Taxable Talk

It must be the Christmas season; I could only find a couple of stories on tax fraud from the long weekend.

Keith Kuchenbecker of Neenah, Wisconsin was president of his own construction company from 2000 to 2007. He made a mistake that is guaranteed to get you in trouble with the IRS. Mr. Kuchenbecker didn’t forward his trust fund taxes to the IRS. He plead guilty to one count of income tax fraud and has agreed to make restitution of $288,000. He’ll be sentenced in March.

I would love to see all 52 weeks of the year with as little tax crime as this past week. I’d also like to see the Cubs in the World Series. I think the Cubs have the better chance in 2009.

Lots of new tax evasion reported this week. I’m going to focus on a psychologist, contractors, a restaurant owner, a skydiver, and instant cameras.

A psychologist finds herself in trouble rather than her patients. Dr. Linda Luther-Starbird is a psychologist in Grand Junction, Colorado. The Colorado Department of Revenue alleges that she owes nearly $27,000 in tax, penalties, and interest. Ms. Luther-Starbird wrote to Colorado and told the state, according to the affidavit obtained by the Colorado DOR and printed in the Grand Junction Free Press, “American citizens have absolutely no obligation to file individual income tax returns…I am not willfully ‘failing to file’ as the IRS likes to call it, but that I have a reasonable and ethical responsibility NOT to file because there is no constitutional and legitimate reason to do so.” Hint: If you have income and don’t file a tax return it’s called tax evasion, and there’s no judge in the United States who will accept tax protester arguments.

It was a bad week for contractors. Jeffrey Sarris, a Bethesda, Maryland contractor will spend 366 days at ClubFed. Mr. Sarris owned Bethesda Home Improvement Corporation. Instead of showing his revenues on his income statement he cashed the checks at a restaurant, put the proceeds in a safe deposit box, and paid his contractors and employees using cash. What could go wrong? Mr. Sarris pleaded guilty for evading tax on $1.4 million of income. There’s no word in the article about whether Mr. Sarris will have to make restitution of $981,549.

Meanwhile, just up the road in Philadelphia comes the story of Donald Dougherty, Jr. Mr. Dougherty may have done a lot of good deeds in his neighborhood but a judge thought that 99 guilty pleas meant a trip to ClubFed was warranted. Mr. Dougherty’s crimes started by doing free electrical work for the head of Local 98 of the International Brotherhood of Electrical Workers, John Dougherty (no relation). He compounded this by deliberately paying his employees in cash to avoid paying taxes. Besides the time at ClubFed Mr. Dougherty must make restitution to the IRS of $1.6 million and pay the union $673,070 for its health and welfare fund.

Next, we head to North Chicago, Illinois. John Psihos allegedly used one of the oldest methods around to hide income. The IRS alleges he kept two sets of books for Flanagan’s Restaurant. And we’re not talking peanuts as far as the amount of the alleged evasion; Mr. Psihos allegedly he didn’t pay $1.18 million of tax on $3.19 million of unreported income.

I’ve never been skydiving (and I probably never will), but I have a friend who loves it. Richard Davis owned Skydive Houston. He told the IRS that the ownership was through various partnerships. Madison Oden was an automobile salesman in Houston who used Mr. Davis to prepare his tax returns. That wasn’t a good decision.

Mr. Oden purchased tax write-offs from Mr. Davis as “partnership investments.” Mr. Oden somehow was able to write off fraudulent skydiving partnership losses along with a fictitious auto finance business and phony losses in a family partnership. That trifecta led to both being indicted and tried on tax evasion charges. They were found guilty in June and were sentenced this past week. Mr. Oden will be spending 15 months at ClubFed and Mr. Davis got 36 months. What’s interesting is that Mr. Oden was audited back in the 1990s for doing similar things on his tax return and had to pay $73,000 then. I guess Bozos don’t learn from experience.

Finally, I remember the first camera I ever used. It was a Polaroid instant camera. I still have some pictures taken during my childhood with that camera. Polaroid eventually became a unit of Petters Group Worldwide LLC in 2005.

That wasn’t a good thing for Polaroid as the company appears to have become entrenched in a fraud case. The founder of Petters Group, Tom Petters, was arrested in October. He was indicted on 20 counts earlier this month; allegedly Mr. Petters is the mastermind of a $3.5 billion Ponzi scheme.

The government did get some help in their case against Mr. Petters this week. James Wehmhoff pleaded guilty on Friday to one count of assisting tax fraud and one count of conspiracy. US Attorney Frank Magill says Mr. Wehmhoff is responsible for $20 million in tax losses to the IRS. Although not mentioned in the article one has to assume that Mr. Wehmhoff may be testifying in any trial against Mr. Petters.

That’s a lot of fraud for just one week. Let’s hope that the fraudsters get in the Holiday spirit and take the next couple of weeks off…or at least make it a light week.

Lots of fraud this week, so we’ll start with a couple favorites of mine. First, from Inver Grove Heights, Minnesota comes the story of Lawrence Kladek. Mr. Kladek owns King of Diamonds Gentlemen’s Club. Mr. Kladek had an ATM installed at his club. That’s a good idea, given the cash-driven nature of the business. Then he stocked the ATM with business receipts and didn’t put those receipts, which totaled $170,139, on the books. That’s a very bad idea, and Mr. Kladek has pleaded guilty to filing a false income tax return.

There are a few less sushi restaurants open in British Columbia. The Royal Canadian Mounted Police raided four restaurants which had purchased an interesting computer program.

Bradley Alvarez of the Canada Revenue Agency told The Province that, “Businesses are suspected of having hidden thousands of transactions and millions of dollars in sales across Canada.” The software, from InfoSpec Systems in Richmond, BC, will save an owner taxes. The RCMP noted in its application for a search warrant that an InfoSpec spokesman allegedly said that the software can be used for “deleting cash sales.” Additionally, the software vendor claimed that you can take the cash and “pay kitchen staff.” There’s no reason to stop at one felony when you can commit two, eh?

Anyway, five individuals are charged with tax fraud and could be sent away for several years. And there’s that matter of those deleted transactions and the tax owed thereon.