This year really went by fast, but unfortunately there’s no shortage of candidates for the Tax Offender of the Year award. As a reminder, to be considered for the Tax Offender of the Year award, the individual (or organization) must do more than cheat on his or her taxes. It has to be special; it really needs to be a Bozo-like action or actions.
The United States Congress received another nomination. The correspondent noted that Congress has abdicated looking at spending, and that’s been done by both Democrats and Republicans. I agree, but that’s not enough to win this year.
California received two separate nominations. The legislature received one for A.B. 5. That’s the new law that prohibits most independent contractors in the ‘gig’ economy. The law will likely lead to fewer independent contractors (that’s the intent of it), but won’t increase employment and will lead to a lowering of tax collections. I agree completely with the individual who sent in that nomination. However, any impacts will be in 2020 (not 2019), so I think this should be held in abeyance until next year.
The California Office of Tax Appeals ruled that an individual selling into California but with no presence in the state owes California tax. While I expect this ruling to eventually be narrowed by federal courts (potentially being completely overruled), it’s a stupid ruling and will lead to many avoiding dealing with Californians. It’s another penny-wise, pound-foolish outcome from California.
Craig Orrock of Salt Lake City received a nomination. Mr. Orrock is a former IRS employee and a former attorney. We’ll stress the word former because his conduct ensured he can’t be either ever again. From the Department of Justice press release:
Evidence at trial showed that Orrock filed tax returns for the years 1993 through 2015, but did not pay the income taxes reported as due on those returns. Orrock attempted to prevent the IRS from collecting the reported income taxes by using entities, bank accounts, and trusts in other names to hide his income and assets from IRS collection officers, filing frivolous bankruptcy petitions, and filing an offer-in-compromise falsely representing to the IRS that he had virtually no assets. For example, Orrock used an entity known as Arville Properties LLC to conceal from the IRS his ownership of real property that he sold in 2007 for $1.5 million. In all, Orrock evaded the payment of over $500,000 in federal income taxes.
Mr. Orrock will be paying nearly $924,000 of restitution and will spend 32 months at ClubFed.
Something I’ve stated since I began this blog is that if you want to get in trouble with the IRS, one of the easiest ways to do so is to withhold employment taxes and not remit them. As far as I know, the IRS investigates all such cases.
Lawrence R. Gazdick, Jr. founded an equipment rental business in Dulles, Virginia (near Washington, DC). Mr. Gazdick’s business appeared to be successful, in that he had 70 – 100 employees. He used various names for his businesses (which isn’t an issue), with multiple bank accounts (52 in 9 different banks). He offered health insurance for his employees, with a plan from Kaiser Permanente which cost over $200,000. That’s a business that’s doing well.
Of course, since I’m writing about this, there were some issues. None of his businesses bothered filing employment tax returns, but he was diligent in withholding employment taxes from his employees’ pay. It was only $3.874 million of trust fund taxes (along with an additional $1.477 million of employer FICA taxes). Additionally, Mr. Gazdick didn’t bother to pay Kaiser for the health insurance; the check was “in the mail.”
Mr. Gazdick also didn’t file corporation or LLC taxes. It’s not clear if he needed to file Forms 1120, 1120S, or 1065 for his businesses as he held his businesses to be corporations and LLCs, but something needed to be filed. At least he was consistent: Mr. Gazdick hadn’t filed personal tax returns since at least 2000. (Some tax professional is about to get a lot of business.)
Mr. Gazdick’s business came to the attention of the IRS. This was certain to happen. Consider that employees filed their income tax returns, noting withholding of income tax (and FICA taxes). The IRS won’t find the matching payroll tax returns (Forms 941) from the employer. The IRS will easily get evidence of the problem (either by looking at the W-2s filed with the Social Security Administration and/or getting copies of pay stubs from employees).
Mr. Gazdick had an answer: I’ll just change the name of the business. He used multiple names, likely in trying to keep the IRS at bay. It didn’t work, but not for the obvious reason. (It’s certain that sooner or later the IRS would have looked into the missing payroll tax deposits.)
Mr. Gazdick was previously convicted of a felony. Convicted felons are not allowed to possess firearms. Mr. Gazdick had a firearm for his business. That came to the attention of a task force formed under “Project Safe Neighborhoods.” The goal of Project Safe Neighborhoods (which began in 2001) is reducing violent crime. The investigation likely began because of the gun. A helpful hint to anyone who is going to commit a felony with a high likelihood of investigation: Do not commit another felony which also has a high likelihood of investigation. But I digress….
It appears that the Project Safe Neighborhoods investigation led to the tax investigation. The tax case was pretty much a slam dunk given the facts (that I noted above). Mr. Gazdick has pled guilty, and has promised to make restitution of the $5.35 million in employment tax loss and the $200,000 which wasn’t paid to Kaiser. While sentencing was supposed to have occurred in October, it appears to have been delayed.
And that’s a wrap on 2019. I wish you and yours a happy, healthy, and prosperous New Year.
