Taxable Talk

>From just the last few days there have been two stories of Bozo tax preparers and one of a Bozo tax examiner. Here they go:

First, from Navarre, Florida comes the story of Deborah Adams. Ms. Adams was a helpful soul when she ran Archer Tax and Accounting. She added deductions to her clients’ returns. That increased the clients’ refunds, but it’s illegal. Added to her problems was her side business of identity theft, which is just as illegal. She pleaded guilty to 44 counts and will be sentenced at the end of July.

Stephan Doimas prepared taxes in Chandler, Arizona (a suburb of Phoenix). He allegedly had another way of helping relieve clients: he is accused of stealing money from his clients. Mr. Doimas was arrested by Chandler police on charges of theft, fraud, forgery, and threats. So far the loss to clients is tabbed at $15,000, but that number is preliminary as the investigation continues.

Finally, from Hiroshima, Japan comes the story of an unnamed individual who used to work at the Hiroshima Regional Tax Bureau. This individual decided he’d like a promotion, and so he invented fraud at five companies and sent them notices demanding payment of ¥330,000. Unfortunately for him the National Tax Agency’s internal auditor apparently discovered the fraud. “I thought I would receive a good evaluation and get a promotion if I revealed cases of tax evasion,” is what the Bozo examiner told the Tax Agency. The good news out of this is that the Bozo examiner paid the 330,000 yen out of his own pocket.

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

Buddy’s Carpet & Flooring is a Cincinnati-based chain of carpet stores. Its owners in the late 1990s devised a method of saving on their taxes—they purchased eight “loss of income” life insurance policies for $3.6 million. Those policies led to tax savings of around $700,000 in 1998 and 1999.

There’s only one problem: the policies were shams according to the IRS. The then owners were refunded 81% of the premiums. The IRS prosecuted the two owners (Leif Rozen and Burton “Buddy” Kallick) and the company’s in-house counsel (Alan Koehler). Mr. Kallick died in January 2007 before the case came to trial.

Last week a jury agreed with the government’s view that the policies were a sham. Mr. Rozen was found guilty of conspiracy and tax evasion while Mr. Koehler was found guilty of filing a false tax return. Earlier, Milton Liss and Bruce Cohen, who were insurance salesmen, were found guilty of conspiracy to defraud the United States. All are now awaiting sentencing and will likely be spending some time at ClubFed.

News Stories: Cincinnati Enquirer, Business Courier of Cincinnati

I spent the last couple of days relaxing (along with printing tax returns). Unsurprisingly there’s some fraud to report on in just those last few days.

First, I have to look at a Bozo tax preparer. From nearby Rialto, California comes the story of Matthew Carl Berry. Mr. Berry was a partner in a tax preparation business. He definitely wanted his clients to get lots of deductions. In fact, if you used his services you didn’t need to own a house to get the mortgage interest deduction. There’s only one problem with that, and it’s called tax fraud. The IRS audited about 4,500 returns and found an average tax loss of $3,150 per return. That’s $14,175,000.

But that wasn’t all. Mr. Berry and other members of his firm created false documents for audits and he didn’t pay taxes on the income they received out of this scheme. Other members of his family have already been barred from preparing tax returns, too. He and his family are also facing a civil lawsuit from the IRS. Mr. Berry will almost certainly be spending some time at ClubFed.

Suppose you are audited by the IRS, and you lose, and are ordered to pay an additional $238,800 in taxes. Would you (a) pay the bill, (b) file an appeal and, if necessary, take the case to Tax Court, or (c) ignore the notices sent by the IRS to pay the bill and stop filing tax returns? Since I’m writing this it’s clear which course Edward Barrier of Wildwood, Missouri took.

Back in 1995 Mr. Barrier was audited for 1987 through 1994. He lost, and the bills started coming. He got his revenge by ignoring those and not filing any more tax returns. He also decided to begin “structuring” his financial transactions. He apparently structured around $700,000 of transactions.

Unfortunately for Mr. Barrier eventually the IRS caught up to him. He had done business in cash, lived with his mother, and not owned assets in his own name. He did have a good job from 2002 – 2005—He was a project manager in high-end real estate in the St. Louis area. He had income of $2.4 million, but didn’t pay the nearly $800,000 in taxes he owed.

Last week he pleaded guilty to one count of felony tax evasion in St. Louis. Mr. Barrier will be sentenced July 3rd and is looking at a maximum of five years at ClubFed, a fine of $250,000 and restitution. His bill is at $1.03 million…and that’s before interest.

As I usually state, it’s a lot easier in the long-run to pay the taxes you owe than to commit Bozo acts.

Another light week on the tax fraud front. But while it lacks depth, some of the cases are definitely amusing.

Three women in Maryland allegedly had a Bozo idea on how to make some money. Let’s get some inmates at the local prisons to give us their social security numbers, and then we’ll file phony returns on their behalf. What can go wrong?

Well, I can think of several felonies that the three committed. Unfortunately for our Bozo preparers the Postal Inspection Service, the IRS, and the FBI were not as amused by the scheme as I was. And since the Bozo preparers allegedly filed 101 claims totaling $365,599.41, the three are looking at lengthy terms at ClubFed if convicted on charges of mail fraud, conspiracy to defraud the US, and identity theft charges. You can read the press release on the indictment here.

Unfortunately, the three ladies in Maryland aren’t the only Bozos in the tax profession. Trumbauersville, Pennsylvania is a tiny town—less than 1,000 people reside in the borough. The town got some notoriety this week, though.

Eugene DiNatale, a councilman, runs an accounting business in nearby Rockledge. Mr. DinNatale and an associate, Chakawarn Sirirathasuk, found the old fashioned way to allegedly deprive the government of tax revenues. They allegedly collected employment taxes on behalf of their clients and kept the money rather than remitting it to the IRS. This is a scheme that almost never works, and one where the IRS and the Department of Justice go after every time it occurs. And the amount of the alleged money they kept wasn’t small: $4.9 million. Just for good measure the pair is also accused of overstating clients’ business expense deductions. Mr. DiNatale is looking at a very long term at ClubFed if convicted.

The final story comes from Saginaw, Michigan. Two brothers and a bank manager are accused of structuring transactions and tax evasion. The brothers filed tax returns from 2001 through 2005 showing incomes under $55,000 a year according to this news story but somehow managed to make “extravagant” purchases. And when their homes were raided in January 2006 the IRS found over $1.3 million. The bank manager is accused of aiding and abetting structuring. The brothers face multiple structuring and tax evasion charges. All are looking at relocating to ClubFed if found guilty.

My suggestion to everyone is if you think you’ve found a foolproof scheme to cheat Uncle Sam think again. Most schemes have been tried before and failed.

I really am an Enrolled Agent. In fact, hanging on the wall behind me is my Certificate of Enrollment (and my license is in my wallet).

Do you believe that anyone would impersonate a Certified Public Accountant? And would then choose to specialize in serving law enforcement?

Given that I’m writing about it, you should know the answer. From Arvada, Colorado (suburban Denver) comes the story of Denise Smith. Ms. Smith was indicted by a Jefferson County grand jury of 50 counts for allegedly impersonating an accountant. She’s also alleged to have incorrectly increased the deductions for her clients, cheating the IRS and Colorado out of tax revenue.

Her scheme unraveled when a client received an audit notice which apparently led to the investigation. Besides the obvious moral of the story (choose a reputable tax preparer) the Bozo moral is that if you’re going to impersonate an accountant, choose clients who don’t have the power to arrest you.

The Bozo side of my profession has had a busy week. Yeah, it’s tax season, but we have some pretty bad tax preparers highlighted here.

First, we go to Queens, New York. Tommasina (a/k/a Tammy) Paolino operated Titan Enterprises in the Ridgewood area of Queens. She’s been accused of first-degree grand larceny, first-degree identity theft, first-degree offering a false instrument for filing, first-degree falsifying business records, second-degree possession of a forged instrument and related tax charges. And that allegedly cost the State of New York $4 million in bogus refunds.

Next, we head to Kingsport, Tennessee. Donna Rees (aka Donna K. Blessing and Donna Blessing Bortz) operates B&B Tax Service. She apparently has had a good year, and the IRS thinks they know the reason. According to her indictment, Ms. Rees, “directed and encouraged persons for whom she had prepared tax returns to create false, fictitious and fraudulent documents and records to be used in civil audits.” When the IRS showed up at her office to ask her questions about 22 allegedly phony returns, she’s alleged to have cooked up phony documents on the spot. She’s alleged to have used fake business deductions and phony farming losses to get her clients bigger refunds. And that’s not Ms. Rees’ only troubles with the law; she’s already facing a federal bank fraud indictment.

So if your tax preparer volunteers to create phony deductions, just remember it’s an offer you can refuse. And if you know your tax preparer as “Tom” but he signs his name as “Dick” or “Harry,” you may want to inquire a bit….

Section 1031 Exchanges are a tool to defer taxes. Properly done, using a reputable qualified intermediary, they’re a very useful tool in tax planning. Of course, some intermediaries aren’t as reputable as others.

Edward Okun owned 1031 Tax Group LLP, a qualified intermediary. His firm entered bankruptcy some time ago, and in February a bankruptcy court judge denied Mr. Okun’s motion to cancel an agreement he made to sell some of his possessions. Soon he may not have any possessions after being indicted this week.

Mr. Okun is accused of telling clients that their money would be use for §1031 exchanges and then misappropriating $132 million, “to support his lavish lifestyle, pay operating expenses for his various companies, invest in commercial real estate, and purchase additional qualified intermediary companies to obtain access to additional client funds.”

He also faces charges of violating the currency transaction reporting requirements by telling employees to put $15,000 on his yacht so he could allegedly deposit it in the Bahamas and of committing perjury. The indictment is asking for all of his remaining assets to be forfeited. He’s also looking at 30 years at ClubFed and substantial fines if he’s found guilty on all counts.

His attorney states, “Ed is confident he will be proven innocent in a court of law.” Mr. Okun has waived extradition and will soon be in Richmond, Virginia where he will await trial.

If you’re interested in pursuing a 1031 exchange, make sure you use a reputable qualified intermediary. Get references, and check them.

Bringing up children is tough. A Bozo tax preparer allegedly had a way to make it slightly easier. She supposedly created phony children to use as tax deductions. Hey, at least they didn’t yell about getting their rooms clean!

Paulina Mohn worked at an H&R Block outlet inside a Wal-Mart in Brooklyn Park, Minnesota from January 2006 through March 2007. She likely had quite a few satisfied clients. Her methods, though, were allegedly from the Bozo school of tax preparers. She was indicted on 22 counts of aggravated identity theft and making false claims on tax forms.

What did she do? She’s alleged to have used fake W-2 forms that had false information, along with allegedly inventing children (and giving them social security numbers out of thin air). Now, the IRS’ computer system isn’t perfect, but they do a good job of matching W-2 income and checking social security numbers.

And we’re not talking a small amount of fraud. Ms. Mohn is alleged to have caused $749,000 of false federal and state tax refund claims. If she’s found guilty on all charges, she’s looking at a lengthy stay at ClubFed.

Lots and lots of fraudsters have been at work recently. Here are some of the lowlights:

Charles Jones, the accused former Louisiana State Senator, pleaded not guilty to three federal tax charges. I wrote about his case earlier this year when the news first broke. His trial is not expected to begin until late summer at the earliest.

Butler County (Ohio) Auditor Kay Rogers pleaded guilty to one count of filing a false tax return and one count of conspiracy to commit mail and bank fraud. Rogers’ charges stem from two unrelated issues. First, she prepared tax returns from 2001 to 2006 and didn’t report the $56,000 of income on her own tax return. And she’s been ensnared in a scandal involving fiber-optic cable contracts in Butler County. She’s looking at about five years at ClubFed.

If you want a sure-fire way to get federal authorities upset with you, here it is. Just collect federal payroll taxes and keep them rather than remitting them to the IRS. You can get bonus points if you use phony payroll companies with foreign addresses. That’s what Gary Trebert, an attorney who ran nursing homes in the Midwest, did. He pleaded guilty to conspiracy to defraud the IRS and the Department of Health and Human Services. The total skimmed was $34 million, so we’re not talking peanuts here. AP is reporting that the government will recommend Mr. Trebert serve eight years at ClubFed.

Earlier this year I reported on the case of Sabi Atteyih. Mr. Atteyih had reported zero income to the IRS but had told the truth while obtaining a loan. He’ll do a year and a day at ClubFed and have to make restitution of $47,000 to the IRS.

We’ve had lots of fraud cases of individuals diverting business funds to pay personal expenses. From Baltimore comes yet another. Stilianos Mavroulis and his son, Kyriakos Mavroulis, are accused of diverting $1.9 million from their mortgage business to pay personal expenses. The government alleges that they coded these personal expenses as “other expenses” on their business tax returns. That’s over $500,000 in taxes, and that’s felony charges of tax fraud. Their accountant, Joseph Poole, also faces charges. They’re looking at several years at ClubFed if convicted.

Lloyd Batsfield belonged to the Bozo wing of tax preparers. Just about every one of his clients got a refund. And almost every one of his clients took education credits. A coincidence? Not hardly. It was tax fraud big time, with the loss to the government of $6 million. To compound matters, Mr. Batsfield also stiffed the IRS for $171,000 on his own taxes. He pleaded guilty last year. He was sentenced last week to six years at ClubFed.

Finally, yet another story about Renaissance, the Tax People. Michael Craig Cooper, the founder, was convicted on 72 counts including mail fraud, wire fraud, money laundering, money laundering conspiracy, and engaging in illegal monetary transactions. While Mr. Cooper can say he was acquitted on 74 counts he has plenty to worry him. He’s looking at a very long sentence at ClubFed. To compound matters, he also faces a forfeiture hearing on $75 million of assets that a co-conspirator, Todd Strand, admitted were proceeds from the scam. Remember our advice: if it sounds too good to be true, it probably is.