Labor Day Payroll Tax Fraud

Posted on September 1, 2008 by Russ

I’ve said this before but it bears repeating—especially on Labor Day. If you want to get in trouble with the IRS either withhold payroll taxes and don’t remit them to the IRS or pay your employees under the table (thus not being in compliance with trust fund taxes). Either method starts you quickly on the road to ClubFed.

Thomas Carbo of Wayne, Pennsylvania did the latter. He decided to improve his business’ profitability by paying his employees under the table. He did temporarily save on his payroll tax expense…until he was caught. He ended up defrauding the government out of $168,000.

He was apparently caught as a result of a kickback scheme in nearby Norristown. His business appears to have been a Norristown vendor. The government subpoenaed his records but he didn’t comply with the subpoena; he’s accused of destroying the records instead. The government then investigated, looked at his bank records, and then discovered the tax fraud.

Mr. Carbo has pleaded guilty to one count of conspiracy to defraud and 17 counts of failing to collect and submit the payroll taxes. While he faces up to 90 years in prison and a fine of up to $4.5 million, federal sentencing guidelines suggest he’ll receive a little over two years at ClubFed.

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UCI Identity Theft Leads to Texas

Posted on September 1, 2008 by Russ

Earlier this year officials at the nearby University of California, Irvine announced that about 1,100 student identities were stolen by Texas-based United Healthcare. Now several individuals have been indicted for filing phony tax returns using these students identities (and others).

The indictments were handed down by a federal grand jury in Sherman, Texas. Those indicted, Christopher Chiota of Dallas, Kennedy Mpezini of McKinney, Gilbert Gotoro of Irving, Tendeka Daniel Parirenyatwa of Richardson, Michael Thomas Jr., of Irving, and Kudzai Mangoma all face charges of fraud and identity theft. The indicted allegedly filed returns for 163 UCI students after starting a phony tax preparation business and setting up relationships with several banks.

The problem for the individuals who filed returns for the UCI students was that sooner or later some of the students would file their own returns. Once that happened the scheme was certain to be investigated. UCI police along with criminal investigators from the IRS, Department of Justice and Texas law authorities are still investigating and it’s likely that further charges are forthcoming.

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Interest Rate Changes

Posted on September 1, 2008 by Russ

While interest on underpayments to the IRS will increase to 6% from 5% in the third quarter, interest on underpayments to California will fall from 7% to 5% as of January 1st. Corporate underpayment interest in California will fall from 3% to 2% as of January 1st.

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No Progress on the California Budget Front

Posted on September 1, 2008 by Russ

Another week and there’s absolutely no progress on the California budget front. Republicans won’t vote for anything with a tax increase and Democrats won’t vote for anything without a tax increase. The latest Republican proposal (which has major budget cuts and some borrowing from the state lottery) was derided by Assembly Speaker Karen Bass (D-Los Angeles) as a “…blueprint for economic disaster.”

Needless to say, I don’t expect any progress in the near future. Meanwhile, payments to state vendors will likely stop sometime in late September.

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IRS Suspends ISO AMT Through September 30th

Posted on September 1, 2008 by Russ

The IRS announced last week that they would suspend collection of the Alternative Minimum Tax (AMT) on incentive stock options (ISOs) through September 30th. Senator Charles Grassley (R-IA) believes that legislation will clear Congress by month-end to reduce the tax burden on Americans impacted by the ISO AMT.

Personally, I remain very skeptical about any meaningful legislation getting through Congress. However, I sure hope it does pass as the ISO AMT is an insidious tax.

Hat Tip: TaxProf Blog

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Three Years for Abject Stupidity

Posted on August 27, 2008 by Russ

Back in April I reported on Martha Vernon and her daughter Tiffany Dunbar. The team engaged in perhaps the stupidest Bozo scheme a tax preparer could: They stole names and social security numbers from her employer, invented a phony W-2 for each individual, prepared a tax return which, of course, showed that the individual would receive a refund. Did I mention they had the refunds direct deposited into their own bank accounts? Given that these individuals would inevitably submit their own tax returns it was impossible for the IRS not to discover this scheme.

They received $188,931 in refunds before the IRS discovered their scheme. The pair pleaded guilty back in April and were sentenced yesterday—Ms. Vernon received 40 months at ClubFed while her daughter, Ms. Dunbar, got 33 months at ClubFed.

There’s only one more item to go with this story. Ms. Vernon’s attorney, Lora Collins, told the judge that her client was told how to conduct the scheme by a former prison inmate who she had gotten involved with. I wonder if Ms. Vernon asked that man what he was in prison for…but I suspect that sort of question never occurs to the Bozo brain.

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The Mortgage That Wasn’t

Posted on August 27, 2008 by Russ

Most of us have mortgages on our homes. Joe Kristan has an excellent write-up on a Tax Court case decided yesterday, where the petitioners had a mortgage, but:
– They recorded the mortgage the morning of the trial;
– They submitted a phony copy of the promissory note as evidence at their trial; and
– The note was full of typographical errors and didn’t appear to be truly notarized.

There’s lots more, and as Joe said, “If you want to deduct mortgage interest, get down to the county courthouse to record the mortgage when you make the loan; don’t wait until the Tax Court trial date.”

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An Exit Tax and a Wealth Tax for Californians?

Posted on August 25, 2008 by Russ

An activist is now attempting to obtain 694,354 signatures to place a wealth tax/California exit tax on the 2010 ballot. This initiative would:
– Impose a one-time tax of 55% on property exceeding $20 million of a California resident or held in California by nonresident;
– Imposes a tax of between 36.5% to 54.3% when a resident dies or leaves California;
– Imposes additional 17.5% tax on total incomes of taxpayers with income exceeding $150,000 if single, $250,000 if married;
– Imposes additional 35% tax if incomes exceed $350,000 if single, $500,000 if married;
– Requires State to acquire shares of specified corporations (i.e. GM, Ford, ExxonMobil, etc.) to influence environmental practices.

The initiative’s sponsor, one Paul McCauley, notes that, “This act proposes to restore a measure of balance in wealth between persons living in California, to salvage the global ecosystem from ongoing destruction and to restore public supervision and influence over the nation’s largest financial institutions.”

First, the proposed initiative is almost certainly unconstitutional as it restricts interstate commerce. Only the federal government can do that; an exit tax (taxing me if I move to, say, Nevada) obviously imposes a restriction on interstate commerce. Further, the initiative appears to me to violate California’s rules that an initiative can only cover one subject.

If somehow Mr. McCauley obtains the signatures needed to place this on the ballot—I’m hopeful that he’ll be unable to find 694,000 Californians who want to destroy the state’s economy—I can’t imagine this initiative passing.

What liberals should consider is that without industry there can be no government revenues. Instead of increasing tax rates California needs to drastically cut tax rates. I don’t see that happening yet that’s the real solution to our budget crisis. Frankly, should Mr. McCauley’s initiative get approved and be found constitutional (a very unlikely prospect), California would go bankrupt as any individual who has such high funds would leave the state (good luck to the FTB trying to collect such funds), venture capital would leave the state, and Arizona, Nevada, Oregon, and Colorado would find themselves with a lot more industry than they currently have.


Hat Tip: Tax Foundation Blog

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Decoding Some Bozos

Posted on August 24, 2008 by Russ

It was a busy week for the bozo side of the tax profession. Three preparers found themselves in hot water, and in one case some customers will be decoded into the mess.

First, from Beaufort, South Carolina, Sally Berry, the owner of Berry’s Bookkeeping and Tax Service allegedly liked sales tax. However, she also allegedly didn’t like to remit it to South Carolina. The South Carolina Department of Revenue also alleges that Ms. Berry underreported the amount of sales tax due on clients’ returns. Ms. Berry faces up to 34 years in prison if convicted on all ten charges that she faces.

Next, Henry Omozee operated HO Tax Services and Accounting Services in Woodbridge, Virginia. He was found guilty on three counts of filing false tax returns. He underreported his own income on his tax returns from 2001 through 2003 to the tune of nearly $85,000 in tax. He could get up to three years at ClubFed when he’s sentenced later this year.

Finally, Sharon Kukhahn had a sure-fire way to avoid income tax. Just buy her “IMF Decoder” and you wouldn’t have to pay income taxes. Only one problem—there’s no such thing and this was yet another phony scheme to avoid taxes. The Department of Justice estimates that the government has lost $4.9 million to this scheme. Ms. Kukhahn received a permanent injunction to stop selling the scheme, and she must provide a list of her customers to the government. So if you paid between $1,750 and $3,195 for her package you’ll get something else in the mail soon—A “Dear Valued Taxpayer Letter” letting you know that your return has been selected for audit.

One final thing about Ms. Kukhahn. She displayed some chutzpah; after the DOJ filed suit against her she told her customers that she had transferred funds to the DOJ to compensate her customers. As you’d expect, there was no transfer of any money and the 328 customers who wrote the DOJ are out of luck. Well, since the DOJ (and likely the IRS) already has their names and addresses they might get some bad luck—they’ll probably be among the first to be audited over this scheme. For as usual if it sounds too good to be true it probably is.

Posted in Tax Evasion | 1 Comment

Fake Priest Had False Returns

Posted on August 24, 2008 by Russ

Earl Wolfe was an unlicensed architect in Jupiter Farms, Florida. That’s one crime in itself. He earned around $750,000 but reported only $600 on his tax returns. The IRS and Department of Justice weren’t appreciative of his efforts, and he has been found guilty of tax fraud.

What did he do with the other $749,400? He allegedly cashed $600,000 at check cashing stores, put some of the money in a Nevada Corporation, and hid some as a priest (Church of the Divine Deduction?). Unfortunately, he wasn’t a priest, and putting his home and motorcycles in his “ministry” wasn’t successful. His co-defendants pleaded guilty earlier this month. Mr. Wolfe will be sentenced later this year and will likely get some time at ClubFed.

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