It’s time once more for that (not really) most prestigious of prestigious awards, the Tax Offender of the Year. One year I’ll find that I don’t have many deserving winners (probably the year after I retire); however, there were plenty of individuals, businesses, and organizations that strove to take down the top prize.
We’ll start with the runners-up. Dinesh Sah of Coppell, Texas saw the Paycheck Protection Plan loans as a wonderful thing. Let’s not take out one; let’s do 15. And let’s make up phony employees, payroll expenses, and tax returns to get $24.8 million in loans. He pleaded guilty in March and was sentenced in July to more than 11 years at ClubFed.
Mustafa Shalash of Hilliard, Ohio didn’t commit huge fraud. Rather, it’s the scope and what he did that is at issue. Mr. Shalash won a Powerball jackpot in 2015 for $1 million. He felt that the $290,000 withheld for taxes should come back to him, so he invented $1 million of gambling losses for his 2015 tax return. Additionally, he had foreign bank accounts, and transferred $440,000 of his winnings to one in Jordan. Yes, he ignored the FBAR (Report of Foreign Bank and Financial Accounts). If you are lucky enough to win a prize in the lottery, your luck will likely become public information. It would have been a lot easier for Mr. Shalash to simply have paid the additional tax. Instead, he’ll be paying restitution of over $250,000 and could find himself at ClubFed for up to three years.
Aaron Aqueron of Clermont, Florida is a very good promoter. He convinced numerous individuals that just by having a mortgage (or other debt) you’re entitled to a tax refund! Sounds great. But what he did was state that the financial institutions withheld tax when they hadn’t. His clients filed tax returns claiming $14.6 million in refunds, and the IRS issued $7.6 million before catching on. Yes, mortgage interest is an itemized deduction and, yes, if you have tax withheld you get to claim that on a tax return. But the tax must actually be withheld—a minor step that was missed. And Mr. Aqueron only charged between $10,000 and $15,000 to his soon-to-be-audited clients. (If it sounds too good to be true, it probably is.) Mr. Aqueron pleaded guilty earlier this month and will likely be residing at ClubFed in the near future. Mr. Aqueron’s alleged co-conspirators will be tried in January.
Our last runners-up are a rap duo out of Detroit. Sameerah Marrel and Noelle Brown were the “Deuces Wild” rap group. Their rap career apparently didn’t take off, so they needed a different source of income. They allegedly turned to tax fraud, inventing a number of trusts and purportedly noting that there was tax withheld on the trusts’ returns. This allowed the duo to ask for $13.6 million in refunds (they received $5,539.049.28) when the actual amount of withholding was $0. They’re facing years at ClubFed if convicted.
Coming in third place this year is Gary Hunsche of Troy, Illinois. Mr. Hunsche owned and operated two employee leasing companies called Unique Personal Consultants and Unique Risk Management. Mr. Hunsche faced a dilemma: How would he pay for his indoor basketball court on his new home (and other improvements to his home)? He came up with the decidedly illegal answer: he would withhold payroll taxes but not remit $9.4 million. It’s a wonderful scheme while it’s working, but it’s the one kind of tax fraud that will always be caught. Sooner or later one of the employees’ returns gets looked at by the IRS, and the IRS wonders where the payroll taxes are. He was sentenced to four years at ClubFed.
I really, really wanted to put the IRS as this year’s winner but they’re in second place. The issues with the IRS this year are legion. Good luck calling the IRS for assistance (you have a less than 10% chance of getting through). Or you could be like my call earlier this week: You get in the queue, and after two hours waiting on the Practitioner line you hear, “We’re having technical difficulties. You will be transferred back to the main number….We’re sorry, but due to extremely high call volume in the topic you’ve chosen, we cannot take your call at the present time. Goodbye.”
Each year many returns filed with the IRS ‘fall out of processing.’ Normally, that means a one to four day delay in processing. This year, it means at least four months. The IRS Operations Status Page shows that as of December 18th there were 6.3 million unprocessed individual returns. Clients are complaining, and there’s nothing I (or any other tax professional) can do.
If you filed an amended return, maybe your return will be processed within twelve months, but I wouldn’t bet on that. The IRS Operations Page was changed to note, “The current timeframe can be more than 20 weeks instead of up to 16.” I’m quoting 18 months (average) to my clients who have to paper-file amended returns, and I think that’s realistic. If you can electronically file your amended return, you will shave off a few months (you’re likely looking at one year).
And then there are the IRS notices. I had two clients receive notices stating their 2018 returns hadn’t been filed (both were electronically filed and accepted). I called the IRS and found out that for one, it was a processing issue and my client should have received a new notice this past week (it didn’t come, so another call to the IRS is needed). The other client never received a notice that he had to call the Identity Theft Unit. He hasn’t been able to get through yet.
Many of my clients received notices and timely responded. Unfortunately, while there are deadlines on taxpayers, there are no deadlines on the IRS. I had one matter that took three years for the IRS to actually respond to our communication. (The understaffed Taxpayer Advocate Service agreed to take the case, but the next day we received a letter from the IRS resolving the issue.) I have another matter that has now exceeded three years (the IRS keeps sending it back and forth between their Cincinnati and Ogden offices).
I have had at least ten clients file Tax Court petitions with the IRS in 2021. (These are the clients I know about–there could be others.) Two of the cases involve genuine disputes related to Automated Underreporting Unit (AUR) notices and were destined to get to Tax Court. Filing the petitions is the means to get these disputes to IRS Appeals. The other eight are matters where the IRS never read my clients’ timely filed responses. The IRS simply issued Notices of Deficiency, so the only method available for the taxpayers to dispute the matters was filing Tax Court Petitions. In all of these cases, had someone read the response it is likely that the matter could have been resolved.
This is just a sampling of the disastrous status of “service” within the IRS today. I do want to point out that I am not complaining about any of the employees I have dealt with this year. In almost every case, the IRS employees I speak with are professional, courteous, and honestly want to resolve the matters. The problems relate to (a) IRS top management refusing to admit to all of the problems, (b) the IRS drowning in paper (partially caused by the pandemic), (c) the Biden Administration refusing to order staff back to work at IRS Service Centers, and (d) Congress not properly funding the IRS. Unfortunately, it will take several years for the IRS to work its way out of its current hole. It’s time for the IRS to give accurate time-frames, extend response times to taxpayers, and for Congress to fund the IRS appropriately.
Oleg Tinkov is a Russian entrepreneur. Like me, he is a graduate of the University of California, Berkeley. By any standard he’s successful. He founded Tinkoff Credit Systems in 2006 It’s now the second largest provider of credit cards in Russia. In 2013, the bank went through an Initial Public Offering (IPO) on the London Stock Exchange; the IPO raised $1.1 billion (coincidentally, his net worth became $1.1 billion at that time). TCS Group, the holder of Tinkoff Bank, is officially based in Limassol, Cyprus. Mr. Tinkov earlier formed a wholesale electronics business he later sold, a food company, a brewery, and a cycling team. His net worth is estimated by Bloomberg at $6.9 billion and by Forbes at $7 billion.
In 1996 Mr. Tinkov became a naturalized US citizen. In 2013, three days after the IPO Mr. Tinkov relinquished his US citizenship at the US embassy in Moscow. When you relinquish your citizenship, you must have filed all your tax returns and complete IRS Form 8854 (Initial and Annual Expatriation Statement). If you renounce your citizenship and your net worth is more than $2 million, you owe the expatriation tax. The fair market value is based on you hypothetically selling all your assets the day prior to your expatriation.
Mr. Tinkov was asked about his net worth by his US-based accountant, and he told him it was less than $2 million. Rather than admitting the truth, he used $300,000 instead of the true net worth of $1.1 billion. There is no extradition treaty between the US and Russia, so he likely felt safe.
Two things I’ve repeatedly said over the years are, “It’s always easier to simply pay what you owe,” and, “If you’re a celebrity or someone else who is a public figure, you want to make sure your tax returns are squeaky clean.” While Mr. Tinkov isn’t a household name, Forbes annually publishes a list of billionaires and his name has been on it. It wouldn’t take long for someone at the IRS to wonder why only 0.027% of his net worth was noted on his Form 8854.
Unbeknownst to him, an investigation was begun. In September 2019 he was indicted. In February 2020 he went to London; the United Kingdom does have an extradition treaty with the US. Mr. Tinkov was arrested. The US sought extradition; Mr. Tinkov contested on medical grounds (he was undergoing treatment for leukemia).
On October 1, 2021, Mr. Tinkov pleaded guilty to one count of filing a false tax return. He paid the $248,525,339 of tax he would have had to pay back in 2013. He also paid a $100 million fraud penalty, interest, and other penalties; the total penalties and interest added $260,415,845 to his total tax bill of $508,936,184. Yes, he didn’t have to pay his taxes for eight years but it would have been far less costly to simply have prepared the tax returns correctly in the first place. And half a billion in tax evasion gives Mr. Tinkov the 2021 award as Tax Offender of the Year.
That’s a wrap on 2021. May all of you have a Happy and Healthy New Year.
