Nashville, Tennessee- Jerry C. Pendergrass, owner of various adult bookstores in Chattanooga and elsewhere, and James M. Hammonds, a former IRS agent from Cleveland, Tn., pled guilty Tuesday to eight counts each related to filing false income tax returns.
The pair appeared before U.S. District Judge Robert L. Echols in Nashville.
Both will be sentenced early next year.
Pendergrass owned or was involved in various adult entertainment establishments, including adult bookstores in the Clarksville, Nashville and Chattanooga areas that operated under business names including Southern Secrets, Midnite Video, Broad Street Video, Video Express and I-40 Bookstore.
Pendergrass was also the sole shareholder of 822 Corporation, doing business as Metro News, also known as the World’s Largest Adult Bookstore. Pendergrass was involved in the Outer Limits of Nashville, a now closed nightclub.
Hammonds operated Financial Investigations, Inc. and was a former special agent with the Internal Revenue Service Criminal Investigation Division.
Pendergrass admitted to filing both false, personal income tax returns and false, corporate tax returns for tax years 1999 through 2002 with the Internal Revenue Service.
Pendergrass admitted that he failed to report over $3 million in income on his personal income tax returns for that period of time. The unreported income included rental payments and cash received from Metro News.
Additionally, Pendergrass admitted that his corporate tax returns filed for those years included approximately $423,000 in false deductions and approximately $195,000 in false cost of goods sold computations. These false items included payments for personal expenses of Pendergrass that were falsely claimed as corporate expenses.
As a result of filing these false returns, Pendergrass admitted to owing approximately $1,354,000 in income taxes to the United States.
Hammonds admitted during his plea hearing that he prepared false and fraudulent personal and corporate tax returns for Pendergrass and his corporation for tax years 1999 through 2002. Hammonds admitted that he made fraudulent adjustments to 822 Corporation’s balance sheet for 1999 through 2002 because he knew Pendergrass had diverted corporate funds for personal use.
Hammonds admitted that Pendergrass had received substantially more income in each year than he reported on his personal income tax returns. By these actions, Hammonds admitted that the false returns resulted in a tax loss to the United States between $80,000 and $200,000.
Pendergrass and Hammonds were charged in a 19-count indictment returned on Aug. 18, 2006.
Pendergrass was charged with two counts of conspiracy to defraud the United States, one count of income tax evasion and eight counts of filing false income tax returns.
Hammonds was charged with one count of conspiracy to defraud the United States and eight counts of aiding and assisting in the preparation of false income tax returns.
Pendergrass was found guilty after a jury trial on May 18 on one count of income tax evasion with an additional tax loss of $428,704. The trial on the remaining counts of the indictment was scheduled to begin Tuesday. Instead both defendants pled guilty rather than proceed to trial.
The investigation was conducted by IRS Criminal Investigation Division.
Assistant U.S. Attorney Jimmie Lynn Ramsaur and Trial Attorney Jenny Grus from the Department of Justice – Tax Division represented the United States.