The Wrong Kind of Education Leads to ClubFed

Posted on November 4, 2013 by Russ

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.

Posted in Tax Fraud | Tagged , | 1 Comment

IRS Scandal Update

Posted on November 3, 2013 by Russ

The political news has been dominated as of late by the ObamaCare follies. However, the IRS scandal continues to percolate. There has been some news this past week:

The National Organization for Marriage sued the IRS over the leak of its Form 990 Schedule B; that schedule contains NOM’s list of donors. That’s confidential under the law. Unfortunately, someone at the IRS leaked that Schedule B to its political opponent, the Human Rights Campaign. That in itself is a violation of federal law. It appears the House Ways and Means Committee has figured out who the villain is, and they would like to see the Department of Justice prosecute that individual. No word from the DOJ on this happening; given the politicized nature of the current DOJ, I doubt we’ll see this happen.

Meanwhile, it appears we know why Lois Lerner took the Fifth: The Washington Examiner accuses Ms. Lerner of sharing confidential tax information of several Tea Party groups with the Federal Elections Commission. That’s also a violation of the law. Though the Examiner is the accuser, it’s really Judicial Watch that’s making the accusation; that organization obtained emails under a Freedom of Information Act request that allegedly show Ms. Lerner emailed the confidential information. I’m sure the DOJ will get right on this (not).

For the IRS to function effectively, it needs both a reasonable budget and to be apolitical. It’s vital that the Department of Justice go after individuals who turn the IRS into a political organization from an apolitical one. Yet the current Administration apparently doesn’t see the urgency in this issue. That’s a huge mistake, and one that will definitely come back to haunt them and all Americans. We need a well functioning IRS…and given what the Administration is doing (and not doing), it’s very likely the budget for the IRS will continue to shrink.

Welcome Instapundit readers. I cover taxes with an emphasis on small businesses and gambling (my two tax practice specialty areas); I also focus on Nevada and Maryland (where our two offices are) and California (where I used to live and work). I try to have some fun with taxes as the subject is generally tedious.

Posted in IRS | Tagged , | 3 Comments

Bubba Paris Sacked, Pleads Guilty to Not Filing a Tax Return

Posted on October 31, 2013 by Russ

Former San Francisco 49er William H Paris, Jr. (aka Bubba Paris) is now a motivational speaker. He’ll have a new topic to talk about: Why You Should Pay Your Taxes.

Back in February Mr. Paris was indicted on three misdemeanor counts of failing to file a tax return. He was alleged to have earned between $41,700 and $83,800 annually from 2006 to 2008. He pleaded guilty on Wednesday to one count of not filing a tax return in a plea deal. Mr. Paris agreed to make restitution of $126,530; he’ll be sentenced next February. He faces up to one year at ClubFed and a possible fine of up to $100,000.

That’s the second former football player who has not had a good week. Former Philadelphia Eagle Freddie Mitchell was sentenced to 37 months at ClubFed earlier this week. Mr. Paris, though, is not facing as lengthy a sentence. At most he faces one year in prison; given that he has promised to make restitution it’s likely he’ll get probation.

A hint to celebrities: You’re a perfect target for IRS Criminal Investigations when you don’t file and pay your taxes. If you are convicted, it will be covered in the news. Consider that Bubba Paris didn’t report tax on $182,743 and is paying restitution of $126,530 (which include penalties and interest)–That’s a tax rate of 69%! He’ll also have to pay California, too. It’s a lot easier to just pay your taxes in the first place.

Posted in California, Tax Evasion | Tagged | 1 Comment

Illinois’ Bankrupt Pension Systems and Tax Hikes

Posted on October 31, 2013 by Russ

I was born and raised just outside of Chicago. I still root for Chicago sports teams (Blackhawks, Bears, and Cubs). Yet I’m quite happy that I don’t reside in Illinois today. Illinois’ pension systems are basically bankrupt and Democrats in the Illinois legislature have but one solution: tax hikes.

The Illinois Policy Institute has a research report noting that taxpayer contributions to state pension funds have skyrocketed. But didn’t Illinois pass a tax increase in 2011 that would “solve” the state’s budget woes? Yes, such a tax increase passed; no, the budget woes haven’t vanished.

Unfortunately, the Democrats in the Land of Lincoln have a proposal that will solve the problems: more tax hikes! State Representative Naomi Jakobsson has introduced HJRCA0033 which would make Illinois’ state income tax progressive, with a top rate of 9%. The state’s rate would be 4% at just $18,000 of income (the state’s tax rate is supposed to be just 3.75% in 2015). .As the Illinois Policy Institute noted, this will hurt the working and middle classes hard.

The only true solution is to attack the cause of the problems. That means pensions and state spending in Illinois will need to drop drastically. That’s not likely to happen until the voters force it upon Springfield.

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PTIN Follies, Year 4

Posted on October 31, 2013 by Russ

This is the fourth year I’ve had to pay for my PTIN (my third year to renew it). A PTIN is a Preparer Tax Identification Number–it’s a number I use when I prepare a tax return. It’s a means for the IRS to identify which returns are prepared by which tax professionals.

The IRS announced that renewals are open. Seeing no reason to wait I decided to log into the system. I did remember that my user name is all caps (the IRS converted it back for my first renewal, 2011).

Again, my password doesn’t work so I request a new one. I get into the system fine, and enter my information, hit “next” and…I’m logged out. I re-enter the system…and am immediately logged out again.

I try calling the help number for the system…and after hitting the correct combination of digits on my phone, hear the helpful message, “There is no one available to help you at the present time. Your call will now be disconnected.” CLICK!

I remain underwhelmed. (I’ll try again in a week.)

Posted in IRS | Tagged , | 1 Comment

Noguez Gets More Charges

Posted on October 30, 2013 by Russ

Los Angeles County Assessor John Noguez finds himself facing more felony counts in the ongoing bribery/tax evasion scandal rocking the Los Angeles County Assessor’s Office. The new charges relate to three more building where Mr. Noguez and consultant Ramin Salari allegedly took bribes to lower the building’s assessments. Both Mr. Noguez and Mr. Salari pleaded not guilty to the new charges.

The last time I wrote about this scandal was last October. The preliminary hearing is set for January.

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Coming Attractions: When the IRS Writes New Law When They’re Not Allowed To

Posted on October 22, 2013 by Russ

The IRS is part of the Executive Branch of government. The Executive Branch can’t write law–they can issue regulations based on laws passed by the legislative branch (Congress) and then only when Congress authorizes it. There’s an issue percolating in the courts which is likely going to cause a huge headache throughout the country: tax credits for federal health care exchanges.

Today, a federal court judge in Washington denied the Administration’s request to stop a lawsuit challenging the IRS’s interpretation of the ability to give tax credit subsidies on federal health care exchanges. US District Judge Paul Friedman denied a preliminary injunction but did order the case tried on an expedited basis; he said that he expects to issue a ruling by February. Earlier this year a judge in Oklahoma also denied an Administration dismissal request in a similar case. There are two other cases filed on this matter.

Jonathan Adler of the Volokh Conspiracy notes the issue succinctly:

The IRS rule contravenes the plain text of the PPACA, as the statute only authorizes tax credits (and subsidies) for the purchase of insurance in an exchange “established by a state” under Section 1311 of the law…Supporters of the IRS rule claim that Congress could not have intended that Americans in dozens of states would be unable to obtain tax credits to help them purchase insurance. They’re right. Congress intended for every state to create its own exchange, as PPACA supporters said time and again, but states refused. Now that their assumption has been proven wrong, this does not provide an excuse to rewrite the plain statutory text.

This matters because in tax when a statute says “x,” it’s “x.” A good example of this is some of the ludicrous ways the Alternative Minimum Tax impacts individuals. Judges have stated in their rulings that these make no sense but because it’s written into the statute, there’s no choice on this matter: Until Congress changes the law, they’re stuck. I expect the same thing to happen here. Of course, Congress could change the law but the chance of that happening is equivalent to the chance of snow in Las Vegas in July.

Assuming that this suit is successful, it will strike at the heart of the mandates in the law. Assuming this ruling comes in February, there will be even more of a mess with the law. The ObamaCare rollout has hardly been something one could call “smooth.” Proponents have been hopeful that the light they’re seeing is the end of the tunnel. To me, it looks like an oncoming train.

Posted in IRS, Legislation | Tagged | 1 Comment

Sigh: 2014 Tax Season to be Delayed up to Two Weeks

Posted on October 22, 2013 by Russ

Just the news that every tax professional wants to hear: The 2014 tax season (2013 tax returns filed next year) will be delayed one to two weeks. It appears the start date for processing will be sometime between January 28th and February 4th (instead of January 21st).

The IRS gives as the reason the government shutdown and I have no doubt they’re correct. In prior years, I remember that all IRS computer systems going down on Columbus Day weekend (which is a federal holiday) to begin updating the IRS computer systems for the next year’s filing season. This didn’t happen this year as the employees who would have done that work weren’t working. So I do think the IRS is behind, and that this is a direct result of the shutdown.

This will be the second straight tax season that begins late. The just concluded tax season began late because Congress didn’t enact needed legislation until January 1, 2013. Unfortunately, there’s a chance that the upcoming tax season could be delayed even further if the government shuts down again. The current funding will run out on January 15, 2014. I don’t expect that to happen…but we’re dealing with Congress and, well, we’ve seen them in action (or is it “in inaction”) before.

Posted in IRS | Tagged | 1 Comment

One Down, One to Go: DOJ Gets an Injunction, Asks for Another

Posted on October 20, 2013 by Russ

One of the more humorous (to me) aspects of the Loving case was hearing the IRS argue that it has no means of disciplining rogue tax preparers. That’s just not true. If I deliberately prepare a bad return, I can be sanctioned and penalized. If I prepare a series of bad returns, the Department of Justice can attempt to have me barred from preparing federal tax returns. As noted at the end of one of the two press releases I’m linking to in this article, “In the past decade, the Justice Department’s Tax Division has obtained more than 500 injunctions to stop tax fraud promoters and tax return preparers.”

Anyway, Tobias Elsass had two businesses that prepared tax returns: Fraud Recovery Group Inc. and Sensible Tax Services Inc. As the DOJ noted, “The Court found that Elsass and Fraud Recovery Group have continually and repeatedly promoted a nationwide scheme falsely informing their customers that they were entitled to claim large theft loss tax deductions, and then preparing the tax returns that improperly claimed such deductions.” If you have a casualty loss you are absolutely allowed to claim a deduction for it (subject to income restrictions)…but you must actually suffer a loss. It appears that Mr. Elsass skipped that minor detail in preparing clients’ returns. I’ll let the DOJ take it from there:

The opinion notes that hundreds of theft loss deductions claimed on tax returns prepared by Elsass and his companies were improper, because the financial losses they sought to deduct were merely the result of company mismanagement instead of criminal conduct – as Elsass knew. Elsass and his companies were also aware that the Internal Revenue Service (IRS) was disallowing such claims, but filed similar claims for other investor customers in any event, in the hope that the later filings would escape IRS scrutiny…

The court also determined that Elsass had intentionally engaged in “incompetent or disreputable” behavior not becoming a tax professional. Based on the record before it, the court found that Elsass seemed “perfectly willing to lie and deceive, even to the extent of possibly committing perjury, in order to advance his own interests.” Accordingly, the “sheer magnitude and variety of the Defendants’ transgressions” made permanent injunctive relief appropriate.

Meanwhile, the DOJ asked that another preparer in Mississippi be barred from preparing tax returns. Danee Aikens’ Comprotax Service is accused of falsely increasing household help income so that the Earned Income Credit could be taken and that phony education credits were included on clients’ returns. The DOJ believes the loss to the government could exceed $7 million from this case.

I’m all for the IRS and DOJ going after the dirty underbelly of my profession. They have tools to do so…as they themselves pointed out at the end of both of these press releases.

Posted in Tax Preparation | Tagged | 2 Comments

Can an Indian Tribe Open a Casino on Non-Tribal Land that the Tribe Purchases?

Posted on October 20, 2013 by Russ

The Bay Mills Indian Community (Tribe) has a reservation on Michigan’s upper peninsula. The tribe decided to open a casino in Vanderbilt, Michigan–over 100 miles from the reservation. Is that legal?

The tribe purchased the land and argues that since they purchased it with trust funds, it becomes tribal land and a casino can be placed on the land. The tribe also believes it to be immune from lawsuits (sovereign immunity). The State of Michigan disagrees. The case will be heard on December 2nd; a decision should be rendered by next summer. This case will go a long way in deciding on what the limits are to Indian casinos in the United States.

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