Taxable Talk

Earlier this year I posted about a complex tax fraud case out of Salt Lake City. Several individuals were accused of helping various other individuals and businesses evade about $20 million in taxes. Three pleaded guilty. One of those who chose to go to trial (and was found guilty), Sandy, Utah attorney Dennis Evanson found out his fate on Friday. The judge sentenced him to 10 years at ClubFed, and he must forfeit his Hummer, Toyota Tundra, four pieces of property, and pay $2.7 million in fines. Mr. Evanson had been found guilty of mail fraud, wire fraud, tax evasion, and assisting in preparation of false tax returns.

The scheme the conspirators used had the usual trappings: foreign entities (in this case, on the Cayman Islands), foreign bank accounts, and fraudulent transactions. During the trial testimony revealed that the conspirators kept 30% of the tax saved.

If you happen to have utilized the services of Mr. Evanson or one of his co-conspirators, you will likely receive a “Dear Valued Taxpayer” letter from the IRS. It appears that the tax you “saved” is more like a mirage.

Last year we covered the trial of Wisconsin dentist Frederick Kriemelmeyer. Dr. Kriemelmeyer argued at trial that the indictment was faulty because it was in English; that the American flag should not be in the courtroom; and that as long as some additional punctuation was added to a tax return the tax magically vanished. Unfortunately for Dr. Kriemelmeyer, the jury found that not reporting all of his income was what you and I would think it was—tax fraud—and the judge thought he was greedy and sentenced him to 36 months at ClubFed to take remedial English.

Dr. Kriemelmeyer appealed the verdict, and Joe Kristan reported this morning on the appeal. Joe quotes from the opinion:

[In 2002], his mother began frequently cashing checks made payable to cash at a local bank. Bank employees became suspicious of these deposits and notified the IRS, which investigated and in December 2004 executed a search warrant at his dental office. In March 2007 a grand jury returned an indictment charging that Kriemelmeyer’s 2000, 2002, 2003, and 2004 returns reported gross receipts substantially below his income. The IRS determined that he underreported his gross receipts by $392,023 in total for those four years, thus underpaying his taxes by $135,337.

As Joe also notes, the judge during the trial suggested that an attorney might be a good idea instead of someone who doesn’t like English; Dr. Kriemelmeyer declined.

There is actually a somewhat serious lesson to be learned from this case. Dr. Kriemelmeyer got caught because of a Suspicious Activity Report (SAR). The IRS regularly investigates these, and even small banks will send them to the IRS. If you have a choice between making several deposits of $3,000 or one larger deposit of (say) $12,000, it’s usually better to make the larger deposit and wait the 30 or so minutes while a Currency Transaction Report (CTR) is filed. Some of those are investigated, but not nearly as many CTRs are investigated as SARs.

Of course, it’s even better to not commit tax fraud. And if you do end up in a trial, get a competent attorney who understands that English is the language used in the United States—not some weird pseudo-English dialect.

That’s the question that Joe Francis, founder of Girls Gone Wild, must answer. Francis already faces tax charges; he’s accused of hiding income through the use of foreign accounts and over $20 million of improper deductions on his corporate tax returns.

So what’s another lawsuit? The Wynn Las Vegas Casino accuses Mr. Francis of not repaying $2 million of a $2.8 million loan. Mr. Francis is arguing that he has agreements so that he didn’t have to repay the loan.

No trial date has been set.

Last year I wrote about Naftali Tzi Weisz. Mr. Weisz is the Grand Rabbi of Spinka. He’ll also be standing trial in September charged with tax fraud. He’s accused of soliciting charitable donations but promising to refund most of the money—a scheme that’s definitely not kosher.

On Friday two alleged co-conspirators pleaded guilty. Joseph Roth, a Tel Aviv-based banker with United Mizrahi Bank pleaded guilty to conspiracy. And Rabbi Moshe Zigelman will plead guilty on Tuesday. Mr. Roth admitted that he established secret bank accounts overseas and helped repatriate the money to the United States. Rabbi Zigelman’s attorney told the Los Angeles Times “his client was ‘atoning for his own wrongdoing’ and would not testify against the other defendants.

Given the alleged size of the tax fraud—millions of dollars—Grand Rabbi Weisz is looking at a very lengthy term at ClubFed if convicted this Fall.

Suckers are born every day, and so are the people out to fleece them. I’ve reported in the past on Aegis Corporation, a now defunct Chicago-based vendor of offshore trusts. The former owner of Aegis is spending 30 months at ClubFed.

But that’s not to say that Aegis wasn’t successful marketing their trusts. They were, though many of the purchasers wish that weren’t the case. Four men from South Dakota purchased an Aegis trust, and then used the trust to shelter income away from the prying eyes of the IRS…for a while.

Eventually, though, the IRS found the trust and saw that it was as phony as a $3 bill. One of the men is a pastor, Jon Bowers of Junction City, South Dakota; the other three are his brothers, Kurt, James, and Kent. All four have been sentenced to terms at ClubFed ranging from ten to 36 months. Jon and James have repaid the IRS the $1.2 million in tax, penalties, and interest that they owe; Kent has repaid $297,000 but still owes $450,000; and Kurt has repaid $317,000 but owes $1.6 million additional in tax, penalties, and interest. Kent, James, and Jon also were fined between $10,000 and $50,000.

As a reminder, if it sounds too good to be true it probably is. If someone tells you that there’s a legal way to hide money from the IRS in an offshore trust, do yourself a favor and run, don’t walk, anywhere else.

Last year I reported on Circle Industries, the Alpharetta, Georgia based international construction company. The father and son owners conspired with their bookkeeper to deduct personal expenses on their business return, including things like visits to Atlanta’s Gold Club, an adult entertainment facility.

Well, this past week the owners found out their fate. Gerald Marchelletta Sr. received 27 months at ClubFed, his son Gerald Marchelletta Jr. received 36 months, and their bookkeeper, Theresa Kottwitz, got 24 months. Additionally, the firm, which has already made “substantial restitution” according to this news report must fully pay back the IRS. Finally, each of the Marchallettas must pay a $50,000 fine.

As a published author I know that finding the right title for a book can be a difficult task. My writing partner and I struggled with the title for our first book while for our second book we chose the title and then wrote the book.

Last November I detailed the indictment handed down to Bernard Bagdis and ten other individuals. Mr. Bagdis had allegedly boasted to IRS criminal investigators that he was going to write a new book called Federal Tax Fraud: The Users Guide. Mr. Bagdis may have a lot of time to work on his book—he faces 35 felony charges.

On Wednesday another individual was arrested allegedly because of this scheme. Wayne Bozeman, a West Chester, Pennsylvania attorney was charged with conspiracy to defraud the IRS and other related charges. The government alleges that Mr. Bozeman took money from a company he ran, deposited it into the account of another company he controlled, and then used the funds for personal expenses. The government alleges that Mr. Bozeman evaded $157,000 in tax on $830,000 of income.

Meanwhile, Mr. Bagdis and his alleged co-conspirators were also indicted on new charges yesterday. Mr. Bagdis is now alleged to have also prepared a false tax return for Mr. Bozeman.

Seven of the original ten co-conspirators have pleaded guilty and are cooperating with the government according to this story in the Philadelphia Daily News. Peter Scuderi, Mr. Bagdis’ attorney, told the Daily News “My client’s position is he’s done nothing wrong. There’s a defense to everything.” Only time will tell what kind of an ending is written to Mr. Bagdis’ book.

If you’re in prison and need some extra money, what should you do? How about defrauding the IRS—after all, you’re in prison, and all the government can do is keep you there.

Of course, such a scheme needs help from outsiders. It’s tough when you’re in prison to have access to your bank accounts. One such outsider will soon get to spend time at ClubFed from such a scheme.

Daniel Goodheart was a prison counselor at the Okeechobee Correctional Institute in Florida. Mr. Goodheart allegedly used a Florida Department of Corrections database to get names and social security numbers which he, and several others, used to obtain $902,000 in refunds.

But the IRS caught on to the scheme, and Mr. Goodheart was prosecuted on charges of mail fraud and wire fraud. He was found guilty in February, and was sentenced last week to five years at ClubFed. He will appeal the conviction.

Unfortunately, Mr. Goodheart isn’t the only individual who has been engaging in this kind of tax fraud. Of all fraudulent returns caught by the IRS, 15% were prison-related. And that’s just the fraudulent returns that were caught.

I’ve read about all sorts of Bozo tax preparers, but Sunita Buddhu is by far one of the worst I’ve read about. Luckily for you and I, her days of preparing tax returns have ended.

Ms. Buddhu and her father, Deowraj Buddhu, began preparing tax returns in 2003 as Paradise Consulting Services. The name was later changed to Lotus Consulting. No matter what the name, they used methods that are guaranteed to cause problems: They invented business losses for taxpayers who weren’t self-employed. When the IRS looked at returns from 2003 – 2005 they found that most contained such phony losses.

So the IRS began examining lots of returns, and Ms. Buddhu decided on a new strategy. She had her clients’ returns amended, and changed the business losses to employee business expenses. And then there’s the following, courtesy of the Hartford Courant:

[Judge] Droney said Sunita Buddhu told her clients they had nothing to fear from the IRS because the federal government does not have authorization or jurisdiction to conduct examinations of Connecticut residents’ tax returns. Sunita Buddhu also prepared letters for her clients to submit to the IRS making that claim.

Needless to say, the last time I checked Connecticut was part of the United States….And the Buddhus made the same argument in court last week; the judge responded that the argument wasn’t worth a response.

So the judge has barred Sunita Buddhu from preparing tax returns, and from promoting tax fraud schemes. Unfortunately, over the last few years they prepared thousands of returns. If you happened to use the Buddhus to prepare your return you will likely find yourself a recipient of a “Dear Valued Taxpayer” letter. At least it does appear that the clients weren’t complicit in the fraud.