Archive for the ‘Tax Evasion’ Category

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Thigh Injury the Least of Messi’s Problems

Sunday, September 29th, 2013

Football Soccer star Lionel Messi injured his thigh in yesterday’s game against Almeria (a game his team won, 2-0). Messi will miss two to three weeks with the injury.

Meanwhile, Lionel Messi and his father are accused of something more familiar to readers of this blog: cheating on their taxes. Messi is alleged to have created shell companies in Uruguay, Belize, Switzerland, and the United Kingdom to hide income (his image rights) from Spain and the Spanish income tax agency, Agencia Tributaria, from 2006 through 2009. The UK Telegraph reports that Messi and his father have made a five million euro “corrective payment.”

A judge will rule on whether to dismiss the charges or impose a fine. If found guilty, the maximum fine he could face is €24 Million (just over $31 million at today’s exchange rates) and potentially five years in prison.

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Louisiana Representative Girod Jackson Has Tax Troubles; Now an ex-Representative

Sunday, August 25th, 2013

If you’re in politics, portions of your personal life come under greater scrutiny. You also can become a poster child for the IRS if you make serious errors with your taxes. Louisiana State Representative Girod Jackson is finding that out.

Representative Jackson is alleged to have understated his gross receipts on his 2006 tax return by leaving out $492,000 of gross receipts from a business he owned and not filing his 2007 or 2008 returns. Representative Jackson resigned from the Louisiana legislature on Friday.

In a statement that is quoted in nola.com, Representative Jackson stated that he had made errors on his returns:

During my time in office, I have worked to be a symbol of honor and pride for myself and the constituents of the 87th District…And while I aim to live my life with dignity and respect, I am not without fault. Several years ago, there were filing errors on my business tax returns and delayed initial filings arising from accounting errors and oversight. Today, I have accepted the consequences of those mistakes.

While the Justice Department press release notes that the prosecution stems from an investigation by the IRS, the nola.com story notes that Mr. Jackson’s business was under scrutiny from an audit related to work following Hurricane Gustav.

A helpful hint to politicians: File and pay your taxes timely. If you don’t, you’re a superb target for the IRS. The IRS doesn’t instigate many criminal prosecutions (you do have to try hard for this). The targets chosen are done so because there crimes are especially egregious or by prosecuting them there will be publicity that could lead to a deterrent on others. Politicians are held to a higher standard, so they meet both these goals of an IRS prosecution. It appears Mr. Jackson found this out too late.

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Attorneys Behaving Badly

Friday, August 23rd, 2013

Two stories of lawyers in tax trouble. One is local (the second Las Vegas attorney in recent weeks who was found guilty of tax evasion); one committed especially bad behavior.

Let’s start with the local story. Paul Wommer decided that a good way of hiding money from the IRS was not to deposit all his income at once. If you do that and your deposits are cash–which apparently Mr. Wommer’s were–you are structuring your bank deposits. That’s a felony. Mr. Wommer did that 15 times. He also was caught evading paying $13,020 in tax to the IRS. Yesterday he was sentenced to 41 months at ClubFed.

Meanwhile, the case that is far worse comes from California. Orion Douglas Memmott was found guilty yesterday of attempted tax evasion and subscribing to a false tax document. From the DOJ press release:

According to testimony presented at trial, Memmott, a Stanford Law School graduate and tax attorney, stole hundreds of thousands of dollars from investors and law firm clients in order to spend on his own expenses, including failed day trading, travel, and personal trainers. Some of this money was removed from a client’s medical trust, leaving her destitute and homeless. Memmott concealed the embezzled money through the use of nominee accounts and false statements to investors, clients, and the IRS. Memmott also concealed his real estate holdings and rental income from IRS collection agents who were seeking to collect unpaid taxes for tax years 1993-1999, amounting to more than $650,000, not including penalties and interest.

There isn’t anything good to say about this case. Mr. Memmott is likely to spend several years at ClubFed (and deservedly so).

One last remark regarding preparer regulation: Both individuals I’ve written about are members of the Bar. Both subscribe to supposedly stringent ethics rules. Clearly, both individuals were guilty of violating the canons of their profession. The idea that just because someone has a license bad behavior will vanish is, of course, foolish.

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Microsafted to ClubFed

Sunday, July 14th, 2013

Matthew Taylor is heading to ClubFed for a 7 1/2 year of vacation from his previous job as an art thief and tax evader. It’s what he did to try to hide his crime that makes this case interesting.

First, Mr. Taylor stole paintings from the Los Angeles Fine Art Gallery including a Granville Redmond work titled “Seascape at Twilight.” He then sold the painting to a different gallery. He didn’t pay tax on his income; remember, illegal income is just as taxable as legal income.

What did he do to hide his income? He used false social security numbers to hide money in bank accounts, he used multiple post office boxes to open other post office boxes, and he sent money to an offshore account. Those are typical strategies.

It’s a couple of other things he did that grabbed my attention. He set up phony companies with names similar to other companies (Microsaft, anyone?). He blamed his mother for all his bank accounts and tax troubles…even though she was in failing health.

None of these strategies were successful, as time ran out on Mr. Taylor. He’ll get to enjoy life on the inside, and he must also make restitution of $1.2 million.

Department of Justice Press Release

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How Not to Commit Tax Evasion

Sunday, July 7th, 2013

Let’s assume I come up with a good idea: I’m going to buy diabetes test supplies at wholesale, and sell them to distribution companies. I find that there’s a market for this, and I’m suddenly making around $800,000 in sales a year. But I’m not a scrupulous business owner, so I’d prefer my after-tax income to be the same as my pre-tax income. What can I do?

Well, I can open lots of bank accounts. The government will never be able to trace the money. I can also just ignore the business on my tax returns. So I get a 1099 or two; no one will check on those.

Those were the apparent ideas of Yuxin Xie of Mountainside, New Jersey. His business (a sole proprietorship) was a success. However, his tax returns didn’t reflect that. The IRS, FBI, and Postal Inspectors discovered the evasion. Mr. Xie pleaded guilty to tax evasion last week. Given that Mr. Xie has apparently paid the taxes and has admitted guilt, he may spend less than two years at ClubFed.

As always, it’s a whole lot easier to just pay your taxes in the first place.

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Go Directly to Jail. Do Not Pass Go….

Sunday, June 16th, 2013

Usually when you’re sentenced to prison for a tax crime, you get a few days (or weeks) to get your affairs in order. That wasn’t the case on Friday for former New York State Senator Pedro Espada, Jr.

Let’s first cover the crimes that Mr. Espada was found guilty of. He was convicted in May 2012 of four counts of stealing from non-profit medical clinics. In October, Mr. Espada pled guilty to making false statements on his federal tax return for 2005. Mr. Espada received five years at ClubFed, must make restitution to the IRS for $118,531, restitution to the victims of his thefts (the amount has yet to be determined), and must forfeit $368,088. What did Mr. Espada do with the money he stole? Plane tickets, theater tickets, $20,000 in takeout sushi, and gifts for his family are just some examples of where the money went.

This seems just like any other public corruption story…until we get to the denouement. It seems that Mr. Espada got the particularly brilliant idea of accusing the judge of tampering with jurors. Mr. Espada submitted an affidavit stating that occurred. Before Judge Frederic Block sentenced Mr. Espada he rebutted the accusation. He had phone records to show he was home, and there were records of when he entered the courthouse. “There is so simply no way I could have spoken to the jurors between the time they arrived and the time they reached their verdict,” Judge Block said. Oh, yes, Judge Block made sure to resolve this just before he sentenced Mr. Espada.

A helpful hint to anyone who is going to be sentenced by a judge: Do not accuse the judge of misconduct unless you have absolute ironclad proof (and your attorney agrees with that). It usually does not make a good impression on the judge. Judge Block also asked the prosecutors to see if an additional charge was merited against Mr. Espada for filing a phony affidavit. And Judge Block ordered the immediate incarceration of Mr. Estrada stating that he couldn’t trust Mr. Estrada.

Mr. Espada looks like an early candidate for this year’s Tax Offender of the Year award.

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Elected Officials In Tax Trouble

Sunday, May 19th, 2013

A pair of reports from the South about elected officials (well, in one case former elected officials) in tax trouble. A longtime state representative allegedly took from charities while a former mayor may not have reported interest he received on personal loans.

Georgia State Representative Tyrone Brooks (D-Atlanta) is facing a 30-count indictment on mail, wire, and tax fraud. Representative Brooks is accused of misappropriating about $1 million of charitable donations from a charity he founded in 1990 and the Georgia Association of Black Elected Officials (GABEO). While Mr. Brooks accuses the government of going after him as retaliation in regards to his attempts at getting arrests in a 1946 lynching, the Department of Justice alleges that this has everything to do with Mr. Brooks using charities for his own gain.

Supposedly Mr. Brooks took the monies from the charity and moved them to his own bank account and paid personal expenses or just paid the personal expenses from the charity’s bank account. Additionally, he’s accused of naming individuals to the charity’s Board of Directors without their knowledge; of lying on solicitations for the charity; of telling the IRS that the charity had over $180,000 of various expenses while the year before he told the IRS that the expenses were under $9,000; of making false representations while soliciting for GABEO; and of filing false tax returns.

Meanwhile, the former mayor of Hialeah, Florida and his wife find themselves facing tax evasion charges. Julio and Raiza Robaina are accused of not reporting interest on more than $1 million of personal loans. The Robainas face several tax related charges, including filing a false tax return, conspiring to defraud the IRS, and lying to federal agents.

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Bayern Munich Head Reports Self for Tax Evasion

Sunday, April 21st, 2013

Uli Hoeness is the president of Bayern Munich. Who? Well, if you asked a resident of Bavaria this question, you’d get shocked looks–the same as you would get from a New Yorker asking about the Yankees. Bayern Munich is a soccer team in Munich. They’re very successful and already have clinched this year’s bundesliga. This New York Times story notes that the club just won their 13th straight game.

OK, I’m not a soccer fan. However, I am interested in cases of tax evasion and here’s one possible such case. Mr. Hoeness apparently has an issue with a Swiss bank account. Mr. Hoeness filed an amended tax return; the public prosecutor’s office is checking to make sure that the amended return is accurate. If the amended return is accurate, the penalties in Germany for filing the first ‘bad’ return can be lessened.

This is similar to US tax law in that the IRS (and Department of Justice) almost always take a much harder line on individuals that the government finds that have cheated on their taxes than on individuals who have voluntarily come forward.

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Bozo Tax Tip #8: 300 Million Witnesses Can’t Be Right

Tuesday, April 2nd, 2013

For tax bloggers like myself, Richard Hatch has been a godsend. His antics have been, well, remarkable. While he’s no longer at the top of my Bozo Tax Tips (he’s been strangely silent since his release from prison last December), his story is one that prospective tax offenders should learn.

I keep thinking that I’ll be able to drop this Bozo tax tip one year. Yet every time I think that’s going to happen Richard Hatch makes the news again. One tip I can give any celebrity: Be careful about your taxes. The IRS loves going after Bozo tax celebrities. So here’s the story that refuses to die.

For a tax blogger, people like Richard Hatch are wonderful. Hatch, for those who don’t remember, was the winner of the first Survivor and won $1 million. About 300 million individuals worldwide saw Hatch take down the $1 million.

Hatch received a Form 1099-MISC for his winnings. In the United States, winnings from contests are taxable. Hatch claims that CBS and/or the producers of Survivor promised him that they would pay his taxes. (Both CBS and the producers of Survivor deny this charge.)

Here’s what I wrote back in January 2006 when Hatch was convicted:

Mr. Hatch has cemented a place in the Bozo Tax Criminals Hall of Fame (a website I’ll create one day). Let’s look at his stupid not so good actions.

1. Hatch goes to accountant #1, find out that he owes over $300,000 in taxes. He goes to accountant #2, and the tax bill is around $240,000. (At his level of income, some differences in taxes owed is normal.) He then asks accountant #2 what his return would be if he didn’t declare the $1 million in Survivor winnings. Accountant #2 makes Hatch sign a statement that he won’t file that return (it showed Hatch getting a $4300 refund). He filed that return.

2. The IRS amazingly discovers his tax evasion. (With perhaps 300 million witnesses, even the most inept attorney could prove he won $1 million.) He’s offered a plea bargain: pay your taxes, and we’ll let you off fairly easily on the jail time. He accepts the plea initially, then changes his mind.

3. The case goes to trial. Hatch claims that CBS should have withheld taxes. His attorney might want to ask any seasoned accountant about what you should do if taxes aren’t withheld but should have been. (Answer: you pay the taxes.)

4. Hatch’s attorney can’t find the OJ Simpson jury. (Hat tip: Roth Tax Updates)

5. Hatch is found guilty. Roth Tax Updates speculates that his sentence will be around 3 years in jail. Oh, he’ll also have to pay those taxes, and interest and penalties. The maximum possible sentence is 13 years in prison and a fine of $600,000.

Hatch is now serving his prison sentence of 51 months. He recently appealed his conviction, though chances of it being overturned seem slim.

2008 Update: And they were slim. Last February, Hatch’s appeal was denied. As you might expect, 300 million witnesses can’t be wrong.

2009 Update: Richard Hatch continues to look for that needle in the haystack. He’s filed another appeal, though to this non-lawyer it’s more likely that he’ll be released after serving his 51 months at ClubFed than getting a favorable ruling.

2010 Update: Mr. Hatch was released in mid-2009. He then violated the terms of his release and was sent back to ClubFed. Finally, in October, Mr. Hatch was released. He’ll be spending the next couple of years in his home state of Rhode Island.

2011 Update: As part of his sentence, Mr. Hatch was supposed to amend his tax returns and declare the $1 million of income. He neglected to do that. Judge William Smith didn’t neglect to give Mr. Hatch a piece of his mind this past March: He sentenced Mr. Hatch to nine more months at ClubFed. Following his release from ClubFed (in December), Mr. Hatch will have 26 months of supervised release.

2012 Non-Update: Mr. Hatch was released from prison in late December 2011. He has filed a writ of certiorari with the Supreme Court. The chance of the Supreme Court taking his case is about the same as a blizzard in August in Las Vegas. The writ was denied.

2013 Update: Mr. Hatch’s non-payment of taxes extends north of the border. Mr. Hatch owned a piece of property in Sydney, Nova Scotia. That property was sold in a tax sale after Mr. Hatch didn’t pay the property taxes on it for at least six years.

Judge Smith’s remarks from over a year ago has not yet sunk in to Mr. Hatch. “You can continue to proclaim your innocence…You don’t have the option of engaging in this type of game or negotiation with the court. It needs to be a severe punishment. That’s the only thing that will deter you in the future.”

And to think I’d have so little to write about if Mr. Hatch had just paid his $300,000 in tax in the first place.

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Bozo Tax Tip #9: Foreign Trusts

Monday, April 1st, 2013

By far the worst tax schemes in the view of the IRS are offshore (foreign) trusts. In fact, trusts of all sorts—domestic and foreign—are regularly abused.

First, not all trusts are bad. Many trusts serve a legitimate purpose, such as family trusts. (Family trusts are a device to avoid probate, and are used in many states. For tax purposes, these revocable trusts are ignored.) Survivors’ trusts are another useful vehicle.

But trusts set up to avoid income tax are abusive, and very much Bozo-like. Individuals and businesses have spent thousands of dollars trying to avoid taxes (in some cases, mid five-figure amounts)…and many times these tax structures have been challenged successfully by the IRS.

And those are the domestic trusts.

The foreign trusts are worse. These are usually organized just to avoid taxes and hide money. If you look at Schedule B on your tax return you’ll see that you are supposed to report your foreign trusts. They work great until the IRS finds out about them.

Remember: If it sounds too good to be true it probably is.

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