A Billion Here and a Billion There…

Posted on March 8, 2009 by Russ

A billion here, a billion there, pretty soon it adds up to real money.—Senator Everett Dirksen

Well, a billion dollars is just about the amount that February collections by California were under budget. It’s going to get worse.

April is the big month for California tax agencies. That’s when personal income tax returns (and payments) are due. Also due are first quarter estimated tax payments for individuals and corporations. Expect the April collections to be particularly grim.

I don’t know if the tax protests that have just begun in California will impact the coming budget debate in Sacramento—a debate that the Democrats really hope they avoided by passing the bad budget. But they won’t be able to sidestep the issue; states have to have balanced budgets and there’s no chance that California’s will be balanced based on the tax increases that just passed.

I’ve been a broken record on the subject. Massive cuts to state government are both needed and are coming. The legislature can postpone the day of reckoning, but they can’t stop it from happening. Of course, Democrats don’t want to cut union jobs (most government workers in California are unionized) but you can only squeeze so hard.

The signs are there for everyone to see as I wrote about earlier today. But many in Sacramento seem blind to the issue.

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Just Below the Surface

Posted on March 8, 2009 by Russ

As a tax professional I get to observe first-hand what taxpayers think of the current tax climate. I think Howard Beale put it well:

Somewhere between 8,000 and 15,000 protested in nearby Fullerton yesterday. These weren’t the usual left-wing protesters that you might see mobilized in Washington. These were the typical families that populate Orange County. My Congressman (John Campbell, R-Irvine), State Assemblyman (Chuck DeVore, R-Irvine), and State Senator (Tom Harman, R-Huntington Beach) understand the anger. I’m pretty sure my two Democratic US Senators (Dianne Feinstein and Barbara Boxer) have no comprehension of the anger that’s just below the surface. It’s certain that the Democratic leadership in Washington thinks these protests are irrelevant.

They’re not. This movement has legs. I was in high school when Proposition 13 was proposed and passed. I remember the rallies then. We’re seeing the beginning of a groundswell.

Sure, it could fade away. But when California has a $6 billion deficit (minimum—I think it could easily exceed $10 billion) come June, do you think our legislators will vote to cut the budget or increase taxes? While past performances don’t necessarily indicate future results, they’re usually your best bets. It’s certain that the Democratic legislature and the Governator will support more tax increases.

It’s also interesting which newspapers think the protest was significant. It was the lead story in the Orange County Register. Sure, it happened in the O.C. so the Register covered it. But it was also a big story for the Pasadena Star-News. Yet you wouldn’t find a word of it in the Los Angeles Times. Cutting taxes clashes with the Times’ liberal viewpoint.

I don’t know what will happen with this movement. It could wilt on the vine. Indeed, should the state legislature start doing what’s inevitable (massive cuts in state spending are just that), this movement might end in California. My suspicion is that Proposition 1A will fail in May, and that many politicians will find that its the citizens who control government and not vice versa. It may take a couple of years, but I think some major changes are going to happen.

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The Checks Are in the Mail

Posted on March 6, 2009 by Russ

California Controller John Chiang announced today that California state income tax refunds have been released, and those on hold (generally, those processed two or more weeks ago) will start going out the door. Refunds through the mail should start hitting mailboxes next week while it’s theoretically possible that someone will receive his direct deposited refund today. More likely, direct deposited refunds will hit bank accounts beginning on Monday.

Hat Tip: April15.com

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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.

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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.

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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.

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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.

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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.

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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).

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