South Florida Financial Adviser Sentenced To 8 Years In Illegal Tax Shelter Scheme

A Delray Beach man who worked as a securities broker and financial adviser was sentenced to eight years in federal prison Wednesday after pleading guilty to his involvement in an illegal tax shelter scheme that resulted in the IRS losing nearly $40 million, according to the U.S. Department of Justice.

Stephen T. Mellinger III and several co-conspirators from 2013 to 2023 used the tax shelter to make it appear that their clients paid deductible business expenses to Mellinger’s and a co-conspirator’s company, Intellectual Property Management Services, when the “so-called expenses were fake,” according to a statement of facts in Mellinger III’s federal court case in Mississippi.

The clients, who were largely successful small business owners, sent money to Intellectual Property Management Services, and co-conspirators almost immediately sent the money back, minus a fee percentage, to a different bank account of the clients’, the statement of facts said.

Co-conspirators then helped the clients prepare false federal income tax returns that fraudulently deducted the bogus business expenses, which federal authorities said were just payments to the company. Mellinger helped his clients report the expenses as “royalties,” the court document said.

Mellinger and his co-conspirators helped their clients in Mississippi and other states to prepare tax returns that claimed more than $106 million in false deductions for fake businesses, according to the statement of facts. In total, the clients evaded more than $37 million in federal income taxes while Mellinger and one of his co-conspirators, who was a relative, earned a collective $3 million from promoting the tax shelter between 2013 and 2023.

Mellinger learned in 2016 that several of his clients were being investigated and their funds were being seized by the government, the DOJ said. He and a co-conspirator then stole more than $2 million from some of those clients.

The DOJ said in a news release Wednesday that Mellinger, who had lived in Michigan between 2012 and 2015, used some of that money to buy a home in Delray Beach.

In 2017, Mellinger purchased the Delray Beach home for just over $760,000, with more than $126,000 of the money being fraudulent proceeds, the statement of facts said.

He pleaded guilty in February to conspiring to defraud the IRS and commit wire fraud and to aiding and assisting in the preparation of false tax returns.

At his sentencing hearing in the Southern District of Mississippi Wednesday, the judge ordered that he serve three years of supervised release and pay $37 million in restitution, the DOJ said.