior settlement with Dunkin Donuts, the potentially “prejudicial” testimony about workplace conditions and the prosecutor’s “opinion” that the Zourdos family was “rich”.
“Evidence on these matters is irrelevant to the charges at issue and highly prejudicial,” the defense wrote. “These matters have no place before the jury in this trial.”
The defense wrote that the issue with Dunkin Donuts was settled in an “apparently confidential” agreement in 1997 and “all claims were dismissed with prejudice, with no admission of liability.” The defense wrote that such “settled civil lawsuits are inadmissible to prove liability of an underlying claim.”
The defense also objected to Dippin employees testifying about their working conditions, some of whom described them as “bad,” including being yelled at by members of the Zourdos family in front of customers. The defense said such testimony could distract the jurors because the working conditions do not impact the tax fraud charges.
“None of the charges in the Indictment involve the working environment, conditions, or treatment of the employees for those accused,” the defense wrote.
“Such testimony would mislead or confuse the jury into believing that the defendants’ guilt or innocence on the tax charges somehow is associated whether they were ‘good’ employers or supervisors.”
If such testimony was allowed, the defense said they would be required to call witnesses to describe positive working conditions.
Likewise, the defense said any witnesses offering their opinion that the Zourdos lived a “rich” lifestyle would also be “prejudicial” towards the jury.
“Witness testimony about what kind of car is a luxury car, or whether other material goods connote wealth, are largely subject and rely on individual witness taste and perceptions,” the defense wrote.
As to the overall case, the defense wrote that the prosecution will have to prove “willfulness” in regards to the tax evasion, and that it will be up to the jury to decide if the Zourdos family “willfully” engaged in these acts. The defense wrote that the Zourdos family were acting in “good faith” in filing what taxes they believed needed to be filed.
“A defendant asserting a good faith defense need not prove his understanding of his legal obligations was objectively reasonable,” the defense wrote.
“Thus, the government must not elicit opinion evidence from experts or agents as to whether a defendant acted willfully.”