A convicted organized crime figure told a House subcommittee yesterday that he made $8 million a week by evading federal and state gasoline excise taxes, and federal authorities said similar crimes may be occurring throughout the country.
Lawrence Iorizzo, who is cooperating with an FBI investigation into gasoline tax evasion, said he was part of an organized crime operation in Florida, New York, New Jersey and Connecticut for three years before he was apprehended. He estimated losses of $1 billion a year in state and federal taxes.
Iorizzo said that legitimate businesses are involved too, and that the large oil companies "look the other way."
"It's just prevalent in the industry," said Iorizzo, who claimed his 20-year-old fuel-distributing business was jeopardized because most of his clients were buying bootlegged gas to avoid the tax. He eventually joined an organized crime group when a rival crime group tried to take over his business.
In the oil industry, Iorizzo said, "Everyone knows that everybody evades the tax."
Testifying before the House Ways and Means Subcommittee on Oversight, officials from the Treasury Department, the FBI and the Internal Revenue Service said that organized crime and legitimate businesses may be stealing between $200 million and $1 billion a year in excise taxes.
Subcommittee chairman Rep. J.J. (Jake) Pickle (D-Tex.) said the hearing marked the first congressional analysis of excise tax evasions.
Anthony E. Daniels, of the FBI Criminal Investigative Division, described a common scheme used by tax evaders. He said distributors set up a series of tax-exempt dummy corporations that conduct a chain of gasoline sales that take place only on paper. One of the dummy corporations claims to pay the tax.
If auditors trace the intricate paper trail, they usually find that the dummy company has no assets. Meanwhile, the distributor sells the gasoline directly to a retailer at a lower price without paying the tax.
The Organized Crime Task Force has assigned 30 investigators from eight agencies to investigations in New York. So far, investigators have achieved 11 federal and state convictions, and 12 indictments.
To deter bootlegging, Treasury and IRS officials yesterday recommended a plan to charge the tax earlier in the chain of transactions from refiner to retailer. The Petroleum Marketers Association opposed the plan, arguing that it will create a competitive disadvantage for independent distributors, who will have to pay the tax when they buy intead of when they sell.