EAST LANSING − According to the federal government, developer Scott Chappelle used sophisticated tactics to avoid paying taxes while maintaining a fancy lifestyle that included a 62-foot yacht and a vacation home in Harbor Springs and deserves to spend several years in prison.
"For at least eight years, (Chappelle) endeavored to conceal income and assets from the IRS instead of paying the taxes that he and his company owed," the U.S. Attorney's Office said in a memorandum filed in advance of Chappelle's scheduled sentencing for tax evasion Tuesday in U.S. District Court in Grand Rapids. "He lived a lavish lifestyle with funds that could have been used to satisfy those liabilities, all the while claiming he was suffering from financial hardships."
An attorney for Chappelle acknowledged that a prison term may be warranted but suggested Chappelle deserves a more lenient sentence.
"Mr. Chappelle recognizes he broke the law," attorney Timothy Belevetz said in his written motion for a variance, describing Chappelle as a devoted family man who cares about the people he works with. "He is remorseful and wants to make amends for what he did."
Chappelle is an attorney and former certified public accountant who operated Terra Management Co., Strathmore Development Co.and Terra Holdings LLC, all of which were connected to the tax evasion case.
Chappelle's companies have been involved in commercial and residential developments in Michigan and several other states. His Lansing-area projects include Red Cedar Flats and a Meridian Township office development off Northwind Drive. He spent years trying to develop projects at Grand River Avenue and Abbot Road in East Lansing but struggled to secure financing and ultimately sold the property.
In 2020, Chappelle was indicted by a grand jury on two counts each of tax evasion, filing false documents and making a false statement to investigators and one count each of filing a false tax return and bank fraud.
The government said Chappelle failed to pay the IRS more than $830,000 in employment taxes withheld from employee wages between 2010 through 2019. When the IRS tried to collect the unpaid taxes, Chappelle tried to avoid paying them by lying about his companies' assets and income , failing to disclose he had a vacation house on Lake Michigan and buying property in names other than his own, according to charging documents.
Chappelle pleaded guilty to one count of tax evasion in April. The charge carries a maximum penalty of five years in prison, three years of supervised release and a fine of $250,000.
The total tax loss was about $1.64 million, according to the government's sentencing memorandum. Including interest and factoring in the $828,270 he has already paid, the total restitution should be about $1.23 million, it said. Chappelle contends the tax loss is more like $1.46 million. The difference could impact the sentencing guidelines scoring.
In it's 42-page sentencing memorandum, the U.S. Attorney's Office said bank records show Chappelle paid "substantial" personal expenses from the accounts of businesses he controlled, including mortgage payments on the Harbor Springs house, a condominium in East Lansing and a house in Ohio where he lived with his fiance and her children, the government said.
Payments for several automobiles and a 62-foot McKinna Express yacht also came out of business accounts, it said. All of those payments should have been reported as personal income, it said.
Chappelle's crimes were "multifaceted, sophisticated and extremely serious," the U.S. Attorney's Office said.
"First and foremost, it is important to recognize that this is not a case about the defendant's failure to pay taxes," prosecutors said in their sentencing memo. "It is a case about the steps that the defendant took to hide money from the government once the IRS started trying to collect what he owed."
Chappelle's sentence should be at the high end of the sentencing guidelines range, prosecutors said. That would likely amount to several years in prison, depending on how the guidelines are calculated, court records indicate.
Belevetz rejected the government's characterization, saying Chappelle didn't use shell companies or fictitious entities to hide assets. He also didn't hide money offshore, the attorney said.
"Mr. Chappelle's companies were legitimate business entities, each with a valid business purpose," Belevetz wrote. "He maintained impeccable organizational compliance, including registering assumed names with the state ... and the entities did business so the activity could be traced back to the true party in interest."
Chappelle relied upon "a publicly transparent structure typical in the industry" and takes responsibility for misusing it, the attorney wrote.
"Mr Chappelle respectfully submits that the totality of circ*mstances in this case suggest that a below-guidelines sentence would be just punishment," Belevetz wrote.
Contact Ken Palmer atkpalmer@lsj.com. Follow him on Twitter @KBPalm_lsj.
