Bozo Payroll Tax Scheme Lands Woman in ClubFed

Posted on June 3, 2012 by Russ

As I’ve said repeatedly, if you want to get in trouble with the IRS simply don’t remit payroll taxes that have been withheld to the government. You are certain to be investigated, and if any wrongdoing is found the investigation will quickly turn into a criminal probe. This story is about a rather

Nasheba Necia Hunte and Elmo Antonio George formed Winco Holdings Inc in Florida. George and Hunte were the only officers of Winco. They had no employees and paid no wages. Yet Winco filed employment tax returns for 2005-2007 showing substantial tax withholdings…withholdings that never happened. They even sent a rubber check for $1,676,991.16 to the IRS for Winco’s non-existent payroll tax obligations. The check was returned, “contact maker for authority to pay.”

The scheme gets more complex. The pair filed corporate tax returns for 2005 and 2006 that had phony partnership losses passing through to the owners as individuals. This generated refunds of $241,807. These funds were deposited into yet another entity, Dikingdom. The funds were used to buy a home in Georgia; George deeded the home to the “Overseer of Dikingdom” and claimed a church owned the property.

Ms. Hunte then made the not-so-brilliant decision to lie to investigators from IRS Criminal Investigation; she told them she wasn’t who she was. She also changed her address to a non-existent address.

In the end, this was all for naught. The pair were arrested for conspiracy to defraud the IRS and were tried and convicted. Both were also found guilty of two counts of filing false tax returns. She was sentenced last week to 51 months at ClubFed and must make restitution of just over $229,000 to the IRS.

My helpful advice to those considering schemes to defraud the IRS related to payroll withholding: Don’t. Sooner or later, usually sooner, the IRS will investigate and your scheme will fall apart.

Posted in Payroll Taxes, Tax Fraud | Comments Off on Bozo Payroll Tax Scheme Lands Woman in ClubFed

Another Survey, Another Bad Result for California

Posted on May 30, 2012 by Russ

Yet another survey puts California among the worst three states from a tax perspective. Alvarez & Marsal Taxand, a consulting and tax advisory firm, surveyed 800 financial executives (302 responded). Among the questions asked was Which states do you view as most competitive from a tax perspective? The usual suspects finished on the bottom: California, New York, and New Jersey. As Alvarez & Marsal Taxand noted, “…the states generally viewed as having complex tax systems and high tax rates are the three states listed (by a wide margin) as the least competitive states.” Alvaraz & Marsal Taxand Managing Director Don Roverto told the the Orange County Register, “The feedback from clients who do business in California is that it has one of the highest combinations of high rates and complex systems and that’s why it’s at the bottom.”

It’s also not a surprise which states finished at the top: Texas, Florida, and Nevada. These states all feature a tax exclusion or non-income tax based system.

Perhaps California will consider tax simplification, lowering rates, and making businesses feel wanted. Of course not–the Bronze Golden State will have one or two tax hike proposals on the November ballot.

Posted in California, Florida, Nevada, New Jersey, New York, Texas | Comments Off on Another Survey, Another Bad Result for California

On the Bright Side, Lawns Need Mowing at ClubFed, Too

Posted on May 28, 2012 by Russ

If there’s been a constant theme in this blog, it’s that if you monkey around with payroll taxes bad things will happen to you. Unfortunately, Michael Cioffi of Loxhatchee, Florida isn’t a reader of this blog.

Mr. Cioffi operated a very successful lawn service; back in 2005-2006 he employed 30 individuals. Mr. Cioffi paid his employees but didn’t withhold any payroll taxes. Sooner or later an employee will file his own income tax return and the issue of social security will arise. If you want to get in trouble, Mr. Cioffi definitely went down the right path.

Undoubtedly, the IRS began an investigation. When they discovered his 2006 return showed just under $800,000 of the over $2 million of gross receipts from his law business, a criminal investigation was a certainty. Mr. Cioffi pleaded guilty to one count of failing to account for and pay payroll taxes and one count of filing a false tax return. He’ll likely get to visit ClubFed in the near future.

Posted in Payroll Taxes, Tax Evasion | Comments Off on On the Bright Side, Lawns Need Mowing at ClubFed, Too

Consistency: WSOP Still Not Accepting Form 5754

Posted on May 27, 2012 by Russ

Back in 2007, I wrote this post regarding staking and the World Series of Poker. Five years have elapsed and nothing has changed. Caesar’s (Harrah’s changed their name a year ago), which operates the WSOP at the Rio Casino here in Las Vegas, still refuses to accept Form 5754. While this is an inconvenience to some, it can cause tremendous tax headaches for others.

For those wondering about the headaches, you can read this post I made last year. The three situations I noted regarding backing (staking) remain the same for 2012 as they were in 2011.

The only update isn’t a good one: The IRS is moving towards strict compliance regarding the issuance of Form 1099s and withholding requirements. I strongly urge anyone who is backed to have your agreements in writing. Further, if there’s a possibility you will need to withhold enroll in EFTPS and obtain an Employer Identification Number (EIN) as soon as possible. (Note: You can only apply online for an EIN from 7:00am – 10:00pm EDT on business days.)

Hopefully, Caesar’s will see the light and begin to accept Form 5754. After all, IRS regulations state they are required to accept the form. Until then, Caesar’s actions will continue to make sure that I’m fully employed.

Posted in Gambling | Tagged | 1 Comment

Miccosukees Definitely in the Running for Tax Offender of the Year

Posted on May 22, 2012 by Russ

When I last reported on the Miccosukees (a South Florida Indian tribe that runs a casino), the tribe decided to apparently ignore the advice of their then-attorney and not withhold taxes on earnings of their members. They now have been accused of not remitting taxes they withheld from patrons.

Via Taxdood comes news that the Miccosukees face a lawsuit from two patrons who played Bingo at their casino, won, and had taxes withheld from their winnings. The patrons weren’t amused when the IRS informed them that the supposedly withheld funds–withholding that appeared on their W-2Gs–didn’t make it to the IRS.

One interesting issue is whether the Miccosukees can be sued in federal court by the patrons. I suspect that the case may end up in tribal court. However, I also suspect that the IRS can cause nightmares for the Miccosukees if they aren’t remitting withheld money to the IRS.

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Strip Club Tax Proposed in California; Unlikely to Become Law

Posted on May 22, 2012 by Russ

There’s now a proposal in California to tax strip clubs. The revenue that would be raised by the tax, proposed at $10 per patron, would go to rape crisis centers in the state. However, because this is a tax it requires a 2/3 vote for passage. Given Republican’s hostility to anything with the word “tax” in it, this measure is very unlikely to become law.

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There’s Good Nostalgia and Bad Nostalgia

Posted on May 22, 2012 by Russ

Nifty Fifty’s is a nostalgia-themed chain of restaurants in the Philadelphia area. The chain is apparently successful, having won ten “Best in Philly” awards from readers of a Philadelphia newspaper. While the food is themed from the 1950s, the owners apparently longed for government out of the 1850s. Their unique method of helping the profitability of the chain was to not pay taxes.

The alleged scheme, which apparently went back to the founding of the chain in 1986, was to skim cash, pay employees in both paychecks and out of the skimmed cash, pay suppliers with skimmed cash, inflate expenses on their tax returns, and submit false tax returns to banks to obtain loans.

Apparently a plea deal is in the works. The company released a statement, telling Philly.com:

“We deeply regret our misconduct and accept full and complete responsibility for our actions,” the company said on behalf of the defendants. “We have been fully cooperative with the IRS to resolve these issues and have repaid all back taxes and penalties. We will continue to run each of our five restaurants in full compliance with the law. We wish to thank all of our employees, friends and business partners for their continued support as we move forward. Because this matter is still in the court system, we can have no further comment on this matter at this time.”

Given the contrition of the owners, it’s likely the defendants–co-owners Robert Mattei and Leo McGlynn, and Brian Welsh, Joseph Donnelly, and Elena Ruiz–will probably escape the maximum sentences which could have run into decades at ClubFed. But given the gravity of the charges of tax evasion, structuring, and bank fraud, and the length of time the scheme ran, a visit to ClubFed is likely in the future for many of the defendants.

Posted in Tax Evasion | 2 Comments

An Incorrect 1099-C Leads to Tax Court

Posted on May 21, 2012 by Russ

A taxpayer receives a notice of canceled debt income (Form 1099-C). He disputes the notice, stating that instead of the debt being canceled in 2008, the debt went away years earlier — 1996. The IRS says the notice says you have income so pay up. The dispute ends up in Tax Court. Who wins?

The taxpayer in question received a credit card from MBNA, and back in 1994 defaulted. MBNA wrote off the debt in 1996. In late 2007, a collection company (Portfolio Recovery Associates) acquired the debt from another collection agency (NCO Portfolio Management). PRA tries to collect, but the taxpayer writes a letter saying stop and the company ceases collection activities. PRA sends the taxpayer a Form 1099-C.

(Interestingly, the Court noted that a state statute of limitations had already expired on the debt in 2001. Thus, no one should be taking collection activities on the debt. If I were the Attorney General of Illinois, I might want to send a letter to PRA. But I digress….)

The Court found that the debt was discharged in 1998:

Without specific evidence to the contrary, it would appear that petitioner’s debt was discharged in 1999 when it was clear that the debt would not be repaid…

Respondent contends that petitioner’s debt was discharged in 2008 when PRA issued Form 1099-C. A decision by a creditor to discontinue collection activity may require that creditor to issue a Form 1099-C…It appears from the record that PRA attempted to revive the defaulted account in an attempt to coerce petitioner, using automated mailing and automated telephone calls, to make voluntary payments to PRA despite over a decade of nonpayment and an expired limitations period…

Therefore, on the basis of the record and after a practical assessment of the facts and circumstances surrounding the likelihood of repayment, we hold that petitioners did not have any COI income from PRA in 2008.

So the taxpayer today does not have canceled debt income.

One final point: Although the opinion doesn’t state this, it appears this case is the result of a CP2000. It is almost certain that the individuals who reviewed the responses from the taxpayer did not grasp the idea that not all IRS notices are correct.

Case: Stewart v. Commissioner, T.C. Summary 2012-46

Posted in IRS, Tax Court | 1 Comment

Beware: Lots of Incorrect IRS Notices

Posted on May 21, 2012 by Russ

A client of mine received a CP2000 notice from the IRS alleging that the taxpayer owes nearly $7,000. The IRS states that several stock transactions were not included on the return. My client calls me, I calm him down, and we discover that every single stock transaction noted in the notice was on the return.

A second client of mine received a CP2000 notice alleging that the taxpayers owe about $6,800. The IRS again finds stock transactions that weren’t included on the return, and $3,000 of interest that wasn’t included. Again, all the stock transactions were included. The interest was included, too: The 1099-INT used the full name of the bank (as did the tax return) but the notice used an abbreviated name. Apparently, the IRS computer couldn’t tell the difference.

A third client of mine received a CP2000 notice with missing stock transactions. Here, the client didn’t include several stock transactions (the IRS was correct). After the taxpayer sent me the missing 1099-B and basis (purchase price information), we discovered he lost money on the stock sales. She received a refund.

You may be noticing a pattern: Many IRS notices are wrong. Indeed, of the CP2000 notices I’ve seen this year, at least 80% are wrong. Yet I have clients who just want to pay the IRS to get them off their backs. I cannot overemphasize that most IRS notices are not reviewed by a human before they’re sent to you. You will be the first person to read the notice. Do not assume a notice is correct just because the IRS says so.

You have the right to dispute the notice. Take a look at the underlying issue(s), research the issue(s), and respond with backup paperwork. Make sure you respond timely (call the IRS if you need additional time; they’ll almost always grant an additional 30 days to respond), and use certified mail, return receipt requested so that you have proof that the notice was received.

If you do receive a notice that is correct (that is, you owe the tax), you should pay the tax. Remember, you may need to amend your state tax return as you may owe additional state income tax, too.

Posted in IRS | Tagged | 1 Comment

CPA Allegedly Practices Theft of Funds

Posted on May 20, 2012 by Russ

A few years ago, there was a tax blog called April15.com. The proprietor, William Murray, was a CPA in Sacramento. He had a “trust accounting” system. Payments were sent to him, and he supposedly forwarded those payments on. It was a lie. Millions were embezzled; Mr. Murray received 19 1/2 years at ClubFed. Unfortunately, Mr. Murray was apparently not the only person to practice such a system.

From Myrtle Beach, South Carolina comes word that Richard Voltz, a CPA, is alleged to have had clients forward payments to him. Those payments, supposedly over $480,000, didn’t make it to the tax agencies. Mr. Voltz is also alleged to have not reported the alleged defalcations on his own tax returns (illegal income is just as taxable as legal income) so he’s also been charged with tax evasion. He’s facing prison, fines, and restitution if found guilty on all the charges.

I haven’t met an accountant who want you to make checks for your taxes payable to the accountant. If that’s what your accountant wants, be afraid.

Finally, I’d like to point out that Mr. Voltz, like Mr. Murray before him, is a CPA. He presumably has taken his ethics requirements. That hasn’t stopped him from being accused of what would anyone would call a serious violation. I’m sure licensing every accountant will stop every accountant from committing a crime. (Sigh….)

Posted in South Carolina, Tax Evasion | 1 Comment