Taxable Talk

We’ve got some lowlights from the tax fraud world. A dentist and a doctor from West Virginia are in trouble. And we’ll take a look at what could happen if your 1031 Exchange uses a dishonest Qualified Intermediary.

First, let’s head to Charleston, West Virginia. Dr. Alan Vance is a dentist who also happened to own a dry cleaning business called “Pressed For Time.” Dr. Vance wanted a pool for his home, so he marked off the cash on the deposit slips prepared by his staff, and didn’t declare it on his tax return. He did get his swimming pool, but he also got a charge of tax evasion. He pleaded guilty last week, and he’s likely to not be so pressed for time for over one year when he’s sentenced.

Let’s head to nearby Bluefield, West Virginia. Dr. Randy Brodnick appears to have a successful medical practice. He’s also facing a federal indictment. Dr. Brodnick and Anthony Kritt, an attorney from Crofton, Maryland, are accused of using sham contracts, employee leasing, and shell corporations to defraud the IRS out of $2 million. Allegedly, they set up fictitious entities in Ireland and the Channel Islands. They face a total of seven counts and if convicted could spend up to 35 years at ClubFed. Interestingly, one of the funds that Brodnick and Kritt are alleged to have used to hide the funds is the Ruritania-90 fund. (Ruritania is the fictional country from The Prisoner of Zenda.)

Finally, our last story notes a potential problem with a 1031 Exchange. Section 1031 of the tax code allows taxpayers to do an exchange of investment properties without paying capital gains taxes. There are lots of rules for §1031 exchanges. One of them is that you must use a Qualified Intermediary.

It’s very, very important to use a reputable, honest Qualified Intermediary. Unfortunately, in every industry there are some who aren’t honest. Edward Okun was one of the dishonest ones.

Mr. Okun, of Miami, had a unique way of conducting his business. People would come to him wanting to do a §1031 exchange. He’d obtain the original property, find a replacement property, and take some of the proceeds for himself. It gives a whole new meaning to “boot.”

Everything was fine while the real estate market was going up. Unfortunately, we all know that ended. Mr. Okun, who apparently owned several Qualified Intermediary companies, had a personal jet, a yacht, and a Miami mansion. It appears that after the market tanked his scheme was uncovered.

Mr. Okun was convicted on 23 counts. He apparently bilked over 600 individuals and obtained over $125 million. All told he could be sentenced to 400 years at ClubFed, along with restitution and fines.

This entry was posted on Sunday, March 22nd, 2009 at 11:41 pm and is filed under Tax Evasion, Tax Fraud. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.