Archive for the ‘Tax Fraud’ Category

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April 15th No More

Sunday, December 20th, 2009

About a year ago I discover a tax blog called Apirl15.com. I doubt we’ll be seeing any more of this blog; according to an affidavit from an IRS Special Agent, the proprietor of the blog has admitted to embezzling $8.5 million.

William Murray, a CPA from Sacramento, allegedly told his clients to pay their taxes through a “trust account” system. This “service” would help the clients and make things easier for them. Mr. Murray also allegedly had clients send money that he would allegedly “loan” to other clients.

Unfortunately for his victims, it was all a lie. From the affidavit:

In a non-custodial, unimmunized interview, Murray provided a spreadsheet—which he said was incomplete—which indicated that from January 2005 to November 2009 he deposited over $6.5 million dollars of client tax payments to his “trust account” of which he only paid $376,355 to the IRS and/or state taxing authorities on behalf of his clients.

In that interview, Murray also admitted to another lie he told clients. He said that he told them to invest in a financial services entity he called US Financial Services. It was bogus. Using this story, Murray fraudulently obtained over $2,023,674 from clients who intended to invest with him.

Mr. Murray admitted that the money he obtained was used, “to support an extravagant lifestyle of fine dining, travel, entertainment, attendance at professional sports events, …three residential properties, and … a 10 vehicle fleet limousine service known as Luxury Limousine.” Mr. Murray also allegedly was a heavy gambler.

Mr. Murray is cooperating with authorities. Donald Heller, his attorney, told the Sacramento Bee, “He’s fully cooperated with the government. He accepts responsibility for his conduct and is very remorseful. He’s a very capable individual who enjoyed a wonderful reputation.”

The investigation began after a doctor told the Special Agent that he had given money to Mr. Murray’s business to pay his taxes, but the IRS had garnished the doctor’s account for failing to pay the taxes. The investigation began, and the facade crumbled away. He was arrested last week and is currently free on bail. His preliminary hearing is set for February 12th.

I learned of this case from an email from a blog reader. He’ll certainly have a casualty loss claim, but if Mr. Murray gambled away and spent his money it’s likely most of it is gone for good.

I’m unaware of accountants offering “trust services.” I don’t want to touch your money (except when you pay my invoices). I don’t want the liability if something goes wrong. Unfortunately, not everyone is ethical. The usual rule applies: If it sounds too good to be true, it probably is.

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$534,544 Is Greater Than $10,000

Sunday, December 6th, 2009

I don’t think any of you have trouble with realizing that the title of this post is true. Yet for Terry Davis, formerly of New Haven, Connecticut and now a resident of Las Vegas, that simple statement posed a problem.

Mr. Davis wanted to lower his 2007 income taxes. He had earned $784,537 and that means a lot of tax. Did Mr. Davis seek out a tax professional to find some deductions he may have missed? Or did he use a SEP IRA to shelter $44,000 of income?

Mr. Davis had an additional issue: structuring. It’s illegal to deliberately structure transactions to avoid currency reporting requirements. On one day Mr. Davis withdrew $534,544 in cash from various banks, all in amounts under $10,000. That was not a good idea.

Sure, Mr. Davis avoided filling out a Currency Transaction Report (CTR). CTRs are issued whenever you withdraw $10,000 or more in cash. Additionally, if you receive a payment of $10,000 or more in cash you must complete a CTR. But I digress….

No CTR, no problem, right? Definitely not. Banks have automated programs to detect such financial shenanigans; when a bank becomes suspicious a Suspicious Activity Report (SAR) is generated. The IRS receives far fewer SARs than CTRs; they also investigate far more SARs than CTRs.

The news report doesn’t indicate what led the IRS and Department of Justice to Mr. Davis, but I’d bet it was a SAR (or multiple SARs). Mr. Davis pleaded guilty to structuring and filing a false tax return. The 2007 tax return he filed only showed $133,804 of his $784,537 of tax. He’ll be sentenced in February and is looking at a stay at ClubFed, restitution, and a probable fine.

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Didn’t You Know that Wages Aren’t Taxable?

Monday, November 23rd, 2009

Well, I didn’t know that, but one group on individuals made that argument. Joseph Saladino, Marcel Bendshadler, and Michael Mungovan tried that dubious stance. They offered what the Portland Oregonian called a “tax evasion service” as they prepared over 1000 returns where they noted that compensation for personal labor isn’t taxable. One defendant, Richard Ortt, was acquitted; earlier, Richard Fuselier pleaded guilty.

Assistant US Attorney Allan Garten told the Oregonian, “So let’s assume for a moment that you would get a W2 that said $40,000. (The guilty men) would list as income $40,000, and then they would deduct the value of your labor of $40,000 … so that you paid no taxes…That’s illegal.”

Given that the tax fraud involved $9 million, the guilty individuals are looking at lengthy terms at ClubFed. If a tax preparer tries to tell you wages aren’t taxable, run, don’t walk, out of the office.

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When You’re Not Really Disabled, National TV Should be Avoided

Monday, November 23rd, 2009

Suppose you’re disabled, and collecting disability from your insurance company. If your disability is supposedly keeping you from work, appearing on a nationally televised show where you are demonstrating your skills—skills you supposedly can’t do while disabled—could lead to problems.

Ronald Hunt of Sunland, California was an interior designer. He went on disability sometime around 2003. There was only one minor problem: He continued to work. He also decided to help his business by appearing on HGTV, a home improvement and decorating cable television channel.

Mr. Hunt knew that lots of people try to improve their homes, and appearing on television might help sales. But Mr. Hunt forgot that even employees of insurance companies, including his insurance company, watch HGTV. Yes, an employee familiar with his claim saw the supposedly disabled Mr. Hunt show his skills on national television. The California Department of Insurance investigated and found that Mr. Hunt wasn’t as disabled as he said in his claims; he managed to work from 2003 – 2006. Additionally, the investigation disclosed that Mr. Hunt earned $400,500 of income while on disability…income that somehow forgot to be included on his California tax return.

Mr. Hunt pleaded guilty to insurance fraud and state income tax fraud. He must make restitution of $151,000 to his insurance company and $31,000 to the Franchise Tax Board. Sometimes free advertising should be passed up.

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“The Producers” Doesn’t Work in Real Life

Monday, October 26th, 2009

One of my favorite movies of all time is Mel Brooks’ The Producers with Zero Mostel as Max Bialystock and Gene Wilder as accountant Leo Bloom. They decide to produce the worst possible Broadway play–Springtime for Hitler–and sell several hundred percent of their show. The movie is wonderful and if you haven’t seen it it’s well worth the time.

Three federal lawsuits have been filed against ClassicStar LLC alleging the company oversold the breeding rights in various thoroughbred mares. In one lawsuit, filed in 2004, ClassicStar is alleged to have sold more than $160 million of mare lease rights when it only owned $40 million. As Leo Bloom would say, “You can only sell 100% of anything.”

Those lawsuits note that a federal investigation was ongoing. That reached fruition today when David Plummer, Spencer Plummer, and Terry Green all pleaded guilty to one county of conspiracy to defraud the United States. Acting U.S. Attorney Kent Robinson noted, “This nationwide fraudulent scheme is by far the largest criminal tax case in the history of Oregon.” Here’s some of how it worked.

Investing in race horses is done by wealthy individuals. It’s very expensive to do this, and you usually end up pooling your investment with others, especially if you are going to invest in the best horses. You’re betting on genetics, and sometimes it works and sometimes it doesn’t.

ClassicStar allowed investors to lease the reproductive capacity of specific thoroughbred horses. If the mare had a foal during the time that the investor held the lease, the investor would own the foal. And you get a tax deduction based on the losses incurred. Most investors financed their investments with loans from the purportedly independent National Equine Lending Company. But NELC wasn’t independent–it was owned by ClassicStar–and the money never really changed hands. Let’s add in that many investors apparently never had to make a loan payment and the fraud starts to stand out.

But that’s not all. ClassicStar also substituted less expensive quarter horse mares for thoroughbred horse mares as ClassicStar didn’t have enough of the thoroughbreds. So many individuals obtained tax deductions they weren’t entitled to, leading to refunds that they shouldn’t have received. The total size of the phony tax deductions is $500 million which led to a loss to the US Treasury of $200 million. Needless to say, the three who pleaded guilty are looking at very lengthy stays at ClubFed. Individuals who invested in ClassicStar are likely going to receive “Dear Valued Taxpayer” letters from the IRS in the very near future. And there are still the lawsuits to be resolved.

If you ever get the idea of selling more than 100% of anything, don’t. Only bad things can happen if you do.

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How Not to Prepare Returns

Sunday, October 18th, 2009

With the 2008 Tax Season finally having drawn to a close, here’s a primer on what not to do. Just claim business losses for all of your clients, even those without businesses. Your clients will be happy and you’ll get lots of referral business…until the IRS finds out.

That’s what Donald Bushnell of Kansas City did. And he was successful until the IRS discovered what he did. Mr. Bushnell had pleaded guilty to causing the $1.1 million tax loss through his scheme, and he was sentenced last week to three years at ClubFed and a $250,000 fine.

Bozo tax preparer schemes work great…until you’re caught.

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Stranded at ClubFed

Sunday, October 18th, 2009

When I last wrote about Todd Strand he had pleaded guilty to tax fraud and related charges. Mr. Strand had worked for Renaissance, the Tax People as National Marketing Director. Renaissance promoted a system that allowed you to deduct personal expenses as business expenses. Unfortunately, that’s illegal.

Mr. Strand was sentenced last week. He received 51 months at ClubFed and must make restitution of $10.6 million to the IRS.

Meanwhile, Renaissance founder Michael Cooper is awaiting sentencing (scheduled for November 18th). Mr. Cooper was convicted on 73 counts. It looks like Mr. Cooper will receive many, many years at ClubFed when he’s sentenced.

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Fraud From North and South

Monday, September 21st, 2009

A couple tax fraud stories piqued my interest this weekend. Both have Northern components even though one is out of Tucson.

Let’s start in Tucson, where Cameron McEwen allegedly received lots of money to mine gold in Wilcox, Arizona. Mr. McEwen, a Canadian citizen and part-time resident of Tucson, supposedly got investors to wire $3.9 million to a bank account in Nevada and an additional $1.4 million to the Bahamas. All would be fine if he filed tax returns.

But you already know where this is going, right? Well, he did file a tax return for 2003 (these investments allegedly took place between 2000 and 2004) but the government claims it’s false. That’s one charge. And he allegedly didn’t file in 2002 and 2004; that’s two more charges. The alleged amount of evasion is $309,000 on $1.1 million of income. If these allegations are proven in court, Mr. McEwen will be spending some time at ClubFed.

Next, let’s head to the last frontier, Alaska. The Summit Telephone and Telegraph Company services areas north of Fairbanks. Roger Shoffstall is allegedly the owner of Summit Telephone. Mr. Shoffstall’s business appears to gross around $500,000 annually per this filing with the Regulatory Commission of Alaska.

Mr. Shoffstall, though, appears to want to operate in a manner to help his profits. He’d like his after-tax profit to be the same as his before-tax profit; at least, that’s what the government alleges. He’s been indicted by a grand jury on tax evasion. He allegedly hasn’t paid his 1996 – 2003 taxes.

Whether you’re in gold mining or telecommunications, remember to pay Uncle Sam. It’s one creditor who can throw the book at you.

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Federal Tax Fraud: The Users Guide, Part 3

Monday, September 21st, 2009

I’ve reported on Bernard Bagdis and Wayne Bozeman before. Mr. Bagdis decided to write a book called Federal Tax Fraud: The Users Guide. Unlike guides to computer software the reception for this idea was chilly. He used the ideas in the book to help some of his clients evade $5 million in taxes on $24 million of income. He was caught, tried, and convicted in April. He’ll be sentenced in November.

Mr. Bozeman was sentenced this past week on charges of evading of $157,000 of tax on $830,000 of income. He received 22 months at ClubFed, a fine of $2,000, and must make restitution of $137,635.

I guess this is one book that won’t be turned into a movie.

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If You’re a Celebrity, Pay Your Taxes

Wednesday, September 16th, 2009

Yet another celebrity has gotten into trouble with the IRS. Golfer Jim Thorpe didn’t pay his taxes of about $1.5 million. He’s going to plead guilty to two counts and will pay all of his back taxes, penalties, and interest. The Tax Lawyer has more.

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