Taxable Talk

Karl James is the former president of Golden West Taco, Inc., one of the largest franchises of Taco Bell (which is based here in Irvine). Back in 2000 Golden West Taco went into Chapter 11 Bankruptcy protection. Yet Taco Bells were doing quite well at the time–remember that chihuahua?

There was a reason the company (and its owner, Karl James) went into bankruptcy. Mr. James “fraudulently diverted” (for the layman, read that as “stole”) about $3 million of company funds for his personal use. He transfered assets, including residences in the upscale communities of Rancho Santa Fe and Palm Springs to his nominees, used offshore companies with off the balance sheet accounts, and otherwise obfuscated the books. I should point out that these actions are considered bankruptcy fraud.

Mr. James went a step further. In transferring the assets from his company to himself he created income. And he didn’t report that income. In total, he deprived creditors of Golden West Taco of $1,121,829. He committed tax fraud to the tune of $1,169,957 . To his credit, he pleaded guilty and has agreed to make restitution (he’s already repaid $2,014,363).

However, he won’t be eating at Taco Bell for awhile. He’ll be spending three years at ClubFed followed by three years of supervised release. It’s a pretty big price to pay for tacos.

News Story: NBC San Diego

…it usually is. Suppose someone came up to you and told you that you could put your assets in a U.S. trust, then funnel the money into a foreign (offshore) trust, and then have the money return to the U.S. and you would be able to have the taxes magically disappear. Would you believe that scheme?

Well, there’s a sucker born every minute and three individuals were there to take them. From Philadelphia comes the conviction of John Michael Crim, David Brownlee and Constance Taylor on charges of conspiring to defraud the IRS of $10 million. One other individual, Michael Crim (son of John Michael Crim) was acquitted. Six other unnamed defendants pleaded guilty earlier; one other individual awaits trial.

There was a lot of evidence in the case–70 boxes of evidence. There was also the testimony of three of the individuals who earlier pleaded guilty.

The one defendant who was acquitted should thank his lucky stars. Claire, a juror from Philadelphia, told the Philadelphia Daily News that Michael Crim was acquitted because he was, “too young to have mastered the business…and he was just a kid.” Hopefully the younger Mr. Crim (who is a resident of Orange County, California) will learn from his brush with the law and mend his ways.

As for the three who were found guilty their bail has already been revoked (the judge found them to be flight risks) while they await sentencing scheduled for May. They’re looking at lengthy terms at ClubFed.

The end of the week didn’t bring an end to tax fraud. There’s a lot to report as the fraudsters have been especially active.

First, let’s look at two former public servants. From outside of Atlanta comes the indictment of former state Representative Charles “Chuck” Scheid (R-Woodside) on charges of not filing a state tax return in 2005 and evading taxes in 2003. This isn’t the first time Mr. Scheid has had tax troubles; he had a tax lien of over $18,000 assessed against him in 2006. Reporters attempting to speak to Mr. Scheid discovered that his phone has been disconnected.

Let’s go to Shreveport, Louisiana where former Louisiana state Senator Charles Jones (D-Monroe) has been indicted by a federal grand jury on two counts of filing a false tax return and one count of tax evasion. Mr. Jones is accused of substantially understating his gross income in 2003 and of filing a false amended tax return for 1999. The indictment alleges that Mr. Jones took monies due him for legal fees and converted them to cashier’s checks which he used to buy property. It’s a great scheme if you can get away with it….

Next, we head to Salt Lake City where three individuals pleaded guilty to tax fraud. The three were part of a scheme that successfully (for awhile) kept $20 million out of the Treasury. Graham Taylor, an attorney from Tiburon, California, and two CPAs, Stephen Peterson, of Coalville, Utah, and Reed Barker, of Littleton, Colorado all pleaded guilty to tax fraud. Also under indictment are six other individuals; their trial is set to begin on Monday in Salt Lake City. The scheme involved a tax shelter called “The Hybrid,” and used Cayman Island nominees. The scheme alsoutilized offshore companies, foreign bank accounts, and fraudulent transactions. The six remaining defendants are looking at very lengthy terms at ClubFed if found guilty.

Finally, on a somewhat lighter note, Robert Sass of Tampa, Florida will spend a year and a day at ClubFed for his conviction on tax evasion. Mr. Sass owned a lingerie modeling business called Sophisticats, Inc. Mr. Sass’ business appeared, though, to be more prostitution and less modeling; he charged “room fees” in cash for his models. Somehow those fees didn’t make it on to his tax returns. Oops; illegal income is taxable. The judge noted that Mr. Sass’ relatively light sentence is due to his declining health (Mr. Sass is 70).

There’s been plenty of tax fraud activity besides Wesley Snipes over the past few days. Here are some of the more interesting cases.

From Las Vegas comes the case of a truly Bozo plan. Keith Carthon created some phony W-2s, and then sent them to some friends who filed them. Of course, those returns all had refunds….The IRS figured out the scheme, and Mr. Carthon will spend 27 months at ClubFed. His co-defendant, Ramona Brock, will be tried in March for the same crimes.

From Dearborn, Michigan comes the story of someone who accurately reported part of his income. The trouble was that you’re supposed to report all of your income. Yousef Safiedine owned a gas station, and leased it to a relative. He reported about 40% of the rental income he received, $134,000 per year from 1999 – 2001. However, he didn’t report an additional $160,000 each year. Mr. Safiedine was found guilty of filing a false tax return signed under penalties of perjury. He’ll be sentenced in May, and is likely looking at a short stay at ClubFed.

From the political corruption files, we head to Gary, Indiana. Three politicians arranged for the Gary Historical and Cultural Society to take over a closed supermarket. So far, so good. They then arranged for the Historical and Cultural Society to sell the closed supermarket to the Gary Urban and Enterprise Association for $200,000. That doesn’t sound good, but the transaction was likely legal. And it sounds worse when the politicians kept $150,000 as a “finder’s fee.” And it got much worse for them when they didn’t report the $150,000 on their tax returns and got caught, tried, and convicted. Will Smith, Jr. received 15 months at ClubFed, Roosevelt Powell got 37 months, and Willie Harris got 55 months.

Hopefully, you won’t follow in these individuals’ crooked footsteps. For ClubFed isn’t much fun.

Last week Ronald Lupica was sentenced to 15 months at ClubFed plus restitution for defrauding ARC, a Connecticut trash company, and not reporting the $1.4 million he and a confederate stole on their tax returns. Besides the $1.4 million owed to ARC, another $249,111 (plus interest) must be paid to the IRS. Just a simple case of fraud and tax evasion, right?

Not exactly. The article in the Connecticut Post notes that ARC’s owner, James Galante, is under indictment on federal racketeering charges. Mr. Galante allegedly got his funding from the Genovese crime family (aka the Mob).

And this all comes from the most benign of ideas: recycling paper. Sometimes good ideas lead to bad results.

Dessie Nelson, the ex-GSA official who sent various contracts (illegally) to Michael Holiday (after receiving bribes) pleaded guilty to accepting bribes and tax evasion.

Mr. Holiday and other contractors forwarded over $100,000 in bribes of cash, vacations, and other items to Ms. Nelson. She then recommended Holiday’s company for lucrative government contracts.

Ms. Nelson will be sentenced in June. Mr. Holiday will be sentenced on January 23rd.

AP reports that four individuals who promoted an alleged tax evasion program were arrested. The Department of Justice alleges that the four, Joseph Oquendo Saladino, Richard Allen Fuselier, Marcel Roy Bendshadler, and Michael Sean Mungovan (A.K.A. “Cajun Mike”) sold a program that cost the Treasury $7.5 million in tax losses. Their programs were offered through the “Freedom and Privacy Committee.”

While the US Attorney’s office in Portland, Oregon didn’t identify the specific programs (AP noted, “No details about the program were available, but federal prosecutors said it was not computer software.”), it’s easy to find out. Just go to their still operating website (but probably not for long), and click on “products/services,” and you see this page. Here’s some of the snake oil products they offered:

– For just $4,595 you can buy “Common Law Court Litigation.” As that webpage shows, you get to litigate in a “common law court.” Hey, they’ve gotten stays of actions (but I don’t see information as to how permanent and long-lasting those stays were). I wonder if the four arrested individuals will petition to have their cases heard in the “common law court” rather than the US District Court. (Hint: There is no such thing as a “common law court.”) Remember, they “…will report more as we continue to litigate and as we complete litigation in the Supreme Court of the United States.” I wouldn’t hold your breath.

– For just $1,095 you can buy the “Affidavit/Statement Program.” As they note on this web page, “United States law, at 26 U.S.C. Section 6011(a)i, allows you to file a Return or a Statement….” They’re correct. But you do have to have your forms compliant….At least this page notes, “FPC urges all its members to pay all taxes and to file all returns as required by United States law.” Oh, I almost forgot to mention that besides the $1,095 you have to pay them 25% of any refund you receive over $1,000.

I think you get the idea. There’s also a church program, an LLC program, and “Criminal Litigation Assistance.” I know four individuals who need that right now.

If you’re interested in these programs, I wouldn’t wait around. They’re not likely to be available for much longer. (I assume the US Attorney will ask for the website to be shut down and/or have a large disclaimer posted on it.)

Seriously, it’s amazing that “more than 1000 returns” were prepared using the Freedom and Privacy Committee’s products. But I guess people will do almost anything to avoid taxes except working with reputable tax preparers. As for the five accused (one is still at large), they’re looking at very lengthy stays at ClubFed if convicted of Conspiracy to Defraud the United States.

When we last saw Michael Domecq, former president and co-owner of Domecq Importers, he had just pleaded guilty to tax fraud and knew he would spend 10 years at ClubFed. However, he had to prepare 17 years of revised, accurate tax returns to determine what he owed the Treasury.

Well, the returns have been filed and the numbers have been added up, and the total is $4.5 million in restitution (tax, penalties, and interest). That’s a lot of bottles of liquor.

The moral is the same as what we said back in July: “It would have been much simpler to just pay the tax in the first place…but somehow that thought never enters the mind of the tax evader.”

Back in the 1960s Harry Kemelman began writing books about Rabbi David Small, including several bestsellers such as Friday the Rabbi Slept Late and Saturday the Rabbi Went Hungry. They’re cozy mysteries, and are worth your perusal.

However, that’s not what I’m writing about this evening. Naftali Tzi Weisz, head of an Orthodox Jewish group (he is “The Grand Rabbi of Spinka”), was indicted on charges of conspiracy to defraud the IRS, mail fraud, money laundering, and operating an illegal money remitting business. Weisz and other associates are accused of soliciting charitable contributions to Spinka charitable groups totaling in the millions by promising donors that they could take the tax deduction and that the charity allegedly would refund 95% of the donation. And that scheme is, if proved, definitely not kosher.

Weisz and his alleged co-conspirators are looking at several years at ClubFed if convicted on all counts.

CBS Story, San Jose Mercury Story