LYNNWOOD — A local tobacco store owner was sentenced to 22 months in federal prison on Tuesday for tax evasion schemes that defrauded the state of more than $9 million.
In January 2019, 45-year-old Tae Young Kim pleaded guilty in US District Court in Seattle to one count of wire fraud and one count of filing a false federal tax return in an elaborate scheme that lasted for years, according to court documents.
Kim, from Las Vegas, owned smokehouses in Lynnwood and Federal Way through her company, TK Mac. The company was established in 2001, according to state records.
During its early years, TK Mac was a legitimate operation, Kim reportedly told investigators. Then he started losing money.
Hyung Il Kwon, 48, stepped in and pumped money into the business, according to court documents. And while Kim remained the owner on paper, Kwon took over operations.
Together, the two men devised tax evasion schemes that led to Tuesday’s sentencing. They worked with Anthony Paul and Theodore Silva, according to court documents. Paul owned three Puyallup tribal smokehouses. Silva managed them.
The four men joined in two schemes to defraud the state Department of Revenue out of millions of dollars in excise taxes, according to federal prosecutors.
They used preferential treatment for transactions involving tribal businesses, since those stores are exempt from state tax. TK Mac could buy tobacco products from Paul’s stores and save money by not paying excise taxes on those purchases.
Under state law, non-tribal distributors are required to self-report these transactions when there was no excise tax.
Kim’s company would pay Paul’s shop cash for tobacco to conceal bulk purchases of untaxed goods, prosecutors claimed. These cash purchases went unreported, so Kim and Kwon were able to avoid their excise tax obligations.
Paul’s Tribal Smokers helped by giving Kim and Kwon two bills: one for cash purchases and another for products purchased by check. So if regulators intervened, they could show invoices for purchases made by check and look legit. However, a record from one of Paul’s stores showed that more than 80% of TK Mac’s purchases were paid for in cash, according to court documents.
Kim’s company has always submitted monthly excise duty returns, but they apparently wouldn’t include products purchased with cash.
It was the first drawing.
Now that TK Mac had avoided millions in taxes, they could sell what investigators called “contraband” for less than market value. But all that cash could attract unwanted attention. So Kim and Kwon came up with another plan with Paul and his shops. They would create fictitious transactions showing TK Mac selling products to Paul’s stores, although no products were traded, according to court records. For fake transactions, they got a tax credit from the state. This allowed them to launder money and avoid regulators and law enforcement.
However, TK Mac employees eventually reported their bosses to the police.
“This scheme to cheat on state taxes has gone on for years and deprived people of millions of dollars in funding for state programs,” U.S. Attorney Nick Brown said in a statement. “The co-conspirators used false documents to conceal their actions from regulators and law enforcement. Their deception did more than reduce their taxes, they gained a competitive advantage over other tobacco retailers.
Kim faces a sentence of 70 to 87 months, but prosecutors and the defense have agreed to recommend a prison term well below those guidelines because he has cooperated with investigators and expressed his contrition.
Kwon, Paul and Silva had already been sentenced. Kwon was sentenced in January to 26 months in prison and ordered to pay nearly $5.1 million in restitution. For Paul, it was 14 months and over $1.7 million in compensation. For Silva, four years of probation, six months of home confinement and $25,000 in restitution.
Paul also faced criminal charges in Skagit County for allegedly trafficking clams on the Tulalip reservation, but the case was dismissed last month.
Although he was the first to plead guilty, Kim was the last defendant to be convicted in connection with the tax evasion.
U.S. District Court Judge James Robart ordered Kim to pay more than $4.3 million in restitution to the Department of Revenue, in addition to 22 months in jail.