Taxable Talk

There were, as usual, several deserving individuals for the 2009 Tax Offender of the Year. To be considered for the Tax Offender of the Year award, you must do more than cheat on your taxes. It has to be special; it really needs to be a Bozo-like action or actions.

Coming in a close second to our winner was the 1st session of the 111th United States Congress. This Congress, dominated by Democrats, managed to take the art of spending to new heights of lowness. Budget sanity? Who needs that! Our children, grandchildren, and great-grandchildren will be paying for Congress’ largess.

In third place was James Traficant. Mr. Traficant, just out of ClubFed for ten felonies including tax evasion, will be running for Congress next year. The pride of Youngstown, Ohio figures to have a good shot at being in the 112th Congress.

The other nominee was our friend Wesley Snipes. Mr. Snipes is appealing his three misdemeanor tax evasion convictions. While some of Mr. Snipes’ actions were Bozo, he is now promising to pay any tax he owes and that’s definitely not a Bozo action.

To find our winner we must head to Northern California. Mare Island used to be a naval shipyard. Today, it’s been redeveloped into a variety of uses. One of those uses was for storing wine. Mare Island is also a National Historic Landmark.

That seems mundane, but Mare Island is in Vallejo, conveniently close to Napa Valley and the heart of California’s wine industry. Mark Anderson, then a City Commissioner in nearby Sausalito, capitalized on this by starting a wine storage facility utilizing a warehouse at Mare Island early in this century.

But things started going wrong. By 2005, the Marin County District Attorney was investigating Mr. Anderson; he was accused in February 2005 of selling some of the pricey bottles of wine that he was supposed to be storing and using the proceeds for his own good. That’s fraud and embezzlement if true. That case is still pending. He allegedly used the proceeds to support an extravagant lifestyle.

Concurrently, Mr. Anderson’s business was being evicted from the warehouse. Apparently none of the proceeds from the alleged fraud and embezzlement were diverted to paying the bills for the warehouse.

To add insult to injury, Mr. Anderson was being investigated for tax evasion. Illegal income is just as taxable as legal income. With the noose tightening as the calendar turned to Fall, Mr. Anderson faced a dilemma.

There are options available. Finding a good attorney and challenging the charges is one good option. Perhaps bankruptcy would be a possible solution. Yet another options would be to tone down the lifestyle.

One option that you and I would never consider is to burn down the wine storage facility. Committing arson would only compound his troubles, and given Mare Island’s status would be yet another federal offense.

But that’s exactly what he did. He set fire to the warehouse, and 92 million bottles of wine and the entire warehouse burned to the ground. Many wineries lost all of their stored wine. Some wineries went out of business and many wine collectors lost everything.

What did it gain Mr. Anderson? Perhaps four years of semi-freedom. But that freedom ended on November 16, 2009 when Mr. Anderson pleaded guilty to 19 counts, including arson and tax evasion. Federal prosecutors will recommend a sentence of 15 years, 8 months at ClubFed. Mr. Anderson, age 61, is not in good health; even this reduced sentence is likely equivalent to a life sentence.

It’s a sad story, with an ending that hurt an entire community. Unfortunately, instead of making what good could have been made of a bad situation Mr. Anderson made a bad situation far, far worse. For that he wins our award as the 2009 Tax Offender of the Year.

While I’m hopeful that 2010 will be a year when this award is not given, I’m realistic. Every year it seems that there’s yet another horribly Bozo tax offender.

That’s a wrap for 2009. I wish everyone a Happy, Healthy, and Safe New Year.

There are all sorts of awards given, but the award I give is special. To be considered for the Tax Offender of the Year award, you must do more than cheat on your taxes. It has to be special; it really needs to be a Bozo-like action or actions.

In 2005 Sharon Lee Caulder won the inaugural award. Quoting from my post, “Sharon Lee Caulder, formerly of Oakland and now from New Orleans, our voodoo priestess who wrote a book and was convicted of tax evasion. She did not include the $1.7 million she earned between 1998 and 2002 (mainly from sales of her book, Mark of Voodoo, on her tax returns”. As I wrote when she was convicted, “Voodoo is more profitable than I realized, especially if your net income after taxes is the same as your net income before taxes (until Uncle Sam catches you).”

Now, on to 2007. There have been lots of tax fraudsters this year. But one stands out. No, it’s not Wesley Snipes. Mr. Snipes hasn’t been convicted yet, so technically he’s not an offender. (He certainly has a good shot at the 2008 award, though.)

The story begins back in 2000. A Camarillo, California company is sued for patent infringement and settles the case for “tens of millions of dollars.” Now, if you owned that business what would you do? Would you look for new income producing lines of business? Would you develop workarounds so that you wouldn’t be infinging on the patents? Or would you decide to commit tax fraud just to get back at the federal judge who allowed the miscarriage of justice (in your view) to happen?

If you’re thinking that no one could have such a bad motive to commit tax fraud you’d be wrong. This actually happened.

As I detailed earlier this year, Gene Haas did exactly that. The former CEO and owner of Haas Automation, Inc. created a phony Nevada company and enlisted the help of his then CFO to commit tax fraud. Here’s what I wrote:

So, enlisting the help of his then CFO, John Phillips, the business created a phony company in Nevada called “Supermill,” and then paid the phony company from phony invoices. Then Mr. Haas and Mr. Phillips got in a business dispute, Mr. Haas sued Mr. Phillips for $27 million (apparently related to the phony transactions), and Mr. Phillips went to the FBI and told them of the scheme. (Mr. Phillips was not indicted.) It’s not a good idea when you commit tax fraud to get a co-conspirator angry enough to go to the FBI.

The DOJ, in a press release announcing Haas’ indictment, claimed that the tax fraud was upwards of $20 million. Now, with a $5 million fine added in, penalties, and interest, the total judgment is somewhere around $70 million. And Mr. Haas will be receiving two years at ClubFed.

If you find yourself losing a court case, I strongly recommend that you do not follow Mr. Haas’ path, and decide that committing tax fraud is a way of getting back at the judge. Kenneth Barish, an attorney for Mr. Haas, in describing the plea deal, noted, “[u]nder the circumstances, it was a good result.” When paying $70 million and getting two years at ClubFed is a good result, you wonder what a bad result would be.

As for Gene Haas, he was formally sentenced in November to two years at ClubFed, payment of the taxes, penalties, and interest (totaling about $70 million), and a fine of $5 million. Added to the $30 million or so he paid for the patent infringement case, that’s a whopping $105 million plus two years at ClubFed. Yes, Mr. Haas threw away two years of his life and $75 million.

That’s a wrap for 2007. While I’d love to not have anyone commit such a bozo tax crime as Mr. Haas did, I fully expect to see at least one similar story in the coming year. I have complete confidence in Americans to commit bozo tax crimes.

Boy, what a year. And what choices we have in naming our 2005 Offender of the Year. The nominees include,

– Richard Hatch, who had over 300 million witnesses to winning $1 million on Survivor, but didn’t include the winnings on his tax return (among other alleged problems);

– John Ashton Wray, Jr., and Judge Michael Luttig of the 4th Circuit Court of Appeals. Judge Luttig wrote an opinion that says that Wray’s failure to file income tax returns, “is not a serious crime.” (Hat Tip: TaxProf Blog);

– David Guardino, of Caryville, TN (hat tip, Roth Tax Updates). Mr. Guardino is a self-proclaimed psychic accused of tax evasion. Didn’t he know this was coming?

– Willy Witzel (courtesy of Roth Tax Updates). Mr. Witzel’s son, Roy, prepared his tax return. When Roy explained his tax return to Willy, Roy got angry and attacked Willy with a sword. Both were martial arts experts. Roy, in self-defense, had to kill his father. (Read the whole story from the link above.)

– All of the taxpayers who claimed that there is no income tax in front of the Tax Court.

And our winner is…

Sharon Lee Caulder, formerly of Oakland and now from New Orleans, our voodoo priestess who wrote a book and was convicted of tax evasion. She did not include the $1.7 million she earned between 1998 and 2002 (mainly from sales of her book, Mark of Voodoo, on her tax returns. As I wrote when she was convicted, “Voodoo is more profitable than I realized, especially if your net income after taxes is the same as your net income before taxes (until Uncle Sam catches you).” Ms. Caulder will be sentenced in February, and faces up to 15 years in prison and fines of up to $1 million.

Thanks to all of our lucky participants and I’m sure we’ll have just as good a bunch of players in 2006.