Taxable Talk

I’d like to convince my clients to start adding gratuities when they pay me. I did have one client just add $10 to his payment (and yes, I’ll be claiming that on my tax return); I appreciated it and told him so. I really don’t expect to receive tips from clients–it’s not the norm for tax preparation. I definitely don’t expect to receive $1,458,905 in such gratuities.

Yet one pair of tax preparers apparently did receive such money. Rigoberto Cabrera and Carlos Perez of Miami had a good thing going…for awhile. They convinced some individuals that they could get taxpayers really big tax refunds. Of course, those refunds were based on phony tax credits and deductions that the taxpayers weren’t entitled to. All they asked in return was part of the refunds back. That’s not much to ask for, right?

I didn’t think so, until I read this line in the Department of Justice press release:

Through this scheme, the defendants claimed approximately $1,458,905 in tax refunds from the IRS.

Now, it’s not clear from the press release whether the $1.46 million is the total of refunds (what I assume) or the defendants’ share. No matter, it’s a lot of money. Mr. Perez earlier pleaded guilty to two counts of conspiracy. Mr. Cabrera was found guilty on 29 counts of conspiracy, fraud, making false claims to the IRS, and money laundering. Both are looking at ClubFed in their future; Mr. Cabrera is liking to be spending many, many years there.

Back in 2005, a load of estimated payments ended up “swimming with the fishes” when a driver of a truck went off the San Mateo Bridge into the San Francisco Bay. Believe it or not, a similar incident happened last month in New Jersey.

A US Postal Service truck caught fire in an accident on the New Jersey Turnpike. The mail was destined for New Jersey state offices, including the Department of Taxation. The USPS believes this was mail collected from September 7th to 10th in New Jersey. If your mail went up in smoke, the New Jersey Department of Taxation has procedures in place so that you will not be penalized. Kay Bell has more.

It’s time for my annual vacation. If something earth-shattering in the tax world happens while I’m relaxing, I’ll take time out to post on it. Otherwise, enjoy the fine bloggers listed in the blogroll on the right. I’ll be back on Thursday, August 9th.

For tax bloggers like myself, Richard Hatch has been a godsend. His antics have been, well, remarkable. Mr. Hatch has regained the top spot in this year’s Bozo Tax Tips. It took a lot of effort (and stupidity), but he’s manged the feat.

I keep thinking that I’ll be able to drop this Bozo tax tip one year. Yet every time I think that’s going to happen Richard Hatch makes the news again. One tip I can give any celebrity: Be careful about your taxes. The IRS loves going after Bozo tax celebrities. So here’s the story that refuses to die.

For a tax blogger, people like Richard Hatch are wonderful. Hatch, for those who don’t remember, was the winner of the first Survivor and won $1 million. About 300 million individuals worldwide saw Hatch take down the $1 million.

Hatch received a Form 1099-MISC for his winnings. In the United States, winnings from contests are taxable. Hatch claims that CBS and/or the producers of Survivor promised him that they would pay his taxes. (Both CBS and the producers of Survivor deny this charge.)

Here’s what I wrote back in January 2006 when Hatch was convicted:

Mr. Hatch has cemented a place in the Bozo Tax Criminals Hall of Fame (a website I’ll create one day). Let’s look at his stupid not so good actions.

Hatch is now serving his prison sentence of 51 months. He recently appealed his conviction, though chances of it being overturned seem slim.

2008 Update: And they were slim. Last February, Hatch’s appeal was denied. As you might expect, 300 million witnesses can’t be wrong.

2009 Update: Richard Hatch continues to look for that needle in the haystack. He’s filed another appeal, though to this non-lawyer it’s more likely that he’ll be released after serving his 51 months at ClubFed than getting a favorable ruling.

2010 Update: Mr. Hatch was released in mid-2009. He then violated the terms of his release and was sent back to ClubFed. Finally, in October, Mr. Hatch was released. He’ll be spending the next couple of years in his home state of Rhode Island.

2011 Update: As part of his sentence, Mr. Hatch was supposed to amend his tax returns and declare the $1 million of income. He neglected to do that. Judge William Smith didn’t neglect to give Mr. Hatch a piece of his mind this past March: He sentenced Mr. Hatch to nine more months at ClubFed. Following his release from ClubFed (in December), Mr. Hatch will have 26 months of supervised release.

Judge Smith’s remarks hopefully will finally sink in to Mr. Hatch. “You can continue to proclaim your innocence…You don’t have the option of engaging in this type of game or negotiation with the court. It needs to be a severe punishment. That’s the only thing that will deter you in the future.”

And to think I’d have so little to write about if Mr. Hatch had just paid his $300,000 in tax in the first place.

Of course, not only are there Bozo tax professionals, there are Bozos in all professions–especially the arts.

Ja Rule is a famous rapper (well, famous in the world of rap). He also followed the tax practice that income after tax should be the same as income before tax. When you’re famous, that’s not a good idea.

Jeffrey Atkins (Ja Rule’s legal name) was the sole stockholder of two corporations. They paid him royalties from his music tours and from royalties (from sales of his music). That income neglected to make it to his tax returns from 2004 through 2008 (because he apparently didn’t file). That’s a great idea only if you get away with it…and he didn’t.

Mr. Atkins pleaded guilty to three counts of failing to file a tax return. The Department of Justice press release notes that the loss to the government is “…approximately $1,137,912.” [1] Mr. Atkins has agreed to file accurate tax returns and pay his back taxes (and penalties and interest).

Mr. Atkins will be sentenced in June, and he’ll likely get to record a rap version of “I Fought the Law” while at ClubFed…as with that tax loss that’s his likely destination. Mr. Atkins is also looking at two years in prison on a weapons charge.

[1] I’m amazed at the exactness of this approximation. I guess that cents are where the variance lies.

Tonight is not the favorite night for tax professionals: we lose an hour of sleep. Daylight Savings Time begins at 2am; before you head to bed move your clocks up one hour.