Taxable Talk

Tax fraud comes in many shapes and forms. This weekend has given me a plethora of examples.

We’ll start in Dayton, Ohio. Martin Dorf found an interesting way to short the IRS: Report ten cents on the dollar. From 2001 through 2004 Mr. Dorf earned about $574,000 but he reported only $57,000. The IRS caught on to the scheme, and Mr. Dorf has pleaded guilty to one count of attempted tax evasion. Mr. Dorf has already made restitution, so he may avoid any time at ClubFed (he could get up to five years).

Billy Wayne Minor was a tax preparer in Brownsville, Tennessee. In 2006, he was charged with 15 counts of preparing false tax returns; he ended up pleading guilty to one count of aiding and assisting in the preparation of a false tax return. He got 18 months at ClubFed, a fine of $7,500, and he was permanently enjoined from preparing tax returns for others.

That wasn’t the only bozo tax preparer brought to justice recently. Thomas Mercer of Romulus, Michigan pleaded guilty to 30 counts in federal court. Mr. Mercer prepared 23 tax returns full of bogus deductions for things like business losses, charitable donations, and tuition and fees. His clients agreed to share their refunds—refunds that ranged between $900 and $19,000 for a total of $330,000—with him. Mr. Mercer also coached his clients on what to say during meetings with the IRS and provided them with phony documents backing up the phony deductions. Mr. Mercer is looking at a significant stay at ClubFed.

Heading now to Florida, we find the end of the political career of Warren Newell. Mr. Newell pleaded guilty to federal tax evasion and corruption charges. He attempted to pocket $500,000 through three schemes, and then use money laundering, false income tax returns, and false financial disclosure forms to cover them up. Mr. Newell used to be a County Commissioner in Palm Beach County. He’ll likely soon be visiting ClubFed.

Finally, we head down under to Sydney, Australia. Andrew McCall pleaded guilty to 32 counts of tax evasion, in a fraud scheme that cost Australia 530,257 Australian Dollars ($447,166 USD). Mr. McCall was sentenced to seven years imprisonment, and he must repay over 500,000 Australian Dollars. Mr.McCall used phony identities, false passports, and other false documents to deceive Australian authorities before he was caught.

As usual, for all of these individuals it would have been a lot easier to just pay the taxes and skip the fraud in the first place. But if they did that, I’d have a lot less to write about each week.

I was joking with a client today about how the computer age has really cut back on the amount of paper we deal with. Yeah, right. I buy paper by the case at Costco. There’s a dermatologist in West Virginia who wishes that good records weren’t kept.

David Tolliver has a dermatology practice in Bluefield, West Virginia. On his tax return, he showed income of about $35,000. And that’s how he paid his taxes.

But that’s what he told the government. He told the truth when he applied for some loans; he noted that his income was between $150,000 and $500,000. Court documents show his income was about $385,000 a year. So what happened to the other $350,000?

The money apparently made its way to some trusts. The trusts, though, were controlled by Dr. Tolliver, and he used the money to buy expensive cars and remodel his home. Somewhere along the way, the IRS and the Department of Justice picked up the scent of a scam.

With a loss to the Treasury in taxes of around $130,000, and a case that was paper-made, Dr. Tolliver pleaded guilty to filing a false tax return. He’ll likely have to make restitution, and he’s looking at 18 to 24 months at ClubFed. The trust looked so good on the surface as a tax shelter…but it’s what’s underneath that counts.

News Story: Bluefield Daily Telegraph

I hope you’re enjoying the Labor Day weekend. These individuals didn’t have a pleasant holiday.

>From Shreveport, Louisiana comes the story of bozo tax preparer Betty Jean Thomas. Thomas had a not-so-good way of helping her clients: she invented phony business expenses. Even worse, those clients didn’t have a business. The total cost to the government was $67,000. Ms. Thomas received a year and a day at ClubFed and must pay a $3,000 fine.

We previously told you the story of Athanasios Reglas. Mr. Reglas invented some phony companies to create phony deductions. He pleaded guilty last week, and was sentenced to three years at ClubFed followed by three years of supervised release. He previously forfeited $358,000 in cash that was found when he was arrested.

I also previously wrote about Reverend John Henry Walker. The Charlotte pastor was sentenced last week to five years and three months for tax evasion and stealing from his congregation. The pastor had pleaded guilty to charges of tax evasion, bank fraud, and lying to federal agents. He also must make restitution of $277,000. He used his purloined funds for erectile dysfunction medication, two cars (a Lexus and a Mercedes), and a new home. He evaded taxes on $750,000.

Finally, Joe Roth reported on the case of Lakeland, Florida dentist Nancy Montgomery-Ware. She decided to research the tax laws, and “determined” that, “The income tax is not allowable under the Constitution.” That’s what she said during closing arguments during her trial for tax evasion. According to the Lakeland Ledger, it only took one afternoon to find her guilty. She’s looking at several years at ClubFed. Interestingly enough, her husband told her that she was crazy. It would have been much less costly for her to listen to her husband. But she didn’t, and she’ll have to pay the consequences.

Gene Haas, of Camarillo, California, owns Haas Automation, Inc., one of the leading CNC (computer numerical control) machine tool companies. They even have a Nextel Cup racing team. Needless to say, Haas Automation is a successful company.

Back in 2000, Haas Automation settled a patent infringement case. Hurco Companies, Inc., of Indianapolis, accused Haas Automation of violating a patent on interactive CNC programming. Hurco convinced a jury that Haas Automation was in violation, and after the judge warned Gene Haas that he could be looking at a $150 million judgment, the companies settled for something in the tens of millions of dollars, according to this article. A senior executive at Haas told Metalworking Insiders Report that there would be no change in operations because of the judgment.

He was wrong.

The New York Times detailed the scheme in today’s paper. After Mr. Haas and his company lost the patent case, he was angry with the government and with the judge who presided over the case. Court papers indicate that he decided that some tax fraud was a good way to get back at the government.

So, enlisting the help of his then CFO, John Phillips, the business created a phony company in Nevada called “Supermill,” and then paid the phony company from phony invoices. Then Mr. Haas and Mr. Phillips got in a business dispute, Mr. Haas sued Mr. Phillips for $27 million (apparently related to the phony transactions), and Mr. Phillips went to the FBI and told them of the scheme. (Mr. Phillips was not indicted.) It’s not a good idea when you commit tax fraud to get a co-conspirator angry enough to go to the FBI.

The DOJ, in a press release announcing Haas’ indictment, claimed that the tax fraud was upwards of $20 million. Now, with a $5 million fine added in, penalties, and interest, the total judgment is somewhere around $70 million. And Mr. Haas will be receiving two years at ClubFed.

If you find yourself losing a court case, I strongly recommend that you do not follow Mr. Haas’ path, and decide that committing tax fraud is a way of getting back at the judge. Kenneth Barish, an attorney for Mr. Haas, in describing the plea deal, noted, “[u]nder the circumstances, it was a good result.” When paying $70 million and getting two years at ClubFed is a good result, you wonder what a bad result would be.

Hat Tip: TaxProf Blog

This past February, Roy Albert Lewis, a Danville, California dentist, was sentenced to two years at ClubFed for hiding $300,000 over ten years. This past week, it was his father’s turn.

Leroy Albert Lewis is an oral surgeon, but his medical career likely came to an end last week. He pleaded guilty in May to one count of tax fraud. He was sentenced to two years at ClubFed, plus he must make restitution of $909,527. Leroy Albert Lewis is the father of Roy Albert Lewis.

His attorney said that the elder Mr. Lewis suffered from “hubris and greed.” Both Lewises fell victim to secret offshore bank account scheme operated by Tower Executive Resources, Ltd. Joe Kristan reported on Tower back in 2006; Paul Harris, the promoter of Tower, was sentenced to five years at ClubFed. The scheme made the payments look like they were for consulting services. They weren’t; it was simple tax fraud.

The younger Mr. Lewis is doing his time in ClubFed in Lompoc. It’s quite possible that the elder Mr. Lewis will soon be in a neighboring bunk.

News Story: San Francisco Chronicle