There are losing streaks and then there are really long losing streaks. Larry Harvey has not had a good year battling IRS attorney Randall Preheim. Yesterday, as Joe Kristan noted, Mr. Harvey lost his 64th and 65th cases. Today, that streak reached 67.
Look, the Washington Generals did win six games. (Well, they lost 13,000 games during that same time span….) And the Cubs are celebrating the 100th anniversary of their last World Series triumph so there is hope, Mr. Harvey.
Tax agencies love computerized notices. The computer does the work, finds probable tax scofflaws, and the notices are mailed in an automated fashion. This saves the agencies money. Assuming the tax debt is real, it’s a good bargain for everyone.
However, there are problems when matching programs are used based on people’s names. It appears that the Franchise Tax Board is doing just that. This story details that a retiree living in Omaha, Nebraska received a notice from the FTB about a $200 tax debt from 1999. The problem is that Wally Grant, the man who received the notice, hadn’t stepped foot in California since 1943.
Sure, the FTB rescinded the debt and the past due notice. But why did the FTB send out a notice like this in the first place? The notice refers to someone with the same name who lived in Pasadena. I have to assume (like the television station that covered this story) that the FTB used a matching program of names. When the computer found a Wally Grant, it sent out the notice. I doubt a human looked at the notice until the telephone rang at the FTB.
Of course, it’s possible that I’m wrong. It could be that the FTB matched social security numbers rather than names. If that were the case the social security number of Mr. Grant of Omaha could have been used by anyone, causing the problem. However, given the reference in the notice this seems unlikely.
In any case I’m wondering what’s going on. The FTB refused to comment to the Omaha television station. I’d love to hear from someone at the FTB (or the Board of Equalization) as to what’s going on. I’m all for the FTB going after tax scofflaws but this appears to be a case of big brother and it disturbs me deeply.
Today is the first of three election days in 2008 in California. If you’re in Orange County, you can find your precinct here. If you’re elsewhere in California, the Secretary of State’s website can direct you to your county’s registrar website to find your precinct.
If today is your election day, exercise your right to vote.
Wesley Snipes wasn’t the only individual who learned his fate last week. Here are three more cases of tax evasion which all share a common theme.
First, from Upper Makefield, Pennsylvania comes the story of a couple who put business first. Michael and Jacqueline St. Clair had a construction company, MDSC Concrete Contractors. They decided back in 1999 – 2001 to expand their home. Nothing wrong with that. According to phillyburbs.com, they spent $370,000 adding four bedrooms and other rooms to their home. Still ok. They paid their contractors from their business. And that’s the problem.
Expanding your home just doesn’t cut it as an “ordinary and necessary” business expense. Add to that some other highly questionable deductions on their business returns, a very low income on their personal returns (low enough to qualify for the earned income credit), and you have two who have been found guilty of several counts of tax evasion. Sentencing for them is set for May 1st.
>From Benicia in Northern California comes a similar story. Former city councilman and school board member Dirk Fulton pleaded guilty to one count of tax evasion. Mr. Fulton didn’t report some of the income he made from various corporate entities on his 1999 personal tax return. Mr. Fulton has agreed to make restitution to the IRS of $115,000, pay a $28,000 fine, and serve five months at ClubFed followed by five months of home confinement.
Finally, from Milpitas comes a man who thought that if he didn’t invoice his customers he could forget about the income tax. Dominic Chang owned an auto shop and didn’t like taxes. He used two bank accounts—when he issued an invoice the money went to Cal Fed; when an invoice wasn’t issued the money went to Wells Fargo. Mr. Chang reported no income from 1999 to 2001. When his return was audited the fraud was discovered. The report in the San Jose Mercury said that at first Mr. Chang told the IRS that the Wells Fargo money was his sister’s. However, he later admitted that he lied and he pleaded guilty to three counts of tax evasion. He earned about $460,000 in the three years in question so reporting zero just didn’t cut it. While Mr. Chang faces up to 15 years at ClubFed and a fine of $750,000 he’ll likely be sentenced to a short term at ClubFed and restitution to the IRS.
So if you get the idea of having your business pay for your personal expenses just remember it works well until you get caught.
Back in November we reported on Robert D’Angelo. Mr. D’Angelo, the former head of the Madison, Wisconsin Overture Center, was facing a variety of charges based on him running two side businesses using city facilities and not reporting the income from the businesses on his tax return. On Friday Mr. D’Angelo pleaded guilty to two counts (one of tax evasion and one of mail fraud) in a plea deal.
The indictment charged that Mr. D’Angelo made about $238,000 from his businesses. While he could face 23 years at ClubFed it’s much more likely he’ll serve around two years.
However, that’s not the end of Mr. D’Angelo’s legal troubles. He left the Overture Center when he was accused of sexual harassment. The US Equal Employment Opportunity Commission is still investigating those charges.
If a Maryland State Senator has his way, buyers of bongs in Maryland will soon have to pay a special tax. C. Anthony Muse (D-Prince Geoerge’s County) introduced two bills on Wednesday that would add a $20 tax for all tobacco accessories except rolling paper.
For those who don’t know a bong is a water pipe used to smoke tobacco or cannabis (marijuana). Senator Muse would have preferred to outlaw the accessories completely; he believes that they are “drug paraphernalia—not tobacco paraphernalia.” His measures would also require stores selling such items to check id’s and record purchasers names.
Senator Muse’s measures will face committee hearings in the Maryland legislature before coming up for any votes.
Why was Wesley Snipes found not guilty of tax fraud charges? Was it a repeat of the OJ Simpson case? Is this a huge victory for tax protesters?
It’s interesting that both prosecutors and defense attorneys praised the jury in Ocala, Florida. (One thing is certain: Wesley Snipes won’t be complaining about juries in central Florida anymore.) Ocala.com reported that Robert O’Neill, U.S. Attorney for the Middle District of Florida, said, “The jury did a very good job.” Consider that the two purveyors of the Section 861 scheme, Eddie Ray Kahn and Douglas Rosile, guilty of tax fraud. Yes, Snipes was guilty of stupidity (if you believe you don’t have to pay taxes…) and tax evasion (the government clearly proved that he didn’t file tax returns while he was earning income) but was he the purveyor of a tax fraud scheme?
I hadn’t looked at the case in that manner but thinking about it I can see how a jury could decide that Snipes just bought the words of Kahn and Rosile. The verdict is not a repeat of the OJ Simpson case; Snipes was found guilty of three counts of tax evasion and could spend some time at ClubFed. He also faces the possibility of a civil suit by the IRS to recover the taxes. That might not happen, though, because his defense attorney says that Snipes intends to file and pay his taxes.
Is this case a huge win for the tax protester movement? I don’t think so. Yes, the government didn’t get the “famous” person they prosecuted but they did get the two clear members of the tax protester movement who implemented the scheme. The government’s batting average in cases like this is well above .900, and that’s very good. As Robert O’Neill said, “We’re going to continue to go after those people, and I think you will see more indictments of tax protesters. The IRS will go after all of those taxes.”
Wesley Snipes was acquitted of conspiracy to defraud the IRS but found guilty on three of six counts of not filing a tax return (tax evasion) according to news reports. Snipes faces up to one year at ClubFed on each of the three misdemeanor counts, plus restitution to the IRS.
Snipes was acquitted of the more serious count of conspiracy to defraud the IRS. I think this is the best that Snipes could have hoped for as the evidence of him not filing and paying taxes was quite clear.
It will be interesting to hear what the jury’s reasoning was in acquitting Snipes.
Update: Snipes’ co-defendants, Eddie Ray Kahn, who founded a tax protest group, and Douglas P. Rosile, a former accountant, were convicted of tax fraud and conspiracy by the same jury.
The jury has reached a verdict in the Wesley Snipes case; it will be read shortly in the courtroom in Ocala, Florida. I’ll bring you news of the verdict when I get it.
Richard Hatch, the Survivor winner who thought that 300 million witnesses were wrong to him winning $1 million, had his appeal denied today by the First Circuit Court of Appeals. Mr. Hatch will likely have to complete his sentence of 51 months at ClubFed.
Hatch appealed his conviction on various grounds:
“Hatch argues that the district court violated his Sixth Amendment rights by precluding Hatch’s testimony about his alleged discovery during the taping of “Survivor” that the production company, SEG, was “cheating” by giving food to other contestants and otherwise violating its own rules for how the contest would be run. Hatch’s discovery of these irregularities, he now says in his appellate briefs and argument, led the show’s producer, Mark Burnett, to promise Hatch, in exchange for his silence, that SEG would pay his taxes if he were to win the prize.”
There’s a problem with this line, though; the Court gave Hatch several opportunities to elicit such testimony. “The court thus opened the door for defense counsel to ask Hatch whether Burnett or someone else at SEG had promised to pay the taxes on the money he won. Hatch’s counsel, however, did not follow up with questions of this sort.”
Hatch also argued that the Court prevented him from introducing evidence, “…[of] a subjective belief he had no legal duty to pay his taxes, an argument which would negate the element of willfulness required to prove his guilt.” The Appellate Court found no evidence of that.
“But without evidence that the producers had agreed to pay Hatch’s taxes, the evidence that Hatch had caught those running the show cheating was of no contextual materiality to the revenue violations with which Hatch was charged. The court was well within its discretion to reject further testimony of Hatch’s complaints about ‘cheating’ during the show until the defense furnished evidence of a tax payment promise that made such contextual evidence relevant.”
Hatch also argued that the District Court limited his arguments on cross-examination. But that argument held no water; “Here, the district court’s limitations on cross-examination in this nine-day trial were thoughtful and far from being excessive.”
Hatch also argued that the expert witnesses called (generally, accountants that Hatch had used and IRS agents) should not have been admitted. Here to, though, the Appellate Court disagreed. “Taking each witness in turn, we find no error.”
And the final claim made by Hatch on appeal was also turned down: “Lastly, Hatch challenges in the briefest of language his sentence on the grounds that the court erred in the loss finding and in applying a perjury enhancement. Both claims are undeveloped and fail in any event.” You may remember that the District Court judge felt that Hatch had lied during his testimony (thus, the perjury enhancement). The Appellate Court has told Hatch that he did indeed lie,
“…the court catalogued many instances in which Hatch had committed perjury, noting that the list was ‘a pretty long one’ and included lying on the stand about his failure to disclose the income which formed the bases for the charges on which he was convicted and about his alleged failure to read the letter drafted by Wallis regarding the hypothetical Exhibit One which he then submitted for his tax return.”
So for the next 27 months or so Hatch will complete his sentence at ClubFed. Hopefully he’ll learn from this experience that usually 300 million witnesses are right.
Full Appellate Court Ruling Here
AP Story Here
Link to previous Taxable Talk posts on Richard Hatch
