Mystic Pizza Owner Heading to Federal Prison for Tax Evasion

The tagline for the Mystic Pizza restaurant that inspired the movie of the same name reads “A slice of heaven.” For a while, it might have seemed like owner John Zelepos’ life was heavenly indeed — his own family business, three children, a spouse, a $750,000 home and three cars.

But the slice of heaven turned anything but in March of this year, when Zelepos, now 49, pleaded guilty to tax evasion and diverting cash from the restaurant’s gross receipts into his personal bank account.

After a Monday, Aug. 24, court date, he will now face:

• 12 months and one day of imprisonment
• Three years of supervised release
• Paying a $25,000 fine
• Forfeiting more than $500,000
• Paying back taxes with interest and penalties

Zelepos was ordered to report to prison on October 30 of this year. The restaurant, located at 56 West Main St. in Mystic, will reportedly stay open during the length of the sentence.

Mystic Pizza, the Movie

Mystic Pizza helped inspire the movie “Mystic Pizza,” a 1988 film about three teenagers coming of age in Mystic, Conn. According to IMDB, writer Amy Jones was vacationing in Mystic, saw the pizza restaurant and was inspired to write the script.

Most of the movie was filmed in Stonington and Rhode Island, with the exception of one scene depicting a fishing boat traveling through the drawbridge in downtown Mystic.

Statements Made in Court

From 2006 to 2010, Zelepos diverted approximately $567,435 in cash from Mystic Pizza’s gross receipts, approximately $330,005 of which was deposited into his personal bank account, his and his wife’s personal checking account, his wife’s personal checking account and passbook savings accounts in the name of each of his three minor children.

During that same time, he caused Mystic Pizza to pay a total of $162,168 to two ‘no-show’ employees who performed no work, then deducted the wages as expenses on his tax return for Mystic Pizza, according to a press release from Deirdre M. Daly, United States Attorney for the District of Connecticut, and William P. Offord, Special Agent in Charge of IRS Criminal Investigation in New England.

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Zelepos did not inform his tax return preparer of the diverted money or the two ‘no-show’ employees.

Because of Zelepos’s actions, the federal tax loss for 2006 to 2010 was $234,407. He paid restitution in that amount, but is required to pay interest and substantial penalties.

Circumventing Federal Law

Zelepos intentionally structured financial transactions to avoid having the bank file Currency Transaction Reports, Daly said.

Any transactions in excess of $10,000 require a CTR be filed by all financial institutions, per federal law.

“To evade the filing of a CTR, individuals will often structure their currency transactions so that no single transaction exceeds $10,000,” Daly explained. “Structuring involves the repeated depositing of amounts of cash less than the $10,000 limit, or the splitting of a cash transaction that exceeds $10,000 into smaller cash transactions in an effort to avoid the reporting requirements.”

This is still a federal law violation, even if the funds are legitimate, she said. Those funds are subject to forfeiture to the U.S.

61 Currency Transactions Made

Between January 2010 and January 2011, Zelepos engaged in 61 currency transactions in amounts less than $10,000.

He deposited a total of $522,658 into the business account, his personal account, his and wife’s personal bank account, and his three children’s bank accounts in amounts ranging from $3,000 to $9,998.

“Zelepos knew that the bank was required to issue a report for a currency transaction in excess of $10,000 and by conducting his financial transactions in amounts less than $10,000 he intended to evade the transaction reporting requirements,” Daly said.

He was ordered to forfeit $522,658 as a result of the illegal structuring.

IRS Seizes Money

In January 2012, pursuant to a court-authorized federal seizure warrant, the IRS seized $63,084 from a payroll account Mystic Pizza held at Chelsea Groton Bank.

Those funds are being applied to the forfeiture, reducing the remaining forfeiture amount to $459,573, Daly said.

Photo by jronaldlee, via flickr creative commons