Tomorrow, Tomorrow…

The sun’ll come out
Tomorrow
So ya gotta hang on
‘Til tomorrow
Come what may
Tomorrow! Tomorrow!
I love ya Tomorrow!
You’re always
A day
A way!

Those lyrics, from the musical Annie, describe Stephen Yagman’s fate. After a six-hour sentencing hearing today in Los Angeles, the attorney still does not know his fate. He was convicted earlier this year on 19 counts of tax fraud, bankruptcy fraud, and money laundering.

As I noted over the weekend, Yagman would like to teach morals at UCLA. The Department of Justice would like him to visit ClubFed for nine to eleven years.

The news report noted that Judge Stephen Wilson asked, “How do you reconcile his desire to continue to practice in one of the most stressful areas with his medical condition?” Yagman’s attorney said that Yagman has been suffering from heart disease.

Yagman’s fate will probably be set by the judge tomorrow. I suspect a visit to ClubFed is much more likely than an immediate trip to Westwood. As Chuck Gallagher, a business ethics speaker (and a former ClubFed resident for tax evasion) said, “Yagman has shown from his conviction that he has a disregard for the law through his actions related to hiding assets in bankruptcy and from the IRS (tax evasion). Hence, it would be far reaching to think that the government would consider him a likely candidate to teach morality.”

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FBARs

Several months ago, I participated in a phone form on the FBAR program (Foreign Bank Account Rreporting); generally, if you have a foreign bank account with $10,000 or more in it you must file Form TD F90-22.1 with the Department of the Treasury by June 30th of each year. Today I received information on questions that were asked in that phone forum (the phone forum was in early June, so it took nearly six months for the answers to be distributed…).

Some of the answers are different than what I was led to believe during the conference call.

  1. The due date of the FBAR is June 30th, but the form must be received by June 30th, not postmarked by June 30th. This is different from tax forms which have a postmark due date.
  2. You must file a form if you have $10,000 in one or more foreign bank accounts. This is determined by adding the maximum balance in each account during the year, not the maximum balance of all the accounts at one point during the year. For example, the maximum you have in foreign accounts is $9,500 ($9,000 in account 1 and $5,000 in account 2 on June 15th). However, the maximum you had in account 2 was $4,000 on August 10th (the maximum in account 1 was $9,000). You are required to file Form TD F90-22.1.
  3. A faxed signature is not acceptable for an FBAR.
  4. Foreign life insurance can be considered a foreign financial account subject to reporting (by the policyholder) on an FBAR.
  5. A line of credit does not have to be reported on an FBAR.

There were many other items listed in this email; I’ve only posted the highlights. Anyone who believes they are impacted by this should talk with their tax professional to get full information on their situation.

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The “Fair Tax”

I’ve been asked if I am a supporter of the “Fair Tax.” The Fair Tax is an idea of scrapping the current U.S. Tax Code and replacing it with a national sales tax. You can go to the Fair Tax website and get detailed information on the program. The site gives fundamentals behind the program here.

I hadn’t seen an unbiased review of the Fair Tax program until this weekend. Hank Adler, a professor of business at Chapman University, has published a lengthy critique of the Fair Tax. You can read it here (it is best read using Internet Explorer rather than Firefox). Professor Adler comes to the conclusion that while our current Tax Code may need to be replaced, the Fair Tax isn’t the way to go.

I agree that our current Tax Code is not a very good system. I’m still digesting material on the Fair Tax, and haven’t reached Professor Adler’s full conclusion, but I do have many reservations about the Fair Tax.

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Three Years to Learn English (and Repent)

Back in August I reported on the case of La Crosse, Wisconsin dentist Frederick Kriemelmeyer. Dr. Kriemelmeyer is an adherent of the philosophy of David Wynn Miller’s “In the Truth.” And he doesn’t believe in the US flag and the US Tax Code. He was found guilty on three counts of filing false tax returns.

On Monday he found out that he’ll have time for remedial English—three years to relearn the language while at ClubFed. He’ll also have time to repent for being “greedy,” according to Judge Barbara Crabb who sentenced Dr. Kriemelmeyer. He also has to pay $8,000 to repay the government for his prosecution and make restitution of $135,000.

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9 Years or Teaching Undergraduates “Morality”

Back in June prominent Los Angeles attorney Stephen Yagman was found guilty of 19 counts of tax fraud, money laundering, and bankruptcy fraud. Yesterday at the sentencing hearing, Yagman’s attorney, Barry Tarlow, asked that Yagman be sentenced to teaching morality to undergraduates at UCLA.

I’m not making this up.

UCLA professor Frances Olsen asked Yagman to teach the course. Ms. Olsen, according to her biography, specializes in “legal theory, social change, and feminism.” The Wikipedia page on Ms. Olsen states that she is “…a noted member of the school of Feminist Legal Theory.” Apparently ethics aren’t part of that theory.

For the record, I’ll note that Mr. Tarlow believes that the prosecution of Mr. Yagman was a “vindictive prosecution.” And that Mr. Tarlow believes prison would be a bad choice for some other reasons: bad health and possibility of being attacked. Vindictive or not, when a person is convicted of 19 felonies he should expect to visit ClubFed rather than teach at UCLA.

Judge Stephen Wilson will likely sentence Mr. Yagman on Monday.

Hat Tip: Patterico’s Pontifications

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Only The IRS Conducts Audits

Wouldn’t it be nice if you could conduct an audit of that conniving guy or gal that you have to deal with? You’d make his or her life a total pain.

Well, that’s just no doable. Only the IRS (and various state tax agencies) conduct audits. Today, the Tax Court turned down Creed Pearson’s request to audit The Organization:

Petitioner asks that we allow him to audit the Organization, which is not a party to this case, and that he be able to pay his taxes out of the proceeds of that audit. There is no provision in the Code that gives us the authority to allow one taxpayer to audit another taxpayer in order to reduce his tax deficiency. Therefore, we deny petitioner’s request.”

Joe Kristan has lots more on this case.

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Trucking, Gambling, or Both?

Can a woman who owns and operates a trucking business also be considered a professional gambler? That’s what the Tax Court had to decide.

Linda Myers operated a trucking business in the Twin Cities. The trucking business was substantial; there were 11 drivers using eight trucks. Ms. Myers earned a reasonable income (including both salary and nonemployee compensation) from the trucking business.

But that wasn’t Ms. Myers’ only activity. After she finished her daily activities with the trucking company, she headed to the casino to play the slot machines. And this wasn’t a passing fancy; she spent about 40 hours per week at a casino.

The Court stated, “She considered herself a professional gambler by 2000. Petitioner viewed herself as a gambling expert but found no pleasure in gambling. Instead, she considered gambling stressful, tiring, and time consuming. She did not go to the casino with friends or companions and was focused on doing everything she could to win while she was there.”

In 2003 she reported her gambling winnings as a professional gambler, deducting her gambling losses up to the amount of her winnings as an expense (on a Schedule C). The IRS examined her return, and issued her a deficiency notice which led to the Tax Court filing. The sole question the Court had to answer was whether Ms. Myers’ gambling rose to the level of being a professional: Was she in the trade or business of gambling in 2003?

The key is the Groetzinger decision: “An activity must be conducted with continuity, regularity, and the primary purpose of earning a profit to be considered a trade or business under section 162. Commissioner v. Groetzinger, 480 U.S. 23, 35 (1987).” Both Ms. Myers and the IRS agreed that she gambled with continuity and regularity. However, was she trying to earn a profit?

The Court used a nine-factor test:

“Sec. 1.183-2(b), Income Tax Regs. The nine factors are: (1) The manner in which the taxpayer carried on the activity; (2) the expertise of the taxpayer or his or her advisers; (3) the time and effort expended by the taxpayer in carrying on the activity; (4) the expectation that the assets used in the activity may appreciate in value; (5) the success of the taxpayer in carrying on other similar or dissimilar activities; (6) the taxpayer’s history of income or loss with respect to the activity; (7) the amount of occasional profits, if any, which are earned; (8) the financial status of the taxpayer; and (9) whether elements of personal pleasure or recreation are involved.”

While the Court noted that she hadn’t had profits, that was the only factor that favored the IRS. Ms. Myers used Slot Club records, was knowledgeable about gambling, spent considerable time and effort, was successful in other business operations (the trucking company), and testified credibly that she derived no pleasure from the gambling. So Ms. Myers was a professional gambler for 2003.

Do note that this decision is a memorandum decision of the Tax Court, and cannot be used as a precedent. It does, though, show the factors and issues that you will need to prevail in a case where you maintain multiple businesses and want to be considered as a professional gambler.

Case: Myers v. Commissioner, T.C. Memo 2007-194

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Two Less Bozo Tax Preparers To Deal With

Did you use Archie’s Tax and Accounting Service in Jamaica (Queens), New York? If you did, you’re likely to be getting a call from the IRS soon. The proprietors of Archie’s, Archie and Theodore Pugh, have been permanently barred from preparing tax returns.

What did the Pughs do? They used the “Claim of Right” doctrine to zero out taxpayers’ wages. The Claim of Right doctrine is an actual deduction. It occurs when you have income in one year and then find out that you must repay the income in a later year. In that case, you can deduct the income in that later year.

Of course, you’re likely a couple of steps ahead of me. The Claim of Right doctrine only is applicable if you have to repay income. If you don’t have to repay income then it doesn’t apply. (Personally, I’ve never seen this situation.) The Pughs used the doctrine on most of the returns they prepared, costing the government over $2 million.

Yes, it sounds too good to be true, and it is. If you’re ever told of a method to deduct all of your income, check with a reputable tax professional. You’ll likely find it’s as phony as a $3 bill. Another good resource is the Tax Protester FAQ, which does include the Claim or Right doctrine.

In any case, if you happened to use the Pughs, you will likely have the IRS examine your return to see if it is correct or not. The IRS doesn’t know if the Pugh’s clients knew of the fraud. Just remember, if it sounds too good to be true it probably is.

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Lots of Evasion to be Thankful For

After all, Thanksgiving comes on Thursday, so we should thank these miscreants and alleged miscreants for helping make a blogger’s life easy.

Let’s start in Manhattan. James Ortenzio used to be the chairman of the New York County (Manhattan) Republican party. Now he’s just another individual who has pleaded guilty to tax evasion. Mr. Ortenzio didn’t disclose $180,000 he received in consulting income in 2004-2005. The investigation into Mr. Ortenzio grew out of an investigation into the Cipriani family restaurant business. Mr. Ortenzio is lucky in one respect; he’ll serve no time at ClubFed. He has to file corrected tax returns (and pay the tax, penalties, and interest) and will be on probation for five years.

Let’s move west to Helena, Montana. Rolan Becker worked as a forester for two Indian tribes in the state. However, he bought tapes and attended seminars that said he could declare himself “exempt” from income taxes. Mr. Becker also made the brilliant move of walking into an IRS office and telling the clerk that he wasn’t going to file tax returns and that the only reason to file false W-4 forms is to evade taxes. Did I mention that Mr. Becker did exactly that? He was found guilty of tax evasion.

Judge Charles Lovell noted that Mr. Becker worked for a quasi-governmental agency for twelve years and wondered if he realize that it was taxes that paid for his salary. “You are probably the most flagrant protester and tax dodger that I have seen. It makes one wonder where the United States government would be in today’s world if everybody took the same attitude as this defendant.”

The judge gave Mr. Becker 27 months at ClubFed, and ordered him to make restitution of $91,700. Additionally, Mr. Becker was ordered to pay $50,000 to cover the cost of his time at ClubFed and $1,700 to help pay for his prosecution. And that’s not all. The judge urged the US Attorney to consider charging Mr. Becker with hiding his assets by transferring real estate back and forth to an LLC he created.

Finally, let’s head to the heartland—Belleville, Illinois. A dentist there decided that he didn’t need to report $347,000 of his income. He also decided to take $127,000 of withheld taxes and keep them. Gerald Dortch pleaded guilty to tax evasion; he’ll likely be spending some time at ClubFed.

As I repeatedly say, there is an income tax and you do have to pay it. And it’s a whole lot easier to pay it than to evade it and then pay the tax, penalties, and interest.

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Snipes Sent Funds Overseas, Feds Allege

The Department of Justice filed a motion this past week in Ocala, Florida accusing Wesley Snipes of using overseas bank accounts in Switzerland, the Isle of Man, and Antigua to hide his funds. They’ve also accused Snipes of “selling” a business when he maintained full control and of sending frivolous correspondence to the IRS.

While the DOJ isn’t charging Snipes with some of these acts, they want to introduce evidence of these acts in Snipes’ upcoming trial on filing for a false income tax refund. Snipes has also been charged with conspiracy. The DOJ believes that evidence of these acts will help to persuade a jury of Snipes’ illegal conduct.

Last week Snipes asked that his trial be moved from Ocala as the area is too “racist.” Snipes may have a lot more to fear from the evidence. The trial is currently scheduled to begin in January.

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