Taxable Talk

That’s probably one of the thoughts going through Timothy Heffner’s mind right now. Mr. Heffner, of Pittsburgh, pleaded guilty to fraud, conspiracy and tax evasion charges on Tuesday.

Mr. Heffner, according to the story in the Pittsburgh Post-Gazette, “entertained on a private yacht [and] arrived at parties in a personal helicopter.” The Pittsburgh Tribune-Review noted, “Heffner long has been a mainstay at gala events for Pittsburgh’s social elite.”

So what did Mr. Heffner do? He started his own chemical supply company, BioTechnology Corporation of America. Their website looks formidable, with divisions in synthetic organic chemistry, custom synthesis, etc. (five total divisions). However, the company was run out of Mr. Heffner’s basement (according to the Tribune-Review). Still, being an entrepreneur is admirable.

But Mr. Heffner listed himself as a medical doctor (which he isn’t). Still, lots of Americans embellish their resumes. He also claimed (at one point) he had a Ph.D. (which he doesn’t). He tried to get his local township to approve a helipad because he was part of the University of Pittsburgh’s transplant team (which obviously he wasn’t). And the public record shows that Mr. Heffner had his boating license suspended for one year in 2006 because of his refusal to submit to chemical testing.

How did he afford his nice house in the upscale community of Pine, Pennsylvania, his boat, his helicopter, and his partying lifestyle? His business had something to do with that. He bought rare chemicals from Sigma-Aldrich on the cheap. Very cheap. You see, he had an “in” at Sigma-Aldrich—Robert Wandler, head of Sigma-Aldrich’s rare chemical laboratory. Mr. Wandler “sold” the rare chemicals to Mr. Heffner at artificially low prices (as low as nothing) and Mr. Heffner sold them back to Sigma-Aldrich at high prices. The total fraud to Sigma-Aldrich is, according to prosecutors, more than $2.1 million. Mr. Wandler, by the way, appears to be working on his own plea deal.

But one fraud wasn’t enough for Mr. Heffner. He decided that tax evasion was a good sideline business. His $2,000 veterinary bill ended up being $2,000 in veterinary research, and a deductible business expense. (Hint—don’t do that at home.) Other “business” expenses included an associate’s season tickets for the Steelers, his girlfriend’s cellphone bill, and many similar expenses. The total of his tax evasion is a cool $1.2 million.

The Post-Gazette quoted a former business partner of his, Tommy Kehoe, as saying, “All I can say is the guy’s a fraud. It’s that simple. He lied to me about everything for 10 years…By God, he should get 10 years in prison.” Based on federal sentencing guidelines, he will likely receive 3 to 4 years at ClubFed for just the tax charges, so Mr. Kehoe may get his wish.

Finally, I’ll answer Mr. Heffner’s burning question: the party scene just isn’t that good at ClubFed.

Now that it’s summer, you may be considering a trip to the pool. Swimming is a great summer activity, but you do have to be careful when you dive into a pool. One diving coach jumped into some hot water last week.

Michael Finneran was the head woman’s diving coach at North Carolina State University in Raleigh, North Carolina. But Mr. Finneran didn’t consider himself an employee of N.C. State. On his North Carolina tax returns, he allegedly included phony W-2 forms showing no state income. That’s a problem, especially when you’re listed in the Athletic Department’s web page.

As reported here, Mr. Finneran was convicted of evading state income tax and was sentenced to 25 to 30 months in prison. According to the news story, he plans on appealing the conviction.

I’m not a big drinker. The former President and co-owner of Domecq Importers will have 10 years at ClubFed of being a teetotaler after pleading guilty to fraud and tax fraud charges. Domecq Importers was a large liquor importer based in Connecticut.

Michael Domecq had a not-so-good idea. Have some outside vendors (primarily advertising agencies) send in invoices for work that was never done. Then have his company pay the vendors. That’s fraud against his own company.

But Mr. Domecq went a step further. He had the vendors then issue checks to shell corporations controlled by him and his accomplices: Chief Financial Officer Alfredo Valdes, Vice President of Marketing Gabriel Sagaz, and Vice President of Sales Thomas Kaminsky. Those three individuals had already pleaded guilty to various charges.

Did I mention those shell corporations used offshore bank accounts? And that the shell corporations didn’t pay any income tax? That’s tax fraud.

This isn’t Mr. Domecq’s first trouble with the law. He was convicted in the United Kingdom in 2006 of possessing a false Spanish passport and of illegally getting a U.K. drivers license.

Mr. Domecq, as part of his plea agreement, will submit corrected tax returns for 1989 through 2006, and will pay all of the taxes, penalties, and interest. Given that the unreported income is over $7.6 million, Mr. Domecq will be writing out some big checks to the United States Treasury.

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.

I’m often asked by clients about what they can put down on a tax return. I tell them that the US works on a voluntary-based income tax system. You can put down anything on a tax return. Of course, you swear under penalty of perjury (which the government takes seriously) that everything on the return is accurate, to the best of your knowledge. I strongly believe in having my clients pay the least amount of tax legally for their returns. Of course, some don’t share my scruples.

Take the case of Beaulieu Group, of Dalton, Georgia. The third largest carpet manufacturer in the United States, Beaulieu boasts sales of $1.1 billion. That’s a lot of carpet.

But like all companies Beaulieu must look out for its bottom line. So back in the 1990s the company bought millions of dollars of machines from Europe. That’s not a problem. They apparently put those machines on their books at a value millions over what they bought them for, so that they could take extra depreciation. As long as they weren’t caught, there’s no problem…but of course, you know since you’re reading this here, they were caught.

And catching something like this isn’t easy. Indeed, the government spent over $800,000 proving the case (which Beaulieu has agreed to repay to the government). The tax savings that Beaulieu received from the over-depreciation was $7 million. They’ll be paying back taxes (including interest) of $22.7 million, $7.7 million in penalties, and a criminal fine of $2.2 million. And as part of the plea bargain, the two owners of the company will no longer be involved in the day-to-day business of the firm.

So over nine years Beaulieu saved something over $7 million in taxes. Now, seven years after their last savings Beaulieu must pay out $33.4 million. No wonder Beaulieu’s Vice President and General Counsel, Peter Farley, said, “…[T]he Company has taken steps to strengthen its tax practices and compliance programs.”

News Story Here

And that’s not a typo in the title.

The telephone excise tax refund got a few bozo tax preparers thinking (an oxymoron, of course), “If the government is going to hand out this money [usually $30 – $60] with little documentation, why don’t I prepare a return asking for just a bit more? They’ll never catch me!”

And it’s likely that many, many preparers did just that. But you can definitely take things a bit too far, and that’s exactly what Herbert Jana, Aurora Perez, and Nancy Munoz are accused of doing.

Eric Martinez, Special Agent in charge of the Dallas field office of IRS Criminal Investigation, stated, “The allegations in this indictment are that this scheme in the Dallas/Fort Worth metroplex claimed more than $1.6 million in fraudulent telephone excise tax refunds, making it one of the most egregious telephone excise tax refund fraud schemes during this filing season.”

As for our alleged phone tax crooks being bozos, well, they were also a bit unlucky. As we’ve mentioned, Jackson Hewitt, the #2 tax preparation firm in the United States, is under a major investigation. So what did our alleged bozos name their firm? Jackson Hubbert.

If convicted, the defendants are looking at lengthy stays at ClubFed due to the size of the alleged fraud.

Hat Tip: Roth Tax Updates

News Story Here

The fraudsters have been active in the tax realm this week. We’ve got stories from across the country.

We’ll start in Youngstown, Ohio, where Ronald Wells had an idea of how to increase his $1/hour pay as a prisoner at the Trumbell County (Ohio) prison—he’d have friends file 35 phony tax returns with the IRS. This cost us taxpayers over $236,000 in refunds that the IRS paid out. Wells, no matter how long he’s sentenced for, won’t be going anywhere soon; he’s now serving a sentence for aggravated murder in the Grafton (Ohio) Correctional Institution.

Heading just east, from Pittsburgh comes the story of the family that’s accused of committing fraud together. James Lloyd is serving time at the Fayette County (Pennsylvania) Prison, his wife Elizabeth, and their daughter Naomi Malone are all accused of filing a false tax return, and getting $14,700. These first two stories are not the first time we’ve seen inmates accused of committing tax fraud.

Yet another Gentleman’s Club owner has found himself in trouble. Ronald Heidel, of Sanibel, Florida, will find himself at ClubFed for 18 months after underreporting income at his Gentleman’s Gold Club by $1.3 million. He also must make restitution of $130,000 and pay a $30,000 fine. I almost forgot to mention that Heidel is a former IRS agent.

The owners of a casino boat-to-nowhere will no longer be heading to sea but, instead, will be heading up the river to ClubFed. Samuel Gray and his wife Marilyn were each convicted on 18 counts of tax fraud and 4 counts of mail fraud. Samuel Gray was also found guilty of six counts of money laundering and receiving embezzled funds. We first wrote about this story in 2005 when the owner of a bank who was embezzling money managed to invest with another individual committing fraud. Samuel Gray faces a decade at ClubFed; his wife is looking at about 4 years.

Heading further south to Miami, we find a businessman who had an almost-perfect method to having his personal expenses paid by his business. David Traina set up a consulting firm. No problem with that. He was the only employee. That’s fine. He paid personal expenses out of his business and took deductions for them. That’s not good, and it’s worse when the IRS finds out. And when you avoid $70,000 in taxes, that’s a lot of veterinary bills. Mr. Traina has agreed to make restitution but may also find himself at ClubFed for a short stay.

We’ve written about the La Shish restaurants on two occasions. Elfat El Aouar received 18 months at ClubFed in her part of the tax fraud that cost the government $6.9 million in taxes. Her husband, Talal Chahine, is still a fugitive from justice and is believed to be in Lebanon. The IRS may end up owning the La Shish restaurants—liens have been filed to protect the government’s claims.

Heading to the Northwest, Laura Cook, the wife of convicted “tax guru” Wade Cook, pleaded guilty to obstruction of justice. Ms. Cook admitted that she created phony documents to evade $9.4 million in taxes. Under the plea agreement, the government will recommend 15 months at ClubFed.

That’s a lot of fraud, but somehow I figure to be able to bring up another list of cases next week.

If you were going to commit tax fraud, would you and your partner in crime exchange checks for the same exact amount to the penny? That’s among the evidence that caused Inn-Chung Chen (aka Daniel Chen) to plead guilty to tax fraud.

Mr. Chen was president of Top Line Electronics, a contract electronics manufacturer in San Jose, from 1997 until 2000. Mr. Chen, along with three alleged accomplices, moved money from his business to other bank accounts he controlled so that he could use the money for his personal needs.

Mr. Chen wrote a check for $43,965.75 to a company controlled by one of his accomplices. Amazingly enough, days later a check was written for $43,965.75 to another bank account controlled by Mr. Chen.

The scheme wasn’t for peanuts, as the total amount involved was over $2 million (resulting in a tax loss of over $900,000). Mr. Chen pleaded guilty to two counts: one each of conspiracy and filing a false tax return. He’ll likely spend some time at ClubFed. His three alleged accomplices have warrants out for their arrest.

News Story Here

Anyone can write a book these days (I know; I’ve written two). However, some aren’t worth the paper they’re printed on. Joe Kristan at Roth Tax Updates reported on Cracking the Code: The Fascinating Truth About Taxation in America. As Joe notes, the author, Peter Eric Hendrickson, advises people to just file Form 4852, show no income, and claim your refund.

I’ve had people come to me from time to time stating such schemes. And that’s all they are: methods of tax evasion.

In any case, sales of Mr. Hendrickson’s book will likely plummet as he received a permanent injunction barring him from filing tax returns based on this method, and he must submit corrected versions of his prior year tax returns.

The moral of this story is simple: There is an income tax and you do have to pay it.