Taxable Talk

Back in 2000, a company made the following boast on the Internet:

Oryan Management has developed a simple, “Turn-Key” method for you, the ordinary taxpayer to receive these Tax Credits and Deductions while keeping your costs low. Depending on how you pay your taxes, you could reduce your next quarterly payment by more than your out-of-pocket expenses for the year.

In addition to offering positive cash flow and business stability, Oryan assures your peace of mind by providing Pre-Paid Audit Protection on your tax return.

Wow, that sounds good. The tax credit was for modifications made for the Americans With Disabilities Act. Of course, like most credits you actually have to make building modifications; it really wasn’t available for everyone without doing that.

The IRS investigated, and the prepaid audit defense was worth exactly what you paid for it.

As I first reported back in 2009,

The government alleges that the scheme combined the Americans with Disabilities Act (ADA) with tax fraud. The idea of Tax Break 2000 was that you could get a tax credit for making facilities ADA compliant. However, the government alleges that Mr. Prokop and two individuals from Las Vegas conspired to defraud the US, committed tax fraud, and aided in preparing false tax returns.

Well, four years later and the trial has ended here in Las Vegas. The three indicted men, Alan Rodrigues, Weston Coolidge, and former NFL punter Joseph Prokop, were found guilty earlier today. Rodrigues and Coolidge were found guilty on 20 felony counts; Prokop was found guilty on 18 of 20 counts. Appeals of the verdict are expected.

Dr. Patricia Hough was a successful entrepreneur. She owned two medical schools in the Caribbean. That’s the good portion of this story. It’s what she did with the profits of the business (and the sale of the business)–or better put, what she did not do–that was the cause of the problem.

As for the bad, there’s plenty. She (and allegedly her husband) created nominee accounts at UBS and other foreign banks; of course, that income didn’t find its way to her tax return. Her half of the sale of the medical schools also didn’t find its way to the tax return. Those nominee accounts were at foreign banks; she didn’t file a Report of Foreign Bank and Financial Accounts (FBAR). And the money was used for conspicuous consumption: an airplane and three homes.

Last year she was found guilty of filing three false tax returns and conspiring to defraud the IRS. She was sentenced on Friday to two years at ClubFed, three years of supervised release, and must make restitution of $15,518,382.

One of my clients is expecting their first child at any moment. Their new baby will be their first dependent for their 2014 tax returns. Mahamadou Daffe of Queens, New York had other ideas about dependents.

Mr. Daffe stole identities of various children and then offered, for $1,000 per tax return he prepared, to “give” those children to his clients. That’s one way to grow a family but it’s highly illegal.

But Mr. Daffe had additional means of making money. He stole other identities (presumably adults) and used those to prepare tax returns with phony W-2s and took the profits. We’re not talking peanuts here; he asked for over $4.5 million over four-plus years (and received more than $1.5 million).

The good news is that the IRS caught on to his scheme, and Mr. Daffe was sentenced to 102 months at ClubFed; he was found guilty earlier this year. As a reminder, you are responsible for what is on your tax return. And you can only claim your dependents, not anyone else’s.

Perhaps Michael Williams subconsciously wanted to go to ClubFed. He sure did just about everything he could to make sure he did. Let’s run down the list of things he did.

First, have a business that makes money and not file tax returns. Check.

Next, set up trusts that don’t file tax returns. Check.

Let’s add some bank fraud. How about creating phony US government checks and trying to deposit those. Not only is that bank fraud, but it’s probably some other felonies. Check.

And then let’s target the state officials and judges who are involved in state investigations. Let’s refer them to the IRS. That will get them. (No, it didn’t.) The IRS won’t care about that. Check.

(Here, I should point out that this likely got a separate agency involved: TIGTA, the Treasury Inspector General for Tax Administration. TIGTA is the internal affairs department of the IRS, and phony criminal referrals would likely get referred to TIGTA rather than IRS criminal investigation.)

Mr. Williams, a resident of Colorado, was indicted in 2012. He was found guilty on November 5, 2013 after a six-day trial. It took the jury just three hours to find him guilty of tax evasion, currency structuring, bank fraud, and interfering with internal revenue laws.

US District Court Judge Linda Arguello called Mr. Williams “a danger to the community…[He] is continuing to show his contempt for the government and he appears to believe he is exempt from the laws of the United States.” He received 71 months at ClubFed to think things over.

Here’s a scheme for you: The government has set up this new tax credit worth thousands of dollars. What if we find some impoverished individuals, have them fill out tax returns claiming this credit, and we pocket all that cash? We’ll just phony up some other parts of the return to make it look real. They’ll never catch us!

As an aside, this sort of thing happens with all refundable tax credits. It’s one of the reasons why they attract fraudsters like moths are drawn to bright lights.

Yes, this really happened…except for the part about never being caught. Jason Altman, his brother Jarrod, and Emanuel Harrison owned Tax on the Run, a tax preparation business in Dallas, Texas. They got the bright idea about the First Time Homebuyer’s Credit and did recruit individuals to file tax returns for the credit. They invented Schedule C’s (sole proprietorships) for those individuals so it looked like they made money (enough to afford a house) and then added in the homebuyer’s credit. Amazingly enough, all of those returns had refunds. They also had these clients obtain refund anticipation loans. Once the loan was approved, they drove the taxpayer to a check cashing business where their refund check was cashed. The members of the conspiracy took most of the money. None of the clients qualified for the homebuyer’s credit.

Jason Altman and Emanuel Harrison had already received 7 years at ClubFed. Jarrod Altman was luckier: He received eight months of home confinement as part of three years of probation on Friday. The trio used intermediaries to recruit impoverished taxpayers; the intermediaries are also heading to ClubFed. Everyone involved must also make restitution to the IRS.

Hopefully, our Congresscritters won’t invent new refundable credits. Wait, isn’t there something new this year with medical care?