Taxable Talk

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.