Illegal Income Is Taxable

Posted on September 8, 2008 by Russ

One of the questions that comes up from time to time is whether you have to pay tax on illegal income. After all, do thieves really report their thefts to the IRS? I usually remind those questioning this that Al Capone went to prison for tax evasion, not for the murders he committed.

What brought this up is a story from Rogers, Arkansas. Douglas Haase was an employee of Kraft/Nabisco. He thought up an almost perfect plan. He would submit fake expense reports to two conspirators in Florida, and they in turn would send checks through a sports management firm so that he could pay off his personal credit cards. And this wasn’t a small amount of money—Mr. Haase apparently received $1.5 million from this scheme. Mr. Haase will have three years to think about this while at ClubFed. He also has to pay a $150,000 fine.

So if you decide to go into a life of crime, just remember to set aside some of your ill-gotten gains to pay your taxes.

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Three More Sentenced in Evanson Case

Posted on September 8, 2008 by Russ

Three CPAs will be joining attorney Dennis Evanson at ClubFed. Reed Barker of Littleton, Colorado got 18 months, Brent Metcalf of Cottonwood Heights, Utah, received 24 months, while Stephen Peterson of Coalville, Utah received 35 months. Additionally, Barker must make restitution of $167,608 while Peterson was ordered to forfeit $1,166,884.

All were convicted of various tax related charges in a scheme to help businesses and individuals evade about $20 million in taxes. Earlier, Evanson received ten years at ClubFed.

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Another Week, No Progress for California’s Budget

Posted on September 7, 2008 by Russ

Frankly, the headline is all you need to know about the situation in Sacramento. Republicans announced a budget plan that had no new taxes; their plan was condemned by Democrats. Yet Democrats haven’t proposed anything acceptable to Republicans. So the stalemate continues, and eventually the two sides will talk to each other. But not yet….

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Not A Good Week for Tax Protesters

Posted on September 7, 2008 by Russ

This past week wasn’t a good one for tax protesters. Irwin Schiff, who is 80-years old, is spending 13 years at ClubFed in Terre Haute, Indiana. Well, make that 13 years and 11 months—those additional 11 months a result of his sentence for 15 contempt charges he received during his trial.

Meanwhile, Wade Cook was taken into custody to begin serving his seven-year sentence for tax fraud charges. His wife is still serving her sentence for obstruction but is due to be released in January.

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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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