A Bit of Evasion

Posted on April 27, 2008 by Russ

It reached 98 F here in Irvine today. That’s hot. But I have three stories where the individuals involved have faced the heat of tax evasion.

First, yet another Bozo tax preparer. Well, she really wasn’t a tax preparer but she did prepare returns. From Greenville, South Carolina comes a truly Bozo scheme. A mother, Martha Vernon, stole social security numbers and names from her job, and then filed tax returns with phony W-2s where the refunds were direct deposited into her bank account and that of her daughter, Tiffany Dunbar. All told they received $188,931 in refunds out of the $396,573 they looked to get. Why was this scheme truly Bozo? First, it’s inevitable that the actual individuals would file their own tax returns, so the crime was destined to be discovered. Second, the mother and daughter had the money sent into their own bank accounts making it quite easy to figure out who was behind the crime. They pleaded guilty to tax evasion charges last week in Greenville; a sentencing date hasn’t been announced.

Next, we head to Long Island, New York where Jay Kuhn was sentenced to six months at a halfway house, three years of supervised release, and restitution of $400,000. Mr. Kuhn employed illegal aliens in construction on Long Island and he paid them off the books. He didn’t remit the income and payroll taxes owed, and that’s tax evasion. He pleaded guilty and is cooperating in an investigation of building trades in the New York metro area.

Finally, we have a case of a slight difference of opinion. Perry Lee Rempas ran Norfolk Airport Express, presumably taking customers to and from Norfolk’s airport. He told the IRS that his business was defunct in 2000 and 2001, but he had $1 million in gross receipts. Indeed, the business had the contract for ground transportation at Norfolk International Airport from 2003 through 2006 until it was canceled when the business didn’t pay the airport. Mr. Rempas pleaded guilty to tax evasion and will have to make restitution of $79,000 and will spend five months at ClubFed. He also, according to this article in the Norfolk Pilot, faces a state court judgment of $86,987 for his failure to pay the airport authority.

It remains a lot cheaper to pay your taxes up front then to commit tax evasion, especially if you elect a truly Bozo method of evasion.

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The True Crimes of Wesley Snipes

Posted on April 27, 2008 by Russ

That’s the headline of an article in Canada’s National Post. The article looks at some notable (for all the wrong reasons) films that Wesley Snipes made. My favorite from the article:

Crime: Blade: Trinity (2004)

Verdict: The film that ruined Snipes’ career; just look at the movies he made after this: 7 Seconds; The Marksman; Chaos; The Detonator; Hard Luck; The Detonator. Have you heard of a single one? How they messed this up after the awesomeness that is Blade 2 is a mystery to film geeks everywhere.

Sentence: Garlic and sunlight.

Read the entire article and I hope you’re not sentence to three years of airline food.

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Is Al Franken the Next Celebrity Tax Scofflaw?

Posted on April 25, 2008 by Russ

Al Franken has had an interesting career. He’s been a comedian and a screenwriter, and now he’s running for the US Senate, hoping to get the nod of the Democrat-Farm Labor Party in Minnesota (and then, of course, in the general election).

However, Mr. Franken (or his accountant) has forgotten about California’s rules on corporations. A California corporation must make a minimum franchise/income tax payment of $800 a year, even if the corporation has no income (or lost money, for that matter). Mr. Franken has a California corporation, Alan Franken Inc., which the Secretary of State’s website shows as forfeited (it did not pay its state registration fees).

This is apparently becoming big news in Minnesota, as the Minneapolis Star-Tribune is covering this story. Andy Barr, a spokesman for the Franken campaign, is quoted by the Star-Tribune: “Al feels that because his name is at the top of the organization, he takes ultimate responsibility for everything that goes on. But if there’s a mistake that’s been made, he’s pretty insistent that the accountant fix it. He’s been pretty vocal with [the accountant] on this point.”

We’re not talking big bucks here. The tax owed (including penalties) is $5,800 for not making the required minimum payments from 2003 – 2008. The corporation will likely also the Secretary of State’s office $25/year plus a $250 penalty for each year that the required registration form wasn’t filed. Once all of that paperwork is filed, and the state income tax returns for 2003 – 2008 are filed, Mr. Franken can dissolve his corporation.

So is Mr. Franken the next celebrity tax scofflaw? Only if he allows this mess to percolate for several weeks rather than insisting to his accountant that he prepare the appropriate returns and file them. Otherwise, the DFL in Minnesota will likely have to find a different candidate to run against Republican Senator Norm Coleman.

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$5 Million or $228,000…

Posted on April 25, 2008 by Russ

Joe Kristan has an excellent round-up of tax bloggers’ reactions to Wesley Snipes’ sentencing. Joe’s conclusion is worth noting (especially if you have ideas of following Mr. Snipes’ attempts at not paying federal taxes):

Mr. Snipes’ acquittal on the felony charges still is important – I estimate that he would have served at least 3 more years had he been convicted. Still, the sentences ought to give some food for thought to the “show me the law” crowd — especially that given to Eddie Kahn, who refused to recognize the authority of the court. If you don’t think there is a law requiring them to pay income tax, but the federal judges, U.S. Marshals, and the Bureau of Prisons think there is such a law, your opinions won’t help you avoid prison any more than it helped Eddie Kahn or Wesley Snipes.

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Snipes Gets Three Years

Posted on April 24, 2008 by Russ

Wesley Snipes will be spending three years at ClubFed. Judge William Terrel Hodges sentenced Snipes to the maximum possible sentence on his three misdemeanor charges. The Associated Press noted that Judge Hodges said that Snipes had shown a “history of contempt over a period of time.”

During the sentencing hearing Snipes’ Attorney Daniel Meachum handed Judge Hodges three envelopes containing $5 million in checks. The judge didn’t accept them, nor did Assistant US Attorney Scot Morris. Later, an agent from the IRS did accept the funds. However, Morris later noted, “Your honor, that was a grandstanding move. It’s essentially a down payment on his taxes. It is in no way a settlement of his taxes. It will be a fraction of what he owes.”

Snipes will also spend one year on supervised release following his prison sentence. Snipes requested, and Judge Hodges will recommend, that he serve his time near his family’s home in New Jersey. Snipes will report at a date to be determined by the Bureau of Prisons.

Also sentenced today were Snipes’ co-defendants. Eddie Kahn also got the maximum sentence, 10 years at Club Fed, and Douglas Rosile received 4 1/2 years.

After the sentencing, Linda Moreno, another of Snipes’ attorneys, told Ocala.com, “We were hoping for a complete acquittal. I have faith in the process, and I have faith in the jury system. We will appeal.”

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Things Don’t Look Good for Mr. Snipes

Posted on April 24, 2008 by Russ

I’ve been on the phone all morning, but Joe Kristan has been watching Ocala.com. The sentencing hearing has broken for lunch (I suspect since it’s 4:09 p.m. as I type this they’ve reconvened), and Judge William Terrel Hodges remarked:

He noted that the maximum three-year sentence – which is one year on each misdemeanor count – is “squarely in the middle of that sentencing range.

“Why should I go any further than that,” Hodges asked.

This doesn’t look good for Mr. Snipes.

I’ll have the sentence when it’s announced.

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Snipes’ Sentencing Tomorrow

Posted on April 23, 2008 by Russ

Wesley Snipes will be sentenced tomorrow in Ocala, Florida, for his conviction on three misdameaner charges of failure to file a tax return. The prosecution has asked that Snipes get the maximum sentence: three years at ClubFed. Snipes’ attorneys are asking for probation.

Linda Moreno, one of Snipes’ attorneys, told the Orlando Sentinel, “Mr. Snipes has led an otherwise exemplary life and is deeply sorry for his wrongful conduct. He has retained reputable tax professionals to assist him in resolving his tax liability and will make amends.”

Actors Denzel Washington and Woody Harrelson both wrote letters to Judge William Terrel Hodges asking for leniency. Judge Hodges will make his decision tomorrow, and I’ll let you know what the sentence is when it’s released.

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Two Cases of Bozo Tax Fraud

Posted on April 20, 2008 by Russ

I spent the last couple of days relaxing (along with printing tax returns). Unsurprisingly there’s some fraud to report on in just those last few days.

First, I have to look at a Bozo tax preparer. From nearby Rialto, California comes the story of Matthew Carl Berry. Mr. Berry was a partner in a tax preparation business. He definitely wanted his clients to get lots of deductions. In fact, if you used his services you didn’t need to own a house to get the mortgage interest deduction. There’s only one problem with that, and it’s called tax fraud. The IRS audited about 4,500 returns and found an average tax loss of $3,150 per return. That’s $14,175,000.

But that wasn’t all. Mr. Berry and other members of his firm created false documents for audits and he didn’t pay taxes on the income they received out of this scheme. Other members of his family have already been barred from preparing tax returns, too. He and his family are also facing a civil lawsuit from the IRS. Mr. Berry will almost certainly be spending some time at ClubFed.

Suppose you are audited by the IRS, and you lose, and are ordered to pay an additional $238,800 in taxes. Would you (a) pay the bill, (b) file an appeal and, if necessary, take the case to Tax Court, or (c) ignore the notices sent by the IRS to pay the bill and stop filing tax returns? Since I’m writing this it’s clear which course Edward Barrier of Wildwood, Missouri took.

Back in 1995 Mr. Barrier was audited for 1987 through 1994. He lost, and the bills started coming. He got his revenge by ignoring those and not filing any more tax returns. He also decided to begin “structuring” his financial transactions. He apparently structured around $700,000 of transactions.

Unfortunately for Mr. Barrier eventually the IRS caught up to him. He had done business in cash, lived with his mother, and not owned assets in his own name. He did have a good job from 2002 – 2005—He was a project manager in high-end real estate in the St. Louis area. He had income of $2.4 million, but didn’t pay the nearly $800,000 in taxes he owed.

Last week he pleaded guilty to one count of felony tax evasion in St. Louis. Mr. Barrier will be sentenced July 3rd and is looking at a maximum of five years at ClubFed, a fine of $250,000 and restitution. His bill is at $1.03 million…and that’s before interest.

As I usually state, it’s a lot easier in the long-run to pay the taxes you owe than to commit Bozo acts.

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Dark Clouds on the Horizon in California

Posted on April 20, 2008 by Russ

Back in February California’s legislature passed legislation that helped cut $8 billion from the projected $16 billion budget deficit. That’s good. Unfortunately, the deficit is growing as the state’s revenues aren’t. The San Francisco Chronicle has a story on the issue, and they think the deficit might now be as high as $14 billion.

Democrats are pushing for tax hikes while Republicans are now saying they may allow some fee increases. I know I’ll be a voice in the wilderness but what California really needs are tax cuts.

Are you nuts, Russ, suggesting tax cuts when California is in dire financial straits? No. California cannot get out of this mess by increasing taxes. The state must fundamentally reform spending, and this will be painful. Cuts will have to be made—significant cuts in programs that many legislators will consider their “pet projects.”

But as the Democrats state this might not be enough. So instead of increasing tax rates we should cut them. Cutting tax rates leads to increased tax revenues. This has been shown time and time again (the Laffer curve). California needs to do everything in its power to cause businesses to relocate to the Golden State. If the Democrats in Sacramento had their way every business that could would relocate.

It is time for a change.

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Bozo Tax Tip #1: Foreign Trusts

Posted on April 15, 2008 by Russ

By far the worst tax schemes in the view of the IRS are offshore (foreign) trusts. In fact, trusts of all sorts—domestic and foreign—are regularly abused.

First, not all trusts are bad. Many trusts serve a legitimate purpose, such as family trusts. (Family trusts are a device to avoid probate, and are used in many states. For tax purposes, these revocable trusts are ignored.) Survivors’ trusts are another useful vehicle.

But trusts set up to avoid income tax are abusive, and very much Bozo-like. Individuals and businesses have spent thousands of dollars trying to avoid taxes (in some cases, mid five-figure amounts)…and many times these tax structures have been challenged successfully by the IRS.

And those are the domestic trusts.

The foreign trusts are worse. These are usually organized just to avoid taxes and hide money. If you look at Schedule B on your tax return you’ll see that you are supposed to report your foreign trusts. They work great until the IRS finds out about them.

Remember: If it sounds too good to be true it probably is.

That concludes the 2008 series of Bozo Tax Tips. Don’t be a Bozo: Use legitimate tax savings vehicles rather than Bozo methods.

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