Taxable Talk

Lots of fraud this weekend. Let’s start with the Bozo side of tax fraud, with yet another Bozo preparer.

DaJuan Jackson was one of two preparers at a branch office of American Tax Associates in District Heights, Maryland. His methods helped his clients immensely—they added false information on clients’ returns to increase their refunds. That’s a crime, and Mr. Jackson was found guilty of eight counts of preparing false income tax returns. There is a bright side for Mr. Jackson: He was found not guilty on eight additional counts of preparing false tax returns. The jury couldn’t reach a verdict on eight other counts. Mr. Jackson will be sentenced next year and will likely be visiting ClubFed.

Terry Reed found an interesting method of increasing his income. Mr. Reed wasn’t making much; inmates make about $1 an hour. So Mr. Reed filed 23 false tax returns with the IRS and received $140,000 in refunds. He was caught, and he could get another ten years. It’s likely he’ll have to make restitution to the government. He could even be fined…and at $1 an hour it may take a long time to pay that fine.

I found another Californian with a tax blog. Bill Murray (no, not that Bill Murray) is a CPA in Sacramento. I found his blog which has a great name—April15.com—by accident; he linked to a story I ran earlier this month. But now on to the Bozo story. Mr. Murray is a former IRS Revenue Agent and he knows that every Revenue Agent’s tax return is examined (audited) every year. He’s not a Bozo. But Jim Liu appears to be. Mr. Liu, of nearby Diamond Bar, is accused of claiming a loss on a sale of an apartment complex when he actually made money. He allegedly provided false documents during an audit, and filed a false return. He faces charges of obstruction and tax fraud. As Mr. Murray said, “Since Agent Liu knew his returns were going to be audited, I just can’t see how he could be so stupid to claim a loss he didn’t have and then submit false documentation.”

When we last looked at Walter Anderson he was being sentenced to nine years at ClubFed. We wrote, at that time, “But Mr. Anderson did get lucky in one respect. Because the plea agreement was poorly written, the judge did not order Mr. Anderson to make restitution.” And since the amount of restitution would be $200 million, Mr. Anderson appeared to catch a lucky break.

The IRS appealed that portion of the sentencing, and Mr. Anderson appealed the nine years he received at ClubFed. The appeals court ruled on Friday, and it was a double dose of bad news for Mr. Anderson. First, his nine year sentence was upheld. And second, the Court found that citing the wrong statute in the plea agreement didn’t preclude restitution. “…[T]he parties nonetheless agreed that restitution could be ordered on the federal counts.”

Link to Appellate Court Ruling

It hasn’t been a good year for the San Diego Chargers. Their best defensive player, Shawne Merriman, is out for the year. They’ve struggled on offense. Yet their only one game out of first place.

For one former Charger it’s also been a very bad year. Benjamin Lee Coleman, an offensive lineman, played for the Chargers in 2000; his pro football career ran from 1993 to 2001.

Between 2005 and 2007 Mr. Coleman decided to borrow some money. There’s nothing wrong with that, but there’s a lot wrong when you obtain those loans using false information and other individuals’ social security numbers. It’s called fraud. And when you don’t pay taxes on the money you borrow (and then used for personal expenses) it’s called tax evasion.

Mr. Coleman pleaded guilty in December 2007. Last week he was sentenced to three years at ClubFed and must make restitution of $240,502.

There’s lots of fraud to report this week. Here are some more of the lowlights.

First, the Treasury Inspector General for Tax Administration (TIGTA) issued a report noting that over $1.6 billion in false refunds were estimated to have been issued in the 2006 and 2007 filing seasons. The IRS did intercept about $1.5 billion in fraudulent refunds during 2007. It’s a big problem, and the IRS acknowledges this. This report is also making news, and this will likely lead to Congressional pressure to intercept even more of the phony claims.

I’ve reported twice on Dr. Garland Miller. The former parish coroner for Sabine Parish, Louisiana kept two sets of books, embezzled from a local hospital, and then didn’t file tax returns. Earlier this year he was found guilty of tax evasion. This past week he was sentenced to four years at ClubFed and must make restitution of $55,471 to the hospital and $89,130 to the IRS (plus interest). Dr. Miller had purchased a publication from the discredited Save a Patriot Foundation that said that you didn’t have to pay income tax. He’ll have four years to find some better reading material.

Glenn Lockwood is a dentist in Kenai, Alaska. He was found guilty last week of four counts of tax evasion. He allegedly used those old favorites—sham trusts and phony tax shelters—to avoid income taxes. Add to that deductions for such things as $1,504 spent at Mabel’s House of Prostitution in Nevada, and clothing bought as uniforms at Dress Barn and a big and tall shop. (Yes, dental labcoats are deductible because they can’t be worn in normal wear but general clothing isn’t.) Dr. Lockwood will likely get to spend some time at ClubFed instead of Mabel’s.

And now let’s look at a Bozo tax preparer. Antonio Adams and Marla Wells thought up an interesting scheme. They recruited people to file false tax returns in Atlanta. They provided their helpers with a phony W-2 and then had them file returns using refund anticipation loans so they could quickly grab their share of the loot. Apparently Mr. Adams went to the bank with his clients, brandished a gun, and made sure that he got their share of the loot. Mr. Adams and Ms. Wells didn’t think this scheme through; sooner or later the IRS was going to attempt to match the W-2s and when they couldn’t an investigation would be opened. About $222,000 of fraudulent refunds made it through but the IRS did stop $60,000 once they realized what was occurring. Mr. Adams fled Georgia when charges were filed but was later apprehended by the US Marshal’s Service. He pleaded guilty, and will have 51 months at ClubFed to think things through. He must also make restitution of over $117,000.

Next, let’s head to North Tonawanda, New York. Gregory Fisher decided to just lie on his tax returns. From 2004 through 2006 he reported that he had lots of money withheld but didn’t owe that much in tax. The only trouble with that was he had nothing withheld. Sooner or later the IRS was bound to have a problem matching $1.3 million with $0. Mr. Fisher received $503,000 in false refunds. He also cheated a local car dealer out of $1.2 million, and the local police let the FBI & IRS know about the situation. Mr. Fisher pleaded guilty and will make restitution of about $2.1 million. He’ll be spending some time at ClubFed, too.

That’s a lot of fraud for one week. Do yourself a favor and remember if it sounds too good to be true it probably is.

There was so much tax fraud reported this week that I’m writing two posts on it. Here I’m going to take a look at two frauds from restaurants and one from farming.

Let’s start in Freeport, Long Island, New York. Lynn Robinson was the owner of several McDonald’s in Nassau County. She thought that she deserved a break today so she decided not to remit sales taxes to New York. Back in June she was found guilty of various fraud and tax charges related to the scheme. She was sentenced to six months in prison followed by five years probation. She must also make restitution of $278,678 in taxes, penalties, and interest.

>From Everett, Washington comes the story of William Robertson. Mr. Robertson owned the Hot Rod Cafe. In the mid-1990s he withheld over $491,000 in payroll taxes but didn’t remit them to the IRS. Failing to remit trust fund taxes is a sure way to get in trouble. He pleaded guilty on Friday to tax evasion. Judge Richard Jones summed it up well stating, “You started a restaurant business and got into a tight squeeze and rather than dealing with it, tried to cover it up.” Because of Mr. Robertson’s poor health he was sentenced to eight months of home confinement. He must also make restitution of about $491,000.

Finally, leads head to Hillsborough County, Florida. Goodson Farms grows peppers. Its owners purchase federal crop insurance. Supposedly, they lost a lot of their crop and filed claims on their insurance. In due course, they received about $1 million. Sounds fair; after all, that’s what crop insurance is for. It would have been if their crop had been lost; however, they allegedly had harvested their crop and sold it. That’s insurance fraud if proved. Meanwhile, the owner of Goodson Farms, Janet Goodson, has pleaded guilty to filing a false tax return for 2005. The Tampa Tribune reports that Ms. Goodson has agreed to plead guilty later this month. She also faces a suit; the government is asking for a $500,000 fine, $1 million in restitution, and $1 million in criminal forfeiture. The owners of a second farm, D&K Farms, allegedly did the same scheme with their strawberry crop. They, too, reportedly will plead guilty in a couple of weeks. The owner of D&K, Darryl Williams and William Williams, also face a suit where the federal government is asking for a $500,000 fine, $402,471 in restitution, and $402,471 in criminal forfeiture.

In the end it’s a whole lot easier to just pay your taxes but some always like to have their cake and eat it too.

Alan Fabian seemed to have everything. He was an entrepreneur, a political fundraiser, had numerous “successful businesses”—in short, he appeared to have everything.

But it was a fraud. Actually, multiple frauds.

Mr. Fabian may have, at one time, actually been a successful enterepreneur. However, in 2001 he began a Ponzi scheme, defrauding investors in his businesses while paying himself a salary of $800,000 a year. He filed tax returns with fictional deductions. One of his shell companies went into bankruptcy in 2004; this may have led to the government investigation.

In 2007, while Mr. Fabian knew that he was soon to be indicted, he accepted another $500,000 loan (which was supposed to go to a non-profit he started). Instead, some of the proceeds were used on a family vacation to the Middle East…a vacation that began with a private plane trip to Israel.

Earlier this year Mr. Fabian pleaded guilty to two counts (one each of mail and tax fraud) out of the 26 he was charged with. On Friday he was sentenced to nine years at ClubFed. Judge Catherine Blake noted when sentencing Mr. Fabian that he had a, “…consistent, repeated, sophisticated pattern of fraud…[with] at least six [years] of grossly illegal and deceptive conduct….”

He will begin serving his sentence just before the New Year.

I counted over thirty interesting tax evasion stories from the last few days. There’s no way I’m going to put them all in a post so here are the highlights.

First, let’s head to Gallatin County, Montana. Ruth Amande knew that having children would give her a tax deduction. So she decided to have twins—Victor and Victoria, “born” on December 28, 1995. She applied for social security numbers for her twins in 1997. There was only one problem…well, two problems: neither child really existed. Unlike the disk jockey in Wyoming who successfully deducted his dog Ms. Amande will be making restitution.

The upcoming trial of attorney James Perdigao is big news in New Orleans. Mr. Perdiago has been accused of stealing $30 million from his old law firm, allegedly sending $20 million of that to Switzerland, and has been facing 59 counts including fraud, tax evasion, and money laundering. Make that 60 counts: Mr. Perdiago has had a charge of computer hacking added. He is alleged to have used his girlfriend’s computer to hack into his old law firm’s computer network.

Meanwhile, in nearby Vicksburg, Mississippi Marshall Sanders will face tax evasion charges in November. Mr. Sanders is accused of not filing tax returns since 1994 while earning $3.4 million in 2001, 2002, and 2003. He faces three tax evasion charges (one for each of those years) for allegedly using a trust account to hide his personal income.

>From the Bozo tax preparation wing we find Raymond Ekpedeme of Laurel, Maryland. Mr. Ekpedeme operated Erikson Tax Service though it could be called Western Tax Service East. He followed the same plan as Western—phony deductions, false credits, and inflated numbers. He had lots of satisfied clients. Unfortunately for Mr. Ekpedeme the undercover IRS investigator wasn’t pleased when he got a $1300 refund he didn’t deserve. Mr. Ekpedeme pleaded guilty to tax evasion charges and will be sentenced next February; his clients can expect “Dear Valued Taxpayer” letters soon.

Louis Xifaras had an interesting method of attracting business to his former company, Innovative Network Solutions. He used kickbacks to workers at Southern New England Telephone/SBC (now AT&T). He deducted those payments on his corporate tax return as “salary.” Unfortunately, kickbacks aren’t deductible under federal tax law. And more unfortunately for Mr. Xifaras was that the federal government began investigating the fraud. He pleaded guilty and will have to make restitution, serve a year and a day at ClubFed, and pay a $50,000 fine. The tax owed is only $222,000, but there’s now an additional $167,000 in penalties and $164,000 in interest.

Finally, the Hawker 4000 looks like a great business jet though it carries a pricetag of $21 million. But I do know where you may be able to get one for less than retail. The very first Hawker 4000 was delivered to Gary Hall in June. He runs Sunflower Supply Company in Galena, Kansas, a tobacco wholesaler. Mr. Hall and seven associates are accused of avoiding $25 million in cigarette taxes to Oklahoma and several Indian tribes. If Mr. Hall is acquitted (he and his associates face 43 charges) he’ll get his plane back.

That’s a lot of fraud for just a few days. Can we lighten up for next week?