It Only Works Until You Get Caught

Posted on May 3, 2012 by Russ

One of the recurring themes of this blog is that a business owner must pay his payroll taxes. The government considers Trust Fund taxes to be their money and they will always investigate payroll tax crimes.

Similarly, workers compensation is sometimes run through government and pseudo-government agencies. In California, there is the State Compensation Insurance Fund. The State Fund is a non-profit public-enterprise fund run like a mutual insurance company. However, it was created by the state of California. That makes it a pseudo-government agency. It’s a very bad idea to commit fraud against the government; it’s even worse to get caught.

George Osumi II has a construction business in Irvine. He apparently has his workers compensation insurance through State Fund. Mr. Osumi allegedly had a unique and, if proven, quite illegal method of lowering his insurance costs: He reported on his workers compensation report $3.5 million less in payroll than his actual payroll. That did allegedly save him several hundred thousand dollars in insurance costs. It’s also a felony. And since Mr. Osumi is alleged to have done underreported his wages 18 times, that’s 18 felony counts.

Adding to Mr. Osumi’s problems is that he is also alleged to have withheld state taxes and not remitted them. State tax agencies are just as certain to go after business owners as the IRS if you don’t remit withheld taxes. In total, Mr. Osumi faces 71 felony counts including perjury (he’s alleged to have lied to the State Contractor’s Board in stating that his business did not require workers compensation insurance), identity theft, and a host of state tax charges. Mr. Osumi is looking at up to 63 years in prison if found guilty on all the charges.

News Reports: OC Register, Daily Pilot

Posted in Payroll Taxes, Tax Fraud | 2 Comments

Texas #1, California #50 in Business Location Survey

Posted on May 3, 2012 by Russ

Another week, another survey of which state is best for business. For the eighth straight year, Chief Executive magazine ranked Texas as the best state in the union as to where to conduct business. Unsurprisingly, California is at the bottom. My state, Nevada, is at #12; Aaron’s home of Maryland is #40. Here are the top ten and bottom ten states:

1. Texas
2. Florida
3. North Carolina
4. Tennessee
5. Indiana
6. Virginia
7. South Carolina
8. Georgia
9. Utah
10. Arizona

41. Hawaii
42. Oregon
43. Pennsylvania
44. Connecticut
45. New Jersey
46. Michigan
47. Massachusetts
48. Illinois
49. New York
50. California

The two states that made the biggest moves were Oregon and Louisiana. Oregon fell nine spots in the ranking, likely due to their income tax increase that passed last year. On the other end of the spectrum is Louisiana, which was ranked 47th in 2006 but is now ranked 13th (up 27 spots from 2011).

Meanwhile, Chief Executive describes California as having slipped deeper into the ninth circle of business hell. Perhaps this section of the report will enlighten Sacramento:

The following is a representative sample of comments from participating CEOs:

  • California is the worst! They are doing everything possible to drive a business out of their state. If it were not for the climate, they would have lost half their population.
  • California regulations, taxes and costs will leave only tech, life sciences and entertainment as viable. If you aren’t an elitist, no room here for the middle or working classes.
  • California treats business owners like criminals. California has different overtime policies for its own employees vs. private sector.
  • California’s labor regulation is a job killer. We will be moving our business out of the state, which will lose hundreds of jobs simply due to the poor regulatory environment.
  • California should secede from the union—it is like doing business in a foreign country, it has its own exchange rate, and its regulation is crazy.

Meanwhile, the budget deficit in California grows (the Legislative Analyst says it’s at $3 billion and will grow from that number). Perhaps the idea of cutting regulations and spending just what the state takes in might garner some support in Sacramento. Well, one can always dream….

Posted in California, Louisiana, Oregon, Texas | Comments Off on Texas #1, California #50 in Business Location Survey

Eight Sacked, Including Two from the NFL

Posted on May 1, 2012 by Russ

The storefront in North Miami cashed checks. There’s nothing that unusual in that. However, there were two major differences between the storefront in Miami and most check cashing locations: The store charged very high fees (35%-45%) but didn’t ask questions about the checks that were cashed and it was operated as a sting operation by the FBI. Eight individuals, including two former NFL players, were arrested today on mostly tax related and identity theft charges.

From the DOJ Press release:

More specifically, [seven of] the defendants are charged with forgery of U.S. Treasury checks, in violation of Title 18, United States Code, Section 510, theft of government money, in violation of Title 18, United States Code, Section 641, and use of five or more identification documents with unlawful intent, in violation of Title 18, Untied States Code, Section 1028(a)(3).

The two former NFL players are William Joseph, who started his career with the New York Giants and ended his career in Oakland with the Raiders and Michael Bennett, who started his career with the Minnesota Vikings and also ended his career with the Raiders. Mr. Bennett, though, was sacked on different charges.

Mr. Bennett went to the storefront and asked for a loan, showing what purported to be $9 million of collateral in a bank account with UBS. The trouble was the balance in the account was $9 million less than what Mr. Bennett showed at the store (the account allegedly had no funds in it). Oops. Mr. Bennett has been charged with wire fraud.

Most of the defendants are accused of cashing between 11 and 35 fraudulently obtained tax refund checks. I am seeing and hearing more examples of identity theft; as noted in the DOJ press release,

U.S. Attorney Wifredo A. Ferrer stated, “Not only is identity theft America’s fastest-growing crime, it’s also a consumer’s worst nightmare. Most recently, identity theft has become a taxpayer’s worst nightmare also. As this three month undercover operation illustrates, identity thieves are using stolen identities to commit steal tax refunds from legitimate taxpayers. Identity theft, when combined with tax refund schemes, threatens the financial security of our citizens. It is time for tax refund scammers to realize that we will not allow them to steal others’ identities and line their pockets through fraud.”

As John V. Gillies, Special Agent in Charge of the FBI’s Miami Division, stated, “Without proper safeguards, identity theft tax fraud has become a growing epidemic.” Hopefully, these arrests are not the end of the FBI and DOJ actions against identity theft criminals.

News Story (Miami Herald)

Posted in Florida, IRS | Tagged | 3 Comments

Franchise Tax Board v. Hyatt to be Argued on May 7th

Posted on April 29, 2012 by Russ

The oral arguments in the appeal by California’s Franchise tax Board in Gilbert Hyatt’s lawsuit against the Board will be heard on May 7th in Carson City by the Nevada Supreme Court. The FTB is appealing the nearly $500 million judgment that was levied against them in February 2009. The case itself was filed in 1998, but took a circuitous path to trial in Las Vegas: It first went to the US Supreme Court as the Franchise Tax Board argued it was immune from being sued. The FTB lost that argument unanimously in 2003, and then lost the case in 2009.

The good news is that a decision in the case will likely come this summer or fall. The bad news is the oral arguments will be heard in Carson City so I can’t attend. Hopefully there will be news stories on the hearing (I’ll pass those on).

Posted in California | Tagged | 1 Comment

Amazon Tax Tossed in Colorado

Posted on April 29, 2012 by Russ

Taxdood has had a good series of posts on the Amazon tax. Amazon.com has negotiated with several states regarding collecting sales tax on purchases made from the online retailer. Amazon will begin to collect sales tax in Texas (beginning July 1st) and Nevada (2014).

Some states have imposed “Amazon” taxes–writing laws that force the online company to collect sales tax in those states. The typical Amazon tax says that affiliates cause Amazon to have nexus to that state. Recent court decisions may make Amazon bolder in fighting the taxes.

This past week a judge in Chicago ruled that Illinois’ Amazon tax was unconstitutional. In Denver, Judge Robert Blackburn ruled Colorado’s Amazon tax unconstitutional because it, “impose[s] an undue burden on interstate commerce…Enforcing a reporting requirement on out-of-state retailers will, by definition, discriminate against the out-of-state retailers by imposing unique burdens on those retailers.” I expect the Colorado Department of Revenue to appeal.

There is the possibility of this case heading to the US Supreme Court in a couple of years, especially if one Appeals Court rules the tax constitutional and another court rules it unconstitutional.

Posted in Sales Tax | Tagged , , | Comments Off on Amazon Tax Tossed in Colorado

Your Tax Dollars NOT at Work: 293 Ultra Low Mileage Priuses in Miami

Posted on April 29, 2012 by Russ

My partner, Aaron, has a Toyota Prius (actually, two of them, if you count his wife’s car). I like the car a lot, and I’m certain Aaron won’t misplace his car. Aaron, though, does not manage the vehicle fleet of Miami-Dade County (Florida). That city/county managed to “misplace” 293 Toyota Priuses.

A television station in Miami, Channel 41, spent eight months investigating and found the cars in a parking garage in Miami. This news report stated the cars were “rusty.” I can’t imagine having the cars sit in a garage for four years could do them any good. An auto blog speculates that this relates to the previous Mayor, Carlos Alvarez. (He was recalled in 2011.)

The good news is that 123 (or 135) of the Priuses are now in use. That only leaves 170 (or 158) left to go!

Hat Tip: Instapundit

Posted in Florida | Tagged | Comments Off on Your Tax Dollars NOT at Work: 293 Ultra Low Mileage Priuses in Miami

Vikings May be Tossed for a Loss

Posted on April 29, 2012 by Russ

The Minnesota Vikings play at the Hubert H. Humphrey Metrodome. The Vikings have played in the stadium since 1982, and the stadium used to host the Minnesota Twins and the University of Minnesota football team. Before playing at the Metrodome, both teams played at Metropolitan Stadium. The Twins now have their own new ballpark, Target Field and the Golden Gophers have their own new stadium, TCF Bank Stadium.

The Vikings want a new stadium, too, and have periodically threatened to move to Los Angeles or anywhere else that doesn’t have a professional football team. The Vikings also want to have their stadium built in part with public (taxpayer) money. And therein lies the rub.

Minnesota has a Democratic governor (Mark Dayton) [technically, he’s a member of the Democratic-Farmer-Labor Party, or DFL] and Republican leaders in the state legislature. The two parties appear to mirror the problems in Washington: They don’t agree on much. The Vikings want a nearly $1 billion stadium. They’d contribute around $427 million. The remaining funds would come from the city of Minneapolis (where the stadium would be located) and from the state of Minnesota.

Vikings fans want a new stadium, of course. The problems include:

– The GOP wants a reduction in the state business property tax (Governor Dayton opposes this);
– Democrats want a bond measure (the GOP opposes this);
– Minneapolis would like other cities (e.g. St. Paul) to help pay for the Vikings’ stadium;
– Rehabilitation of the Target Center (where the Minnesota Timberwolves of the NBA play) is somehow in the middle of this;
– The deal includes exclusivity for the Vikings to bring in a soccer team to the new stadium; and
– Rarely do new stadiums pay for themselves.

The Minnesota legislature is set to end their session tomorrow, but there’s a good chance they’ll head to overtime. There’s probably less of a chance of the Vikings getting their stadium this year.

News Stories:
Star-Tribune, Pioneer Press, MinnPost, and Bemidji Pioneer.

Posted in Minnesota | Comments Off on Vikings May be Tossed for a Loss

Hatch Finds a Job! (But Buyer Beware: Firm Linked to Roni Deutch & Another Accused Attorney)

Posted on April 26, 2012 by Russ

Congratulations to Richard Hatch, winner of the first Survivor and my favorite tax-challenged celebrity. Courtesy of Kelly Erb we find out that Mr. Hatch now has a job.

Yes, it appears to be another penny on the dollars firm. If some of you actually could read the disclaimer on the advertisement, I congratulate you! My eyesight just isn’t that good.

But this firm is different: They are just a referral service, and by doing a search on them I discovered that they have been advertising for people to buy their leads. I also found that they own http://www.taxcab.com with beautiful spokeswoman Tonya.

Unfortunately, MMAC Group may have some issues. When I looked up who owned the domain “taxcab.com” using whosis, I found the reference was to one Gregory Flahive. That name sounded familiar, and when I looked it up in Google I discovered that Mr. Flahive is one of three Sacramento area attorneys accused of taking thousands of dollars upfront from homeowners trying for loan modifications; that would be illegal if proven under California law. He faces 19 felony charges.

Yet another name associated with MMAC is Brandon Funk (see the link to the referral service). Mr. Funk’s name, too, rang a bell; he’s the former Client Intake Director for Roni Deutch’s firm. For those who aren’t aware, Ms. Deutch was accused of taking large up-front payments with promises of reducing individuals’ tax debts but provided little or no help in actually reducing their taxes.

Is this business legal? Probably; they’re not promising anything. Would I use Richard Hatch to help me recommend a good tax professional? Please….

Posted in Scams | Tagged | 1 Comment

California Tax Revenues Lag

Posted on April 26, 2012 by Russ

In what is, for me, the biggest non-surprise, California looks to be facing a $9 billion deficit. Reports are that income tax collections in April have severely lagged behind estimates. Given that the economy remains in the doldrums, only bureaucrats and Democrats in Sacramento should be surprised by the news.

Actually, Governor Jerry Brown has called upon Democrats in the legislature to approve cuts. The problem, though, is that they are beholden to special interest groups (mainly public employee unions) which would be directly impacted by those cuts. Sooner or later those cuts will have to be made, and they’ll be a lot less painful if they’re made sooner. Unfortunately, I expect later to win rather than sooner.

Meanwhile, Governor Brown’s proposed tax increase this fall would increase the amount of money to education. If the measure passes, that is; under California’s constitution, 40% of taxes go to education. So will schools see any of those funds? No, they’d all go to pensions. As more Californians find out about this expect the measure to flunk in November.

I’ve been saying for years the solution is that government must be small and nimble. I’ve written in the past about California’s plethora of government agencies. The size of government must shrink drastically for fiscal sanity to again exist in the Bronze Golden State.

Posted in California | Comments Off on California Tax Revenues Lag

Hurry Up and Wait: FullTilt/PokerStars/Group Bernard Tapie Update

Posted on April 24, 2012 by Russ

This post has nothing to do with taxes, but everything to do with online poker. You’ve been forewarned.

Today came news that Group Bernard Tapie has backed out of the deal to acquire the assets of FullTilt Poker. That is a fact, and that would normally be bad news for individuals who are waiting to be reimbursed by FullTilt. However, fresh on the heals of that news (and, in some cases, preceding that) came the rumor that PokerStars was acquiring FullTilt, and settling with the US Department of Justice for $750 million.

First, let’s deal with the facts. GBT says that they could not come to an agreement (with the DOJ) on repaying non-Americans and that there were issues regarding forfeiture laws outside of the US. I’ll take what GBT said at face value (though the reasons cited ring somewhat hollow with me). No matter, an acquiring company can always decide to walk away from a deal.

The next fact is that PokerStars is in negotiations with the DOJ to settle the criminal and civil charges filed against it. That’s not a surprise, as PokerStars would like to not have anything hanging over its head. This was confirmed by Eric Hollreiser, Head of Corporate Communications for PokerStars, in a corporate blog post today.

The rumored settlement amount, $750 million, feels right. Party Poker settled with the DOJ for around $300 million. If we consider that PokerStars operated in the US for five additional years after the UIGEA went into effect in 2006, the additional amount is reasonable.

It also feels right that the DOJ doesn’t want to deal with repaying Americans (or individuals outside of the US). Americans likely could file claims of rendition with the DOJ, and I suspect that the DOJ isn’t set up to deal with thousands of claims, so why not hand it off to PokerStars. That said, this part of the rumor could be wrong.

Let’s look at this from the DOJ’s point of view. “PokerStars operated for five years following implementation of the UIGEA. They committed bank fraud. They should pay at least double what Party paid,” might be how the DOJ looks at it. So the DOJ keeping $600 million and setting up a $150 million fund to repay Americans (the estimated amount owed US players by FullTilt is $150 million) also feels right. This is just speculation by me, and we’ll all have to wait for the press release by the DOJ.

And that’s the definite reality: Until the deal is signed off–and any deal with $500 million or more coming into the US will have to go up to the Attorney General (Eric Holder)–no one with concrete knowledge of the terms is going to say anything. This could be a matter of hours, days, or weeks. As my niece would say, “Hurry up and wait.”

There’s another certainty: No one in the US is going to be playing on PokerStars (or FullTilt Poker) if this deal goes through. This deal will not change current US law as interpreted by the DOJ. The DOJ believes that online poker is not legal under a variety of laws. Until legislation passes in Congress (or state legislation passes), there will be no legal online poker in the US. Nevada is in the licensing stage for intrastate online poker; the best hope for federal legislation will be in the lame duck session following the November election.

Finally, a brief comment about Ultimate Bet/Absolute Poker (remember them?): If the rumors are true about PokerStars purchasing FullTilt Poker, do not expect a repeat of them purchasing UB/AP.

Posted in Gambling | Tagged , | 1 Comment