FBI Agent Structures His Gambling Into ClubFed

Posted on December 19, 2013 by Russ

Law enforcement officers are supposed to know the law. That’s obvious, but one former FBI agent remembered half the law about currency (cash) deposits to his regret.

Travis Wilson is a former Special Agent of the FBI. Agent Wilson liked to gamble, and played at the casinos in California, Arizona, Nevada, and West Virginia. There’s nothing wrong with that. He left the casinos some nights with more than $10,000. Agent Wilson didn’t want his superiors at the FBI to learn of his gambling habit. Of course, there’s nothing illegal about gambling. And if Agent Wilson was a poker player and kept a log, it might have made a nice supplement to his income. That said, DOJ Inspector General Michael Horowitz is correct:

When a law enforcement agent conceals ongoing gambling activity it risks creating a security vulnerability. The DOJ OIG will partner with prosecutors and other investigative agencies to ensure that such conduct does not go unchecked within the Department of Justice.

So what was Agent Wilson to do? Deposit his cash, let his superiors know about his winning gambling habits? No, that would cause Currency Transaction Reports (CTRs) to be issued, and he didn’t want them to know about the gambling. Perhaps stopping the gambling would have been a good idea. No, that didn’t happen. Well, why not make smaller deposits (less than $10,000) so that no CTR would be issued; that would stop all the problems. No CTRs and his superiors wouldn’t know.

There’s a problem here, and it’s one that Agent Wilson should have known about: 31 USC § 5324. That’s structuring, and that’s a felony. That’s when you deliberately make smaller deposits to evade financial reporting (such as CTRs). Banks are required to have programs in place to automatically generate Suspicious Activity Reports (SARs). You may remember that SARs led to the downfall of former New York Governor Eliot Spitzer. And that’s almost certainly what happened here.

Agent Wilson should have known about structuring. But apparently he missed that lecture at the FBI Academy; instead, he’ll get some remedial education at ClubFed. He pleaded guilty to structuring $488,000 of deposits; he’s facing up to five years at ClubFed when he’s sentenced next March. He’s also a late nominee for the Tax Offender of the Year.

Posted in Gambling, IRS | Tagged | 1 Comment

The Death of the Death Master File (Sort of)

Posted on December 19, 2013 by Russ

I’ve been complaining about the Death Master File for some time. This is a wonderful tool for identity thieves, allowing them to get all the details for an individual who has gone to the great beyond. As Jason Dinesen noted, it’s almost certainly the way one of his clients was a victim of identity theft. It’s also the method used in an attempted identity theft of my partner’s deceased stepfather.

But no more. Congress, as part of passing a budget (the first budget passed in years) inserted language requiring the Commerce Department to set up a process to verify users of the Death Master File; for “normal” users, it will take three years (after a person dies) before information is released.

What does this mean? First, file a final tax return for anyone who has passed on. That will tell the IRS that there should be no more tax returns for that social security number.

Second, while the Commerce Department has 90 days to set this program up, expect them to take longer. There’s no penalty on the government if it doesn’t act expeditiously, so I’d estimate it will be sometime in April at the earliest before this is set up. That means we have one more tax season of identity theft from the death master file.

Still, as Jason said, “All I can say is — thank you Congress (how often do we say that anymore?), and it’s about time.”

Posted in IRS | Tagged , | 1 Comment

Tax and Insurance Administration Are Different

Posted on December 18, 2013 by Russ

Jason Dinesen tweeted tonight about the insurance regulation report card issued by RStreet.org. On Monday, the Tax Foundation posted about the Council on State Taxation (COST) grading states on taxpayer administration. I thought it would be interesting to compare the top states and bottom states in each.

First, the top ten:

Rank Tax Administration Insurance Administration
1. Maine Virginia
2. Ohio Vermont
3. Alaska Illinois
4. Arizona South Carolina
5. Kansas Tennessee
6. Montana Minnesota
7. Pennsylvania Missouri
8. Indiana Nebraska
9. Iowa Wisconsin
10. MA/NC/OK/UT/VA Nevada

Now, the bottom ten:

Rank Tax Administration Insurance Administration
50. California New York
49. Louisiana Hawaii
48. Alabama West Virginia
47. Colorado Florida
46. Arkansas California
45. Nevada Texas
44. Florida Washington
43. Kentucky North Dakota
42. North Dakota Montana
41. NC/VT/WA/DC Massachusetts

One conclusion that I draw is that a state appearing on both bottom ten lists is a state with a bad regulatory environment. California, Florida, North Dakota, and Washington share that dubious distinction. Indeed, California ranks the worst for tax administration and is 46th for insurance administration. It’s no wonder that business executives believe that California’s regulatory climate has miles to go before it becomes average (in ranking).

Only one state makes the top ten in both lists: Virginia. A state with a favorable regulatory climate will attract business, and that’s something that Virginia is doing.

Finally, I do need to point out that states that rate poorly in tax administration but do not have a personal income tax lead to some interesting scores on the COST list. The states without a corporate tax return (such as Nevada) should have a negative score in the Corporate Return Filing Burden column imho–these are states where life is easy for tax administrators.

My thanks to the Tax Foundation, RStreet.org for publishing these charts and to Jason Dinesen for pointing out the insurance information.

Posted in California, Nevada, Virginia | Comments Off on Tax and Insurance Administration Are Different

2014 Tax Season to Begin on January 31st

Posted on December 18, 2013 by Russ

The IRS announced today that 2013 personal tax returns will begin to be accepted on January 31st. Since most states piggyback onto the IRS’s computer system, most state returns can also begin to be filed on January 31st.

The 2013 tax season began on January 30th on a limited basis; it took the IRS several weeks before they could accept all returns. It appears that this coming year the full tax season will open at the end of January, so that’s a plus in comparison to the most recent tax season.

Of course, most taxpayers will be unable to file until later in the year. The deadline for issuing W-2s and most 1099s is also January 31st. However, brokerage account 1099s do not have to be issued until February 18th this year (the 15th falls on a Saturday, the 17th is President’s Day, so the deadline gets moved back three days). Additionally, the IRS routinely grants extensions to brokerage firms that need more time. Unfortunately for preparers, that has led to tax season being more and more compressed each and every year. I doubt the upcoming tax season will be any different.

For our clients, we plan on beginning distribution of Organizers and related documents next week.

Posted in IRS, Taxable Talk | Tagged | Comments Off on 2014 Tax Season to Begin on January 31st

IRS Provided Some Good Tips this Morning

Posted on December 17, 2013 by Russ

The IRS sends out tax tips, and this morning’s tips are worthy of a repeat: Start a filing system, make charitable contributions, and contribute to retirement accounts.

The IRS first noted that individuals should start a filing system.

If you don’t have a filing system for your tax records, you should start one. It can be as simple as saving receipts in a shoebox, or more complex like creating folders or spreadsheets. It’s always a good idea to save tax-related receipts and records. Keeping good records now will save time and help you file a complete and accurate tax return next year.

The IRS is absolutely right here…except about the shoebox. Please don’t send me a shoebox (unless you want your bill to go up a lot). If you document, document, and document, you’ll be in great shape not only to prepare your returns but in case your return is audited.

The IRS then suggested making charitable contributions.

If you plan to give to charity, consider donating before the year ends. That way you can claim your contribution as an itemized deduction for 2013. This includes donations you charge to a credit card by Dec. 31, even if you don’t pay the bill until 2014. A gift by check also counts for 2013 as long as you mail it in December. Remember that you must give to a qualified charity to claim a tax deduction. Use the IRS Select Check tool at IRS.gov to see if an organization is qualified.

Contributions are only deductible if made to a 501(c)(3) organization. I’m on the Board of a tax-exempt organization but we’re not a charity (it’s a 501(c)(7)). The IRS tool is handy. As the IRS notes, save your receipts; you need to have a written record for all donations of money to get the deduction.

The IRS last notes that contributing to retirement accounts is a good idea.

I agree: You need to contribute to your 401(k) or similar retirement plan by Dec. 31 to count for 2013. On the other hand, you have until April 15, 2014, to set up a new IRA or add money to an existing IRA and still have it count for 2013.

If you’re self-employed, you have even longer to start and contribute to a SEP IRA: the latter of April 15, 2014 or your timely filed return including extensions.

Once the clock turns to 2014 (and that’s in two weeks!), there isn’t much left that you can do that will impact your 2013 tax returns. So if you are thinking about making a charitable donation or starting a system to keep track of your expenses, now is a good time to act.

Posted in IRS | Tagged | 1 Comment

IRS E-Filing Closed Beginning on December 26th

Posted on December 17, 2013 by Russ

My software provider sent me an update tonight that the IRS e-filing system will be taking a holiday vacation beginning on December 26th and returning “sometime in early January; the exact date has not been announced.” This will impact business filers. Returns can still be submitted (they’ll be held by the software companies) and will be considered filed on the date submitted to the software providers.

The IRS has still yet to announce when 2013 personal tax returns can be filed (sometime between January 28th and February 4th).

Posted in IRS | Comments Off on IRS E-Filing Closed Beginning on December 26th

Health Care Fraud Leads to Tax Charge

Posted on December 15, 2013 by Russ

I’ve mentioned previously that if you fail to report illegal income on your tax return, you’re guilty of tax evasion. Yes, illegal income is just as taxable as legal income. This came into play with an ongoing investigation in Southern California.

It seems some medical practitioners came up with the idea of getting denizens of Skid Row into hospitals for unnecessary medical procedures. Dr. Ovid Mercene of La Mirada was one of the individuals involved in the practice. I’ll let the DOJ press release take it from here:

From 2008 and 2012, while Mercene worked at a Los Angeles-area hospital, he admitted patients, the vast majority of whom were homeless, who had been referred from a purported “care consortium.” The patients, many of whom did not require hospitalization, were admitted for the purpose of defrauding taxpayer-funded health programs such as Medicare, Mercene admitted in court today.

Mercene admitted the “patients” after watching them being transported by van from Skid Row to the hospital, where they were often kept on a special floor away from the hospital’s “regular” patients. These “patients” also were given smoking breaks while in the hospital, even though many of them supposedly suffered from respiratory diseases. After a short hospital stay where numerous unnecessary tests were typically performed, Mercene discharged the “patients” to skilled nursing facilities, even though they did not require such care.

Dr. Mercene received almost $700,000 in kickbacks. Somehow that income didn’t make it onto his tax returns. While I suspect the alleged health care fraud can be prosecuted under various statutes, the government had an easier charge (to prosecute) to make against Dr. Mercene: tax evasion. That’s what he pleaded guilty to last week. He’ll be sentenced next July.

Posted in California, Tax Evasion | 1 Comment

Another Nominee for Tax Offender of the Year

Posted on December 15, 2013 by Russ

It’s getting to be that time of the year: Nominations are due for the Tax Offender of the Year. Remember, to be considered for this award the offender must do more than just cheat on his taxes. It has to be special; it really needs to be a Bozo-like action or actions.

Via Joe Kristan comes a clear “winner” of a nominee: Phillip Ballard of Fort Worth, Texas was convicted of attempted murder for hire. Mr. Ballard, who is 72, is looking at 20 years at ClubFed. It’s why Mr. Ballard committed this crime that gets him his nomination:

While awaiting trial for tax evasion, Ballard approached a fellow inmate in September 2012, according to the criminal complaint.

Ballard said he believed U.S. District Judge John McBryde would sentence him to more than 20 years in prison; he wanted the judge killed so the case would be transferred to another judge.

And it only took the jury less than an hour to convict him.

Mr. Ballard’s tax preparation career ended in 2008; he followed the Irwin Schiff method of tax preparation (returns with all zeroes). At least one individual who followed Mr. Ballard’s advice is probably wishing he hadn’t. Richard Tilford was sentenced in 2012 to one year at ClubFed and had to make restitution of over $453,000 to the IRS. Mr. Tilford filed returns noting he had income but zeroed all that income out on his returns. As noted in the DOJ press release,

Each of the tax returns, according to the factual resume, was accompanied by a letter acknowledging that Tilford earned money during the relevant year, but denying that the earnings were income in the “constitutional sense.”

A hint for anyone who wants to try this at home: The only thing it will garner you is a nomination for Tax Offender of the Year. As for Mr. Ballard, he’s yet another worthy nominee for the 2013 Tax Offender of the Year award.

Posted in Tax Evasion | Tagged | Comments Off on Another Nominee for Tax Offender of the Year

It’s Nice to Know I’m Right, But…

Posted on December 14, 2013 by Russ

I’ve written on a few occasions about my battles with the IRS over incorrectly assessed Failure to File and Failure to Pay penalties. (See here, here, and here.) As I noted in the last post linked to above, I submitted this to the IRS’s Systemic Advocacy Management System (SAMS). Well, progress has been made.

It turns out there’s not a systemic issue, but at least two of them (and almost certainly at least three). First, the regulation that exists does provide an automatic extension for taxpayers outside of the US on April 15th for any reason. Here’s that regulation again (it’s Treasury Regulation, 26 CFR § 1.6073-4 (c)):

(c) Residents outside the United States. In the case of a U.S. resident living or traveling outside the United States and Puerto Rico on the 15th day of the 4th month of a taxable year beginning after December 31, 1978, an extension of time for filing the declaration of estimated tax otherwise due on or before the 15th day of the 4th month of the taxable year is granted to and including the 15th day of the 6th month of the taxable year.

The woman I’ve been dealing with at SAMS confirmed that the plain language of the regulation does govern. It’s also noted in the Internal Revenue Manual (IRM), which is how the IRS is supposed to resolve penalties. But:

1. IRS publications are likely wrong. Publication 54 notes that an extension is available only if outside of the US on April 15th for business purposes and you have to reside outside of the US. The clear language of the regulation is different and governs, so publications are wrong. They’ll have to be rewritten, which won’t happen for 2013 publications (they’ve already been issued and have a July deadline).

2. IRS staff is not using the IRM to properly resolve the matter. Based on the experiences of my clients, these penalties should have been resolved at the service centers. The staff at the service centers may be using publications rather than the IRM to look up how the Tax Code works. (It’s also possible that the IRM needs to be rewritten in this area to note this situation.) There will be a need to determine why the penalties weren’t resolved at the service center; it’s possible that retraining some staff is required.

3. The IRS computer system likely needs to be reprogrammed to stop these penalties from being assessed in the first place. That’s almost certainly not going to happen before 2013 returns are processed, but the sooner the underlying problem(s) in the programming are discovered, the sooner they can be resolved.

Since SAMS now agrees that there is at least one systemic issue, the matter is being elevated and an analyst (and team) will be assigned to attempt to resolve this…hopefully before 2013 tax returns are filed. Unfortunately for my clients impacted by this for 2012 returns, each such case must be fought individually. While I am now fairly certain my clients will all win in the end, it’s still a pain in the neck.

There are two related matters. First, how many taxpayers were erroneously assessed these penalties and didn’t fight them? I noticed the systemic issue because I had multiple individuals impacted in multiple years. It’s likely there are hundreds or thousands of taxpayers who paid penalties that shouldn’t have. If you happen to be one of them (and the tax year in question is still open), I’d immediately write the IRS requesting a refund of the penalty(ies).

Second, I wish to praise the Taxpayer Advocate’s Office of Systemic Advocacy. They did not blindly assume that the IRS was right on these penalties, and did look fully at the evidence I brought up. While I would have liked SAMS to move somewhat faster, getting the acknowledgment of being correct in four months is probably quite fast in terms of the normal speed of the bureaucracy.

Posted in International, IRS | Tagged , | Comments Off on It’s Nice to Know I’m Right, But…

Former Bell Administrator Pleads Guilty to Tax Fraud; That’s the Least of His Problems

Posted on December 13, 2013 by Russ

Former Bell (California) City Administrator Robert Rizzo pleaded guilty yesterday to two counts of tax fraud (conspiracy and filing a false income tax return). Mr. Rizzo, though, will likely never directly serve any time at ClubFed for those counts. Why?

Well, Mr. Rizzo pleaded no contest to 69 state counts of corruption. In what is (and was) a huge scandal, Mr. Rizzo and his cronies basically used the City of Bell as their own personal piggy bank. He’s going to be going to state prison for 10 to 12 years (his sentencing will be in March). The scandal allegedly included salaries of up to $800,000; gas tax money being used for these salaries; and falsifying city documents to hide the salaries. The city council members from that time period are awaiting trial.

It is very likely that Mr. Rizzo’s sentence will be served concurrently with his state sentence. However, Mr. Rizzo will owe restitution to the IRS (along with to the state and city).

Posted in California | Tagged | 1 Comment