Michigan woman reported as little as $39,960 in income; prosecutors say she hid $1.66 million linked to gambling and embezzlement

A Michigan woman admitted filing federal tax returns that understated her income by more than $1.6 million, with prosecutors saying the money included cash taken from her employer and gambling proceeds. According to the IRS, Erin Patti-Coveyou of Moran, Michigan, pleaded guilty to making a false statement on a federal income tax return and is due to be sentenced later this year. The case involves several years of tax filings and a separate agreement to repay more than $1.75 million that she embezzled from her employer. The Internal Revenue Service says the understatement of income left the government with a tax loss of $535,605. Patti-Coveyou now faces up to three years in federal prison.Tax returns reveal wide gaps between reported and actual incomeAccording to the US Attorney's Office for the Western District of Michigan, Patti-Coveyou failed to disclose $1,666,499.78 in income on federal individual tax returns filed between 2021 and 2024.The figures varied sharply from what was actually earned. In one example cited by prosecutors, she reported $353,055 in income on her 2022 return for the previous tax year. The government says her actual income was higher because she had received another $279,079.12 through cash embezzlement from her employer and gambling activity.As reported by the IRS, the discrepancies continued in later returns. Amounts reported as $39,960, $53,188 and $56,545 were, according to the case, substantially below the corresponding income figures of $424,882, $461,300 and $650,931.The tax loss reached more than $535,000By leaving income off her returns, Patti-Coveyou reduced the amount of federal tax she owed. Prosecutors put the resulting loss to the Internal Revenue Service at $535,605. She has agreed to pay that amount in full as restitution to the IRS. The restitution is separate from the money she agreed to repay to her former employer. Reportedly, the guilty plea concerns one count of making a false statement on a federal income tax return. Patti-Coveyou's sentence will be decided by Chief US District Judge Hala Y. Jarbou, with sentencing scheduled for later this year.The case goes beyond Patti-Covey’s unpaid tax liabilityThe tax filings were not the only financial issue addressed by prosecutors. Patti-Coveyou also agreed to repay $1,751,059 that she embezzled from her employer between 2021 and 2025.The government says some of the unreported income came from that activity, along with money associated with gambling. The case therefore covers two connected financial obligations: the tax liability arising from income that was not reported to the IRS and the substantially larger amount owed to the employer from the embezzlement. The investigation was conducted by IRS Criminal Investigation, the law enforcement arm of the Internal Revenue Service that investigates suspected financial crimes involving federal tax laws.IRS-CI's work extends beyond false tax returns. Its remit includes cases involving money laundering, public corruption, healthcare fraud, identity theft and other financial offences. It is the only federal law enforcement agency with investigative jurisdiction over violations of the Internal Revenue Code.Robert Kuszynski, acting special agent in charge of the IRS-CI Detroit Field Office, said, “Taxpayers thinking about participating in fraudulent tax schemes, including failing to report all forms of income, should stop in their tracks and simply look at the consequences of taking the next step.”The case now turns to sentencing and financial repaymentPatti-Coveyou has pleaded guilty, but she has not yet been sentenced. The maximum penalty for the offence is three years in federal prison. The final sentence will be imposed by Judge Jarbou after the court considers the case. Alongside any prison term, Patti-Coveyou faces the financial obligations already set out in the proceedings, including the $535,605 restitution to the IRS and the agreement to repay $1,751,059 to her former employer.Assistant US Attorney Chris O'Connor is prosecuting the case. The case serves as a federal tax prosecution built around a relatively simple point in the filings: income that prosecutors say should have appeared on the returns did not.You use AI every day. Now get your AI Quotient. Take the AIQ test.