The Stop Tax Haven Abuse Act and Online Gambling

Posted on March 4, 2009 by Russ

Senator Carl Levin (D-MI) and others introduced the Stop Tax Haven Abuse Act on Monday. The Act targets financial transactions into (or out of) jurisdictions that are considered to be tax havens.

Senator Levin has posted a summary of the legislation. Given that I expect many Republicans to support this measure I think it has a good chance of passage.

There’s some interesting language in the bill, and online gambling may end up impacted by this. Many of the online gambling sites are located in tax havens, including the Isle of Man, Gibraltar, Malta, Costa Rica, and Antigua and Barbuda. The Act states the following for Transfers of Income:

Transfers of income – In a tax proceeding, any amount or thing of value –

* a) transferred to a U.S. person (other than a publicly-traded corporation) directly or indirectly from an account or entity in an Offshore Secrecy Jurisdiction, or
* b) transferred from such a U.S. person directly or indirectly to an account or entity in an Offshore Secrecy Jurisdiction, will be presumed to represent previously unreported income to the U.S. person in the year of transfer.

So if you’re not keeping records, everything moved to or from an online site would be considered income unless you could prove otherwise.

Additionally, the FBAR (foreign financial account reporting) would be strengthened. “Presumption is that any account in an Offshore Secrecy Jurisdiction contains funds sufficient to trigger this reporting requirement.” So all online gambling accounts would have to be reported in any of these countries.

There’s a lot in the act, and quite a bit of it is laudable. As the recent Swiss escapades have shown, there’s plenty of tax haven abuse occurring. Unfortunately, online gambling may get caught in the crossfire.

The TaxProf Blog has links to news commentary on the proposed legislation. Additionally, on Wednesday there will be a hearing on the Swiss tax scandal in Washington.

Posted in Gambling, Legislation | Comments Off on The Stop Tax Haven Abuse Act and Online Gambling

Louisiana Bar Owner and Poker Player Accused of 505 Counts

Posted on March 1, 2009 by Russ

I usually don’t report on state tax fraud, but when I see someone accused of 505 counts, that gets my attention. From Lafayette, Louisiana, comes the story of Eric Cloutier. Mr. Cloutier is a former professional hockey player, and also has the same avocation as myself. He’s a poker player, with about $160,000 in career winnings.

Mr. Cloutier owns two bars in Lafayette, and the Louisiana Office of Alcohol and Tobacco Control (LATC) was suspicious of his bars. The LATC alleges that Mr. Cloutier manipulated his cash registers so that the sales reported were substantially less than the actual sales—$1.4 million of under-reporting.

That’s not the only thing he’s accused of. There’s one count of racketeering, two counts of theft and two counts of attempted theft, 67 counts of computer fraud, 92 counts of filing false public records, and a whopping 340 counts of obstruction of justice. Those 340 counts come from allegedly destroying evidence once the investigation had begun.

It doesn’t take a math genius to figure out that Mr. Cloutier is looking at spending a lot of years in a Louisiana prison if found guilty.

Posted in Tax Fraud | Comments Off on Louisiana Bar Owner and Poker Player Accused of 505 Counts

Neither Rain, Nor Sleet, Nor Snow, But Sticky Fingers…

Posted on March 1, 2009 by Russ

The inscription on the New York City General Post Office is actually, Neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds. Yet one postman serving the Bronx is, I assume, on administrative leave. He’s accused of being one of the individuals involved in a $40 million tax refund theft scheme.

As reported by the New York Daily News, the scheme began in the Dominican Republic. Thousands of tax returns were transmitted using social security numbers stolen from residents of Puerto Rico. The refunds, for amounts from $2,000 to $32,000, totaled $32 million. The mailman, Lacy Bethea, allegedly agreed to take $100 per refund that he gave to his cutout (rather than delivering it to the address shown on the refund). Both the mailman and his cutout appear to have cooperated with the FBI. Also involved in the arrests were police in the Dominican Republic.

The ringleaders are looking at very long stays at ClubFed if found guilty. It’s unclear what tipped off the IRS to the fraud, but I’m all for stopping such shenanigans.

Posted in Tax Fraud | Comments Off on Neither Rain, Nor Sleet, Nor Snow, But Sticky Fingers…

Castroneves’ Trial to Begin

Posted on March 1, 2009 by Russ

Helio Castroneves, the race car driver who is accused of being fast and loose with his tax returns, goes on trial tomorrow in Miami. Mr. Castroneves is accused of using a Panamanian shell company to hide $5.5 million in income. Mr. Castroneves proclaims his innocence; the government claims otherwise. I’ll let you know what the jury decides. Both sides believe the trial will last about a month.

Posted in Tax Evasion | Comments Off on Castroneves’ Trial to Begin

A Bad Week for Bozo Tax Preparers

Posted on March 1, 2009 by Russ

I try hard to help my clients pay the lowest tax possible—legitimately. These Bozos skip that last word.

Let’s start in Valdosta, Georgia. Back in November I reported on the scheme of Pamela and Clinton Hughes to claim fraudulent tax refunds for using diesel fuel off the highways. There’s a federal tax on diesel fuel, and if you use it off the highways (they claimed they used the fuel in logging) you can get a tax refund. The only problem was that it was a lie. And not a small lie; this was a $5.2 million scheme. Pamela Hughes got 33 months at ClubFed; her husband got 48 months. Each also has to make restitution of just under $4 million.

We next head to Rockford, Illinois. Angelique Tinder, aka Angelique Howen, used to operate Your Tax Master. She catered to a niche: Bosnian immigrants. The price was right; she only charged $35 to $40 a return. And she got her clients refunds, calling money sent to the families back home in Bosnia as ‘charitable contributions.’ Unfortunately, that public service has a problem—you can’t take a charitable contribution deduction on money not given to charities. And when the total of the attempted fraud adds up to $2.5 million, you’re in trouble. She was found guilty of multiple counts of tax evasion, and must make restitution of $1,085 to her clients…and serve 63 months at ClubFed. If the judge had a sense of humor and announced the sentence in that order….

Next, we head to Omaha, Nebraska. Siyad Ali also specialized in preparing tax returns for immigrants; he specialized in Sudanese immigrants. He was a generous individual, and added foster children to his clients’ returns. Throw in some phony fuel tax credits, earned income credits, and incorrect filing statuses (Head of Household), and you end up with $67,000 of fraudulent refunds. Mr. Ali was found guilty; his clients have already had to pay back the refunds with interest and penalties. Mr. Ali will be sentenced in June.

Here in Irvine I’m a member of the Exchange Club of Irvine. One of the events we put on is the Teacher of the Year Banquet; this past week the Teachers of the Year were announced. That story headlines some of the good that teachers do.

Unfortunately, sometimes we get stories that aren’t so good. Georgia Gaines is a high school math teacher in Lake Worth, Florida. She’s been charged with 32 counts of preparing phony tax returns. Additionally, she allegedly didn’t include her income from her side job on her own tax returns. Allegedly, Ms. Gaines’ returns included $1.1 million of phony deductions. She’s looking at a lengthy stay at ClubFed if found guilty.

Remember our usual warning: If it sounds too good to be true, it probably is.

Posted in Tax Fraud, Tax Preparation | Tagged | 1 Comment

2008 Tax Offender of the Year Gets Four More Years

Posted on February 25, 2009 by Russ

Robert Beale won the coveted Tax Offender of the Year award for 2008. Mr. Beale was being tried for tax evasion and he came up with what is clearly a Bozo idea: arresting the judge. After his conviction on tax evasion (he received 11 years at ClubFed for that), he was convicted last October for conspiracy to impede an officer and for obstruction of justice.

Yesterday, Judge Rodney Webb sentenced Mr. Beale to four additional years at ClubFed. Mr. Beale will be at ClubFed until 2023. Of course, when you are taped stating, “God wants me to destroy the judge. That judge is evil. He wants me to get rid of her,” it’s tough to have much of a defense.

Joe Kristan has more.

Posted in Tax Fraud | Tagged | Comments Off on 2008 Tax Offender of the Year Gets Four More Years

IRS Street Addresses

Posted on February 24, 2009 by Russ

A reader emailed me today and said, “Why haven’t you posted your list of IRS street addresses this year?” Well, the answer is that none have changed. Still, it’s time again for the list.

Most taxpayers use the Postal Service to send their returns to the IRS. However, you can use Federal Express or UPS. The problem is the IRS hides the street addresses of their service centers on their website if you need those to use a private delivery service. (They’re listed in the back of Publication 1546.) As a public service, here are the street addresses of the Service Centers.

Andover Service Center
310 Lowell St
Andover, MA 01810
[978-474-9701]

Atlanta Service Center
4800 Buford Hwy
Chamblee, GA 30341
[770-936-4500]

Austin Service Center
3651 S IH 35
Austin, TX 78741
[512-460-0176]

Brookhaven Service Center
1040 Waverly Ave
Holtsville, NY 11742
[631-654-6583]

Cincinnati Service Center
201 W. Rivercenter Blvd
Covington, KY 41011-1424
[859-292-5185]

Fresno Service Center
5485 E Butler Ave
Fresno, CA 93727
[559-454-6334]

Kansas City Service Center
333 W Pershing Rd
Kansas City, MO 64108
[816-823-2076]

Memphis Service Center
5333 Getwell Rd
Memphis, TN 38118-7733
[901-546-4115]

Ogden Service Center
1973 N Rulon White Blvd
Ogden, UT 84404
[801-620-4249]

Philadelphia Service Center
11601 Roosevelt Blvd
Philadelphia, PA 19154-2100
[215-516-5994]

Franchise Tax Board
9645 Butterfield Way
Sacramento, CA 95827

It’s very important to note that these addresses should be used only for private delivery services. Regular mail sent to these street addresses may be rejected as sent to a non-deliverable address and returned to the sender! Mail sent to a service center should be sent to the “normal” address of the service center; for example, here is where taxpayers filing their own Form 1040 returns should mail the returns to (look at page 161 of this pdf).

Posted in IRS | 4 Comments

When You Admit to $200 Milliion in Fraud, It’s Hard to Deny Fraud

Posted on February 24, 2009 by Russ

Walter Anderson was a successful telecommunication entrepreneur. However, he ran afoul of the law. In 2006 he agreed to plead guilty to two counts of tax evasion and one count of fraud after admitting to $200 million of tax evasion. He was sentence to nine years at ClubFed but didn’t have to make restitution.

Mr. Anderson appealed the sentence as too long; the IRS appealed that Mr. Anderson should have to make restitution. The IRS won on both counts. The IRS then sent Mr. Anderson a notice of statutory deficiency alleging that Mr. Anderson slightly underpaid his taxes:

Tax Year Deficiency Sec. 6663 Penalty
1995 $ 386,344 $ 289,758.00
1996 $2,012,045 $1,509,033.75
1997 $36,490,421 $27,367,815.75
1998 $50,022,418 $37,516,813.50
1999 $94,868,390 $70,993,002.00

There’s no typographical error here. That’s a $144 million deficiency for just 1998 and 1999 before the fraud penalty. Mr. Anderson filed a Tax Court petition and argued that the IRS was collaterally estopped from pursuing the case against him and asked for summary judgment; the IRS countered that they should obtain summary judgment against him as Mr. Anderson has already admitted fraud by pleading guilty.

The decision runs 82 pages and I’m not going to bore you by going through it all. If you are interested in how criminal proceedings and Tax Court cases interact it is worthwhile reading.

Suffice to say, Mr. Anderson didn’t have a good day. He lost his argument that the IRS couldn’t pursue a case against him. The IRS didn’t win on everything, though. The IRS did win that there will be summary judgment for the 1998 and 1999 tax years. Mr. Anderson’s criminal pleas were for those two years, and it’s very hard when you tell a criminal court that you committed tax fraud to take that plea back in the Tax Court.

Mr. Anderson might have lost the other three years, too, except that he has yet to receive a copy of a 270-page grand jury testimony document. The criminal court ordered that it be sent to Mr. Anderson by electronic means; however, Mr. Anderson, who currently resides at the Fairton, New Jersey branch of ClubFed, has no computer access at that facility. Because Mr. Anderson hasn’t received the 270-page document, the IRS has also been unable to get it.

In any case, Mr. Anderson now owes the IRS nearly $250 million (subject to appeals). I’m not counting on the IRS getting any of that money soon.

Posted in Tax Fraud | Comments Off on When You Admit to $200 Milliion in Fraud, It’s Hard to Deny Fraud

What’s Next for California

Posted on February 23, 2009 by Russ

Now that Governor Schwarzenegger has signed the bad budget bill, what’s next for the Bronze Golden State? Will taxpayers receive their tax refunds? What’s this about a special election in May? And what’s going to happen with the 2009-2010 budget?

The Taxes

First, the sales tax increase goes into effect on April 1st. In Orange County, the sales tax will jump from 7.75% to 8.75%. Whatever your sales tax is, just add 1% and you’ll get the new sales tax rate.

The $0.12 gasoline tax was removed from this bill. Still, the price of gasoline will go up on April 1st. Sales tax is charged on gasoline. If gasoline is selling for $3.00 (before taxes), the sales tax increase will add $0.03 to the price per gallon.

Car registrations will cost more. Instead of a tax based on 0.6% of a car’s value, the new rate is 1.15%. Basically, your DMV fees will double.

It’s still unclear what will happen with income taxes. There’s definitely going to be a surtax charged. Based on the federal stimulus, I think the 2009 income tax surcharge will be 1.25%. It’s possible it could be 2.5%. Either way, your income tax bill for California will be higher. Basically, the savings that the federal government gave to Californians the state legislature just ate.

Controller John Chiang announced that tax refunds are still in limbo. Mr. Chiang rightly wants to crunch the numbers and see when California actually has some money before sending out the refunds. I’d expect refunds to start heading out by mid-March.

The Special Election

There will be a special election on Tuesday, May 19th to vote on several propositions:

Proposition 1A: A Budget Reform/Spending Cap.
Proposition 1B: Education Finance.
Proposition 1C: California State Lottery, selling future revenues for current income.
Proposition 1D: Take Proposition 10 money (Children and Families Trust Fund) and use it to help balance the budget.
Proposition 1E: Take Proposition 63 money (Mental Health Care tax) and use it to help balance the budget.

If these initiatives fail, California is looking at a $6 billion deficit. And that’s before the impact of the economy on sales tax and income tax collections. I strongly believe the state will be facing a $6 to $10 billion deficit before the impact of these propositions. That is, should these propositions fail, California will face a $12 to $16 billion deficit for the 2009-2010 year.

The likelihood of passage is unknown. Both Propositions 1A and 1C were previously attempted and both failed. I’ll have more details on these propositions once the text of them is published.

The 2009 – 2010 Budget

The budget that just passed is yet another gimmick-filled budget. Among other things it requires borrowing about $5 billion. Given current market conditions, it’s quite possible that California will either be unable to sell general obligation bonds or that the interest rate will be far higher than expected.

Democrats in the legislature are beholden to their interest groups. These include state employees, teachers unions, and many groups dependent on state funding. Sooner or later there will be massive cuts in state funding.

Duplicitave programs will be cut. Many state employees will be losing their jobs. There is no choice. California cannot afford the largesse and waste that currently exists. For example, there’s no good reason for a CAL-OSHA when the United States has the federal OSHA.

There are numerous other constituencies which will not be happy with my views. Does California need a Film Commission, a Native American Heritage Commission, a Wildlife Conservation Board, a Housing and Community Development Administration, or even the Coastal Commission? There are numerous other Boards and Commissions. Many will have to be scrapped. The simple truth is that California government is far too large given current revenues. The only choice is to cut, and cut deep.

In the long-term California must do what’s needed to attract new business. Currently, California does almost everything it can to be hostile to business. Taxes, we’ve got ’em. Regulations, we’ve got ’em in spades. And don’t get me started on the nanny state.

The solution is to cut taxes. Indeed, California should cut business taxes. The reality is that all business taxes are passed on to consumers. If California made itself into a business-friendly state, businesses would clamor to relocate to the Golden State. Unless policies change, and soon, successful California businesses will be looking to relocate to Oregon, Nevada, Arizona, and Colorado.

Conclusion

Come June, the state legislature will likely be back where it was in August-September 2008 and January-February 2009. A big deficit is coming. Band-Aids have been tried in the past and they’ve failed. The systemic deficit is still there. It’s time for California to right the ship.

Frankly, I think what I propose is beyond our state legislature. The Democrats will call my measures Draconian. “You’re amputating state government,” they’ll say. And they’re right. But sometimes to save the patient an amputation is necessary.

California has tried the Band-Aid method for eight years. The deficit numbers have only gotten larger. It’s time for a reality check no matter how painful it is.

Posted in California | Comments Off on What’s Next for California

Troutman Gets Four Years

Posted on February 22, 2009 by Russ

Former Chicago Alderman Arenda Troutman was sentenced to four years at ClubFed last week. Ms. Troutman had started the 20th Ward Women’s Auxiliary to hide money. At sentencing, Ms. Troutman told Judge Ruben Castillo, “With God as my witness I am not a monster.”

A monster, no, but a tax evader she was. The judge noted that Ms. Troutman likely associated with gang members and sentenced her to four years at ClubFed.

Posted in Illinois, Tax Evasion | Comments Off on Troutman Gets Four Years