Hiring a Hit Man Isn’t a Good Strategy

Posted on March 2, 2012 by Russ

Last April, Steven Martinez was arrested and charged with 49 counts including mail fraud, identity theft, and filing false tax returns. Here’s what Mr. Martinez was accused of:

The indictment charges Martinez with stealing over $11 million in tax payments that should have been sent to the IRS. According to the indictment, Martinez presented his clients with completed tax returns indicating that they owed a significant amount of tax. The indictment alleges that he then persuaded his clients to write checks payable for the amount of taxes (or estimated tax) due and owing to an alleged client trust account (instead of directly to the IRS or the California Franchise Tax Board). Rather than deposit these checks into an actual client trust account, Martinez deposited them into several bank accounts in the names of fictitious entities. The indictment further alleges that after disguising the nature of the funds in the accounts, he used millions of dollars in tax payments to fuel his extravagant lifestyle which included a multimillion dollar home in Ramona, an airplane, a boat, a motor home, trips to the Super Bowl, and vacations in Mexico. The indictment also alleges that Martinez, in an attempt to conceal his fraud, filed a different set of false tax returns indicating that his clients owed little or no income tax. In this manner, Martinez defrauded the IRS and the California Franchise Tax Board of more $11 million in federal and state taxes due and owing.

Now, that’s allegedly a rather nasty kind of fraud. Still, there are plenty of tax fraud stories and this story probably would have ended there (with perhaps another mention when the trial occurred). Mr. Martinez, a former IRS Revenue Agent, was out on what I believe is $350,000 bail.

The trial was apparently approaching and it was time to find a strategy for the trial. Perhaps a good attorney was in order. Maybe trying to prove the accusations wrong would work. One strategy that would not occur to me is what Mr. Martinez allegedly chose.

From today’s news story, “CPA Accused of Tax Fraud Arrested for Alleged Murder-for-Hire Plot”:

According to a complaint filed in U.S. District Court, Martinez offered an acquaintance $100,000 in cash to kill the prosecution witnesses, provided him with photos of the targeted people along with personal information about them and suggested using a silencer-equipped gun for the slayings.

For the record, Mr. Martinez is apparently not a CPA (there is no listing for him at the California Society of CPAs); rather, he is just a tax preparer (licensed by the California Tax Education Council–CTEC). He is listed on the CTEC website. That means he’s taken the required hours of continuing education. It sure has apparently helped his ethics (well, that’s what Commissioner Shulman would tell us).

Needless to say, hiring hit men is not a good strategy.

Posted in Tax Evasion | Tagged , | 1 Comment

Business Intelligence Fails Founder of Business Intelligence, Inc.

Posted on February 28, 2012 by Russ

Sometimes when I read the tax news I don’t to embellish at all. From Cincinnati comes the story of James F. Simon, the founder of Business Intelligence, Inc. The company, founded by Mr. Simon in 1984, provides private investigation services in southern Ohio. From the news story:

According to court documents, the 66-year-old Simon took at least $1,047,656.23 from his business and failed to report the money as income, depriving the Internal Revenue Service of $385,967.81.

Simon also admitted to enlisting two other people to help him conceal gambling winnings from at least one Indiana riverboat casino.

Mr. Simon will be sentenced later this year on one count of tax evasion and one count of conspiracy.

Posted in Tax Evasion | Tagged | 2 Comments

Sales Tax on Services Under Consideration in Maryland

Posted on February 28, 2012 by Russ

For those who haven’t followed Clayton Financial and Tax, we now have an office in Maryland. Our charges for preparing your return aren’t dependent on whether you’re in our Las Vegas or Bethesda office. However, that may soon change.

Shiela Hixson and James Gilchrist, two Democrats in the Maryland House of Delegates (the lower chamber of Maryland’s legislature) introduced legislation that would add sales tax to 29 different services. The services that would be taxed under this proposed legislation include tax preparation, gyms, cable television, consulting, and dating services.

If this tax passes, the added costs to our business will be passed on to our customers. And, yes, there are always added costs in compliance: The time we will have to spend complying with bureaucratic paperwork.

I haven’t been following Maryland’s budget situation, but I’m sure they (like every state) are facing some shortfalls. The typical Democratic response is to increase revenues, not decrease expenses. That may be one of the reasons “Blue” states find themselves with worse budget situations than “Red” states. However, I might just be too cynical.

[Image of Maryland’s state flag from Wikipedia]

Posted in Maryland, Sales Tax | Comments Off on Sales Tax on Services Under Consideration in Maryland

1099/1096, W-2/W-3 Deadlines This Week

Posted on February 27, 2012 by Russ

It’s a leap year, so we get an extra day to get those information returns to the government, right? Well, that’s half-right this year (and also half-wrong).

The deadline for mailing Form 1099s and Form 1096s to the IRS does not change in a leap year. If you file paper forms, they are due tomorrow, February 28th. That’s a postmark deadline, so go to the post office and mail the forms using certified mail, return receipt requested. (You can also use an Automated Postal Center, as those will give you a time-stamped receipt.) If you file late, the penalty starts at $30/information return (and goes up depending on how late you are).

The deadline for mailing W-2s/W-3s to the Social Security Administration does change in a leap year. Those forms must be postmarked by February 29th. Again, I strongly advise using certified mail, return receipt requested.

If you file either of these forms electronically, you have an extra month to get those forms in. And because March 31st falls on a weekend, you have until Monday, April 2nd to file electronically.

Posted in IRS | Comments Off on 1099/1096, W-2/W-3 Deadlines This Week

Gambling Addiction Costs Ice Winery Head

Posted on February 26, 2012 by Russ

Something I didn’t know until recently is that wine grapes are grown in all 50 states. They’re also grown in Ontario, Canada. One winery head dipped into the till because he liked to gamble.

From St. Catharines, Ontario, comes the story of Charles Pillitteri, head of the the Pillitteri Estates Winery. Mr. Pillitteri apparently liked to gamble, and back in 2004 and 2005 Mr. Pillitteri reached into the company’s cash and took $439,102 and $951,508 (Canadian Dollars). The Canada Revenue Agency found out, and the company was fined the amount of the back taxes: $122,031 and $202,510 for 2004 and 2005. The company has paid the fines assessed when Mr. Pillitteri pleaded guilty to tax evasion.

Mr. Pilliteri no longer gambles according to this news report. Connie Slingerland, the CFO and the sister of Mr. Pillitteri, told the National Post, “We’re very proud of what we do…. This happened a long time ago, and all the measures have been put in place for it not to happen again.”

The specialty of Pillitteri Estates Winery is ice wines; the grapes for the wines are frozen on the vine, picked, and then crushed while still frozen. It sounds like the perfect thing to try during a Las Vegas summer.

Posted in Canada, Tax Evasion | 1 Comment

Pensions for All? California Legislator Introduces Mandatory Pension Bill

Posted on February 26, 2012 by Russ

Every time I think the Bronze Golden State has reached a new low, I have to remember that I should never overestimate the intelligence of the California legislature. Kevin De Leon (D-Los Angeles) has introduced a bill that requires any business with five or more employees to have a defined benefit pension plan. Employees would contribute around 3% of their wages into the plan; employers would be allowed to make voluntary contributions. The plans, though, would be mandatory to California businesses.

The unintended consequences of passage of this bill are simple. First, would employer contributions remain voluntary for long? I doubt it. And that leads to the second consequence: Fewer employers in California. Why would any business expand in high-cost California where regulation after regulation is put upon it when they can expand in a lower cost environment (such as Nevada or Texas). This leads to the final consequence: Fewer employees in California.

I also have to wonder if the Democrats in Sacramento have ever taken a course in basic economics.

Posted in California, Pensions | Comments Off on Pensions for All? California Legislator Introduces Mandatory Pension Bill

IRS Commissioner Fails Reading Comprehension

Posted on February 21, 2012 by Russ

Our Tax Code is needlessly complex. Still, there are portions that are straightforward. Take Section 7803(c):

(3) Responsibilities of Commissioner

The Commissioner shall establish procedures requiring a formal response to all recommendations submitted to the Commissioner by the National Taxpayer Advocate within 3 months after submission to the Commissioner.

Now, that seems very straightforward to me: If the National Taxpayer Advocate (Nina Olson) make a recommendation, the Commissioner (or someone he assigns) must respond within three months. There are no ifs, ands, or buts.

Until now. From Tax Analysts (via Joe Kristan/Roth Tax Updates):

IRS Commissioner Douglas Shulman has no plans to respond in writing to National Taxpayer Advocate Nina Olson’s taxpayer advocate directive (TAD) on the IRS offshore voluntary disclosure program (OVDP) despite a statutory requirement that taxpayer advocate recommendations be responded to within 90 days, Olson said February 17.

Now, if one of my clients has 90 days to respond and ignores the IRS, he loses. If I ignore my responsibilities (if I have 90 days to respond to something), I will have committed malpractice and (rightly) be sanctioned. But according to Commissioner Shulman, the law only applies to him when he wants it to apply to him.

Joe Kristan has more.

Posted in IRS | Comments Off on IRS Commissioner Fails Reading Comprehension

Clubhouse Manager Strikes Out

Posted on February 21, 2012 by Russ

Well, that headline was easy to write. From Queens, New York, comes the story of Charlie Samuels. Mr. Samuels was the clubhouse manager of the New York Mets. He also had itchy fingers: Mr. Samuels stole memorabilia from the Mets, including a complete set of 1986 World Series jerseys. He also padded his expense accounts. Finally, along the way he forgot to pay income tax on his ill-gotten gains. After being arrested last May he pleaded guilty today in a plea bargain deal to possession of stolen property and state tax fraud.

Mr. Samuels is expected to receive probation. He was also ordered to make restitution: $21,000 to the New York State Tax Department, $15,000 to the New York City Finance Department, $15,000 to the Queens District Attorney, and $24,955 to the Mets. Mr. Samuels’ attorney noted that in the end he was “only” in possession of $50,000 of stolen memorabilia, not the $2.3 million he was originally accused of having. Still, that was $50,000 too much.

Posted in New York, Tax Evasion | Tagged | Comments Off on Clubhouse Manager Strikes Out

Businesses Act Based on Taxes (Will Liberals Change their Policies?)

Posted on February 19, 2012 by Russ

In what might be an “I told you so” moment, Haas Automation of Oxnard, California (northwest of Los Angeles) is growing and needs to expand. They began the planning for a $20 million new building and all seemed well.

And then Governor Brown and the Democrats who control Sacramento started debating tax increases. Not will there be an increase, but which increase should pass. Businesses don’t like that, and Haas put a stop to the new building.

Let’s see what California offers in comparison to, say, Nevada and Indiana (which just became a “Right to Work State”). California does have a well-trained workforce, and for machine tools it’s likely better than Nevada. Indiana might meet that quality of workforce (there is a lot of automotive industry work done in Indiana).

Now, let’s examine the disadvantages: California is a regulatory nightmare; Nevada and Indiana aren’t. Wages in California are higher than Nevada and Indiana. California is the opposite of a Right to Work State while Nevada and Indiana are Right to Work States. Nevada has no state income tax while Indiana is in the middle of the pack for income taxes; California has one of the highest income tax structures in the United States. This news story notes that other states are offering free land, interest-free loans and savings on property tax. California offers none of that.

Perhaps the California legislature might ask themselves what would happen if they keep driving successful businesses out of state…because their actions are doing just that. Or perhaps they think that businesses don’t act rationally? If that’s what they do believe, they are wrong: Businesses don’t want to move, but if they must they will. Businesses do act rationally, and if it is prohibitively expensive to expand in California they’ll expand elsewhere.

One other unrelated point: I’m glad to see that Haas Automation has recovered from the actions of its founder. For those who don’t remember, Gene Haas was my Tax Offender of the Year for 2007. They just produced their 125,000th CNC Machine; that’s a remarkable feat for the company.

Posted in California | Tagged , | Comments Off on Businesses Act Based on Taxes (Will Liberals Change their Policies?)

Remember Gilbert Hyatt? (An Update)

Posted on February 19, 2012 by Russ

One of the blogs I read, How Appealing, posted a link to this story on California’s attempt to ban video games featuring “murder and mayhem” from being sold to children cost the Bronze Golden State $2 million.

That’s nothing.

There’s a case that’s still waiting to be heard at the Nevada Supreme Court that’s cost California taxpayers many millions, and has the potential to cost the state over half a billion (yes, $500,000,000). The Franchise Tax Board’s appeal of Gilbert Hyatt’s lawsuit is waiting a date to be set for oral argument. It’s been stuck in this status for over a year (the last change noted in the online tracking system for the case was on February 4, 2011). I don’t know what the average wait time is, but most likely later this year this case will be heard.

If the appeal is heard here in Las Vegas (the Nevada Supreme Court holds sessions in Carson City and Las Vegas), I plan on attending…some day (hopefully in 2012).

Posted in California, Nevada | Tagged | Comments Off on Remember Gilbert Hyatt? (An Update)