Taxable Talk

There’s nothing like the Church of the Everlasting Tax Break. What–you haven’t heard of that church? Well, what about the Temple of the Holy Deduction? Missed that one, too? How about the Bondage Breakers Ministry? That one rings a bell.

And it should. I’ve reported on that group on two occasions. As Joe Kristan noted, “There have been other cases of attorneys using trust accounts to facilitate tax fraud, but this one is the most ambitious (stupid) to surface in some time.” The principals of Bondage Breakers, Lindsey Springer and Oscar Stilley, will get to enjoy bondage of another sort–ClubFed–for 180 months.

That’s 15 years in bondage. Joe Kristan has more.

Jack Barouh founded Michele Watches, a luxury brand. He sold the company to Fossil, Inc. in 2004 for $50 million. Mr. Barouh, a Holocaust survivor, in another American success story.

But Mr. Barouh had a problem. He remembered the holocaust, and he took money and hid it in various overseas accounts to avoid a recurrence of losing everything. He began putting the money aside in 1976. That wouldn’t be an issue, except he ran afoul of US foreign account reporting laws. Additionally, with millions of dollars in various foreign accounts that earned interest, he needed to report the income on his tax return.

He didn’t.

He pleaded guilty in February to one count of filing a false tax return. Mr. Barouh has paid $5 million in fines for not reporting his foreign accounts, and he will be paying his back taxes, interest, and penalties to the IRS.

Mr. Barouh was sentenced last week to ten months at ClubFed. He’s cooperating with the IRS and Department of Justice into their investigation of UBS. He’s given the government names of two bankers and an attorney. “The information he’s provided, we are using,” Assistant U.S. Attorney Jeffrey Neiman told the Associated Press. “It is ongoing.”

Most businesses maintain a set of books: the accounting records that show the income and expenses of the business. Most businesses keep accurate books. After all, it’s important to know how profitable the business really is. Other businesses, though, like the idea of two sets of books. One set shows the actual income and expenses. The second set shows lesser numbers that can be used so that lower taxes are paid. As long as no one finds out it’s an effective (but illegal) means of lowering the tax bill.

That’s exactly what John Pinone and Francis DelMastro are alleged to have done. Mr. Pinone and Mr. DelMastro ran a bar in Storrs, Connecticut called Civic Pub. The business, operated as an LLC, received cash. The owners, though, have been indicted on conspiracy and willfully filing false tax returns. It’s alleged that the owners kept the cash on the real set of books, not the books provided to their accountant and used to prepare their LLC and personal tax returns.

Mr. DelMastro is accused of keeping the allegedly skimmed cash in various places in his home, including his freezer (shades of former Congressman William “Cold Cash” Jefferson).

Mr. Pinone is a former star basketball player at Villanova and is currently a high school basketball coach. His attorney told the Hartford Courant, “We ask the people of this state to keep an open mind and remember John is presumed innocent. These proceedings are at the beginning and not at the end.”

There’s tax evasion, and there’s big-time tax evasion. Bill Melot, of Hobbs, New Mexico, committed really big-time evasion.

Mr. Melot had a farm near Hobbs. The news report doesn’t indicate what he grew, but he did get farm subsidies from the US Department of Agriculture.

But Mr. Melot didn’t want to pay taxes. And he didn’t–the last tax return he filed was in 1986. He used a false social security number and a phony Federal Employer Identification Number (EIN) with the USDA. Among his other crimes, he got $225,000 of farm subsidies illegally.

That, though, is the least of Mr. Melot’s troubles. His back tax bill totals $18 million. He neglected to report a bank account with Nordfinanz Zurich in the Bahamas. And he was convicted on Friday of tax evasion, failure to file tax returns, impeding the IRS, and making false statement to the USDA.

Mr. Melot will be sentenced in May, and he’ll be spending years at ClubFed.