Archive for the ‘Tax Fraud’ Category

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The Wrong Kind of Education Leads to ClubFed

Monday, November 4th, 2013

A California tax preparer decided he wanted to increase refunds for his clients. There’s absolutely nothing wrong with that–I want my clients to get the maximum possible refund allowed under the law. It appears that Kenyon Williams forgot those last three words; he was found guilty of two counts of wire fraud and two counts of aggravated identity theft earlier today.

Mr. Williams prepared tax returns in San Diego and opened his own practice in 2011. In early 2012 he called a friend in Tampa, Alesia Spivey. Here’s what the Department of Justice press release says:

Williams called his friend and fellow tax return preparer, Alesia Spivey, who lived in Tampa, Florida, and discussed the 2012 tax season and Williams’ desire to maximize refund amounts for his clients. During this conversation, Williams solicited information from Spivey regarding methods used, in Tampa, to increase tax refunds.

There’s nothing wrong with this at all–in fact, it’s a good idea to learn from others. However, there was an issue. Continuing with the DOJ press release:

Spivey and Carlista Hawls explained to Williams that individuals in Tampa were using a particular interest income scheme to file bogus tax returns with the IRS. Spivey instructed Williams on how to fill out the tax returns by employing this interest income scheme.

This is where Mr. Williams should have said ‘Thanks, but no thanks,’ and hung up the phone. Because I’m writing this I’m sure you’re several steps ahead of me: Mr. Williams implemented the interest income scheme, and filed 168 fraudulent returns. This resulted in $517,744 of bogus refunds being issued.

But it didn’t end here:

In addition, on March 2, 2012, Spivey and Hawls flew to San Diego, California to meet with Williams. During that trip, Williams provided Spivey and Hawls with a list of names, dates of birth, and social security numbers, including a stack of Navy blood donor records, to be used in preparing fraudulent tax returns in Tampa.

Thus, the identity theft charges. Mr. Williams is looking at up to 49 years at ClubFed. Both Spivey and Hawls pleaded guilty earlier this year.

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Yet Another Reminder that a License Doesn’t Always Mean Ethical Behavior

Sunday, October 6th, 2013

While we wait for the Loving appeal decision to come out, yet another reminder that not all licensed tax professionals are ethical. Here, we just have allegations of fraud, so it is definitely possible that the alleged villain of the story is innocent. Nevertheless, the story is too rich to not bring up.

Anyway, from Portland, Oregon, comes the indictment of Steven Cyr. Mr. Cyr is a tax attorney. He’s been charged with two felony counts of overstating the expenses on his own tax returns (for 2006 and 2007). According to a story in Willamette Week, Mr. Cyr reported expenses of $524,678 in 2006 and $408,767 in 2007; the indictment alleges that the total expense figures are inflated. Mr. Cyr is also being investigated by the Oregon Bar.

In any case, this indictment also shows that the IRS does have means of going after tax professionals who do commit crimes. If I were to commit tax crimes, the IRS can sue me and bar me from ever preparing tax returns. They can being proceedings to revoke my license–my license comes from the federal government. If I do something truly rotten, I can be indicted for those crimes.

The idea that just because people have licenses that they will all suddenly go the straight and narrow is laughable. There were tax crimes years ago; there will be tax crimes in the years that follow…licensing or not.

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Two Cases of Tax Return Preparers Committing Identity Theft

Sunday, September 15th, 2013

From the Bozo tax preparation front come two stories of preparers committing identity theft and preparing false tax returns. First, from Durham, North Carolina comes the case of Leslie Brewster. She’ll get to spend 70 months (nearly six years) at ClubFed for her part in a tax fraud scheme that occurred in the Tar Heel State.

Ms. Brewster did want to have her clients pay the least amount of tax possible. She just left out a couple of words that I use, “the least amount of tax legally possible.” She bought names and social security numbers to use on returns, and falsified hundreds of returns to get larger returns. It was the usual suspects in these cases: phony dependents, fake businesses, and incorrect education credits. She pleaded guilty to three felonies; besides the jail time, she must make restitution of $92,910.

From Atlantic City, New Jersey comes the story of Nicolas Gomez-Rua. He’ll get to spend 36 months at ClubFed for his part in a very similar scheme (to that of Ms. Brewster). Over a three-year periodf he ran a tax preparation business in Ventnor City, New Jersey. He, toom, included phony dependents, child tax and other credits to get his clients larger refunds.

But there’s more. from the DOJ press release:

Gomez-Rua admitted that he maintained a file of Social Security cards and birth certificates for individuals born in Puerto Rico that was used to add fraudulent dependents on the 1040 forms that were filed with the IRS. Clients paid Gomez-Rua on average $300 to $500 for the use of fraudulent dependents. Gomez-Rua admitted that after preparing the fraudulent returns, he filed the false returns electronically and by U.S. Mail with the IRS.

Not only did he admit that he filed 729 returns containing such fraudulent items, he also purchased another’s identity to use when he applied for U.S. citizenship. That’s another crime: Unlawfully obtaining United States’ citizenship.

Mr. Gomez-Rua’s wages while at ClubFed will go towards the $170,211 in restitution he was ordered to pay.

A reminder to everyone: If it sounds too good to be true, it probably is.

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Self-Proclaimed First Lady of Tax Fraud Gets 21 Years at ClubFed

Thursday, July 18th, 2013

Let me give some helpful hints to anyone who is thinking of engaging in a life of crime. First, don’t brag about it to others. Live your life in a nice peaceful way and blend in. Second, if you do brag about it, don’t brag on the Internet. Third, if you do brag about it on the Internet, don’t post pictures like this one:

Rashia Wilson (Image Credit: Tampa Police Department)

Showing pictures of yourself with stacks of bills might make even an unaware police department take interest. (For more such helpful tips, see Kelly Erb’s column.)

In any case, Ms. Wilson, who was indicted last year, was sentenced earlier this week to 21 years at ClubFed. She had pled guilty to charges of wire fraud and aggravated identity theft. Judge James Moody Jr. sentenced Ms. Wilson. Judge Moody stated, “She knew what she was doing was wrong. She reveled in the fact that it was wrong.” Ms. Wilson was also ordered to make restitution of $3.1 million, though it’s doubtful she has all that money.

Yesterday, the Treasury Inspector General for Tax Administration released a report on identity theft detection at the IRS. The reported noted that the IRS stopped $2.2 billion of fraudulent refund checks to be issued. Yet other reports have estimated that $5 billion in identity theft-related refund checks get issued annually. Meanwhile, the IRS continues spending money on a quixotic mission to regulate tax professionals.

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Licensing Stops All Tax Preparer Fraud…Well, No

Sunday, June 30th, 2013

As I mentioned, National Taxpayer Advocate Nina Olson believes that if the IRS licensed all tax preparers, tax preparer fraud would evaporate. Unfortunately, that’s definitely not the case.

This past week, the US Department of Justice indicted Teresa Marty, Rebecca Bandera-Marty, and Pamela Harris of conspiring to defraud the IRS. The defendants are alleged to have filed at least 250 false individual returns claiming more than $60 million in tax refunds. From the DOJ press release:

Marty and her daughter-in-law Bandera-Marty were licensed tax preparers, and Harris was AFS’s office manager. The defendants recruited clients by claiming that they could eliminate their debts and legally receive sizable tax refunds. They billed and collected excessive fees for this service, sometimes as high as $6,000. The defendants prepared the false tax returns claiming large refunds based on fictitious Forms 1099-OID. The fraudulent returns falsely reported that a client’s total outstanding debt (mortgage, credit limit s on credit cards, student loans, auto loans, etc.) was actually interest income that the client had received from the lender that had been withheld by the IRS, and therefore, the client was entitled to a refund. [emphasis added]

There’s nothing new about this kind of fraud, and the idea that by licensing tax professionals no tax professional would commit fraud is laughable. Wherever there is money, there’s temptation to obtain it in the wrong ways. Indeed, Teresa Marty had been previously permanently barred from preparing tax returns.

Ms. Marty, Ms. Bandera-Marty, and Ms. Harris are looking at terms at ClubFed if found guilty of the charges they face.

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Receiving Stolen Refunds Leading to ClubFed

Sunday, May 19th, 2013

While the IRS is receiving criticism that’s well justified for the current scandal, IRS criminal investigation and the Department of Justice are slowly increasing their efforts on identity theft. Glenn Powell, Jr. of Alabama found that out.

Mr. Powell opened two bank accounts, and at least 49 false tax refund checks totaling over $95,000 were deposited into his accounts. Mr. Powell withdrew over $46,000 before the IRS put an end to his part in the scheme (overall, the scheme resulted in half a million dollars of false refunds). Mr. Powell pleaded guilty; he’s looking at a maximum of 10 years at ClubFed.

Meanwhile, Raquel Hogan and Yolanda Blount (both from Macon, Georgia) have been indicted for allegedly using nursing home records in a tax fraud scheme that involved identity theft. Ms. Hogan allegedly provided the records to Ms. Blount; she allegedly then prepared the tax refunds. Both are looking at a stay in ClubFed if found guilty.

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A Sure-Fire Way to Get Indicted

Sunday, March 3rd, 2013

There are many ways to get in trouble with tax law. As I have said in the past, if you want to get indicted it’s a bit harder. It helps to be a celebrity, have a very large tax debt, not report large amounts of funds in foreign financial accounts, or abscond with trust fund taxes. I need to add another item to that list: File liens against IRS employees who are investigating you.

Mark Ellis of Bend, Oregon is accused of filing four refund claims wherein he asked for almost $900,000. These refund claims were allegedly based on an illegal debt termination program attempting to cancel his (and others’) debts. He did receive a $311,459 refund; the others didn’t make it to him. No matter, filing a false claim for refund is a crime.

Mr. Ellis, though, was apparently upset with the IRS employees who were investigating him. Did he hire an attorney so he could negotiate with the IRS? Of course not. He filed liens against two IRS employees who were investigating him and one Timothy Geithner. Mr. Geithner is the former Secretary of the Treasury. Consider what happens when you file a lien against an IRS criminal investigator (Special Agent). He likely knows an assistant US Attorney who can make the lien vanish (and all those liens did vanish). That same assistant US Attorney has the power to indict. I think the chance of an indictment after such an act goes from probable to a certainty. And filing false liens is a crime, too.

Whether Mr. Ellis is guilty or innocent won’t be known until his trial. What is certain today is that he is a candidate for the Bozo Tax Offender of the Year for 2013.

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There’s No Fraud Like Giant-Sized Fraud

Saturday, March 2nd, 2013

When I read of a sentence that includes eight years at ClubFed and restitution of $190 million, that gets my interest. Donna Guerin is the former attorney who was sentenced yesterday in New York.

Ms. Guerin was an attorney who pleaded guilty last September for running a tax shelter scheme that allegedly created $7 billion in phony deductions leading to a $92 million loss to the government. The Justice Department’s press release has some interesting reading about the tax shelters that Ms. Guerin and others peddled.

Ms. Guerin was a principal in designing tax shelters called, “Short Sales,” “Short Options Strategy (SOS),” “Swaps,” and “HOMER” They sold these strategies to nearly 900 wealthy individuals, and the phony losses total over $6.5 billion. But what gets me is the pricing of the shelters and the legal opinion that the shelter was good:

In return for receiving a fee from tax shelter clients based on a percentage of their purported tax losses – usually 5% for ordinary losses and 4% for capital losses – GUERIN and others at J&G assisted clients in implementing all of the stages of the fraudulent tax shelters, including setting up bank accounts and entities such as corporations and partnerships. GUERIN and others at J&G [the law firm where she was a partner] also provided the tax shelter clients a “more likely than not” legal opinion from J&G.

Let’s count the red flags. First, except for amended returns, tax professionals are not supposed to charge based on the outcome of a return. If I prepare your return, I cannot say, “I’ll take x% of the refund as my fee.” That should have been a red flag to those involved.

Second, if you are looking at a purported tax shelter, is it wise to believe the authors of the shelter that all is well? If someone has truly come up with a method to turn, say, $100 million of income to $0 of tax, he or she would be more than willing to have an outside attorney bless the shelter. Indeed, if I ever can come up with such a shelter (an occurrence with about a 0% chance of happening), I’d want every attorney out there to give it thumbs up. There’s also the regulations under Circular 230 (which is how tax professionals are regulated); these dictate best practices and using reasonable factual efforts.

Finally, there’s the basic rule of economic substance. In order for a transaction to be considered having economic substance, the transaction needs to impact outside of federal income tax effects the economic substance of a taxpayer.

Are there legitimate tax shelters? Of course; one of the most basic is investing in something that loses money today but has a chance of making money tomorrow. Many wealthy individuals will become “angel investors.” They’ll invest in ten projects, hoping that one of those ten becomes hugely successful. The other nine become legitimate capital losses. There’s economic substance and real risk involved.

Most of the phony tax shelters I’ve read about invent purported trades and business entities that are will-o-the-wisps. That’s because it’s hard to make $100 million turn into a tax loss without real transactions occurring. But I digress….

For Ms. Guerin, she has eight years at ClubFed to think about her “relatively minor” (in the words of her attorney) involvement in, in the words of Judge William Pauley, “[A] tax shelter fraud consipracy [that] was breathtaking in its scope and in the damage it caused our nation…Ms. Guerin played a central role, she was not a mindless automaton.”

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“There Is No Income Tax” Fails Again to Win in Court

Sunday, February 17th, 2013

Charlie Brown, move over; we have a new “winner” for trying the same thing over and over again and expecting different results. Randy Barker doesn’t think that tax laws are constitutional. He claimed a refund on his 2008 taxes of almost $1 million after claiming that amount was withheld from his taxes. His 2008 return showed $1.48 million of interest income and that amount of withholding. According to the Department of Justice, “Randy Barker was able to conceal the fraudulent nature of the interest income by filing documents on a separate tax database.”

The Barkers got their refund and spent the money on a house in Chico, California (their home town), and other personal items. They got to enjoy it for about three years; they were indicted last July. Last week, Mr. Barker was convicted of filing a false income tax refund claim. He’s looking at up to ten years at ClubFed, restitution, and up to a $250,000 fine. If you’re looking for a home in Chico, I suspect I know one that will be on the market soon.

Yes, Virginia, there is an income tax and you must pay it…and it is constitutional.

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The Walking Dead Come Back

Wednesday, January 16th, 2013

No, this isn’t a post on the next zombie movie. Yes, Las Vegas does have a Zombie Apocalypse Store (humorously, near one of my clients). But I digress….

Instead, we’re going to focus on a CPA from Northridge, California (in the San Fernando Valley region of Los Angeles) who is very much alive. Masood Chotani pleaded guilty on Tuesday to conspiracy to defraud the US. What he did, with others who are now residing at ClubFed, was to file returns in the names of the truly dead. While the Department of Justice press release only states that the “…deceased people’s Social Security numbers and other identification information [were] obtained from the Internet,” it’s likely the Social Security Death Master File is once again the culprit.

Why this gift for tax fraudsters is still available is unknown. But if you want to purchase the names and social security numbers of the truly dead, you can do so courtesy of the US government. Meanwhile, the DOJ and IRS Criminal Investigation gets to follow up on thousands upon thousands of cases of tax fraud. This is definitely not a digression.

As for Mr. Chotani, he’ll be joining his co-conspirators at ClubFed. He’s also agreed to make restitution. Unfortunately, for the living relatives of the dead who are victims of identity theft, they wait in a zombie-like state for the nightmare of identity theft to be resolved.

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