Taxable Talk

I just finished re-reading Murder by the Book. Written in the 1950’s by Rex Stout, the Nero Wolfe novel deals with four deaths and what a certain book (“Put Not Your Trust”) has to do with them. If you’ve never read Stout, do so—he’s a wonderful author, and the books written many years ago are still eminently readable.

Coincidentally, two sham trusts crossed my email in-basket this evening. From Kenai, Alaska comes yet another dentist who allegedly decided that a sham trust was a good way to cut his taxes. Here’s the alleged scheme according to the Department of Justice.

The accused, Glenn Lockwood, formed a professional corporation. No problem so far. Then he allegedly contracted his services to an Irish company. That company allegedly leased his services to a Nevada company which, in turn, allegedly leased his services back to his own corporation. Of course, the money took a much more convoluted path, with offshore accounts, Nevada real estate development, and sham trusts supposedly thrown into the mix. The DOJ alleges that the loss to the Treasury is $575,000 for tax years 2000-2003. Mr. Lockwood will face four counts of tax evasion, and is looking at ClubFed if found guilty.

Meanwhile, in North Carolina, the DOJ has filed a civil lawsuit accusing two men of creating sham trusts to help customers evade taxes. The accused, Alexander Klosek and Bryan Noel, allegedly targeted wealthy and elderly individuals and attempted to get them to sell their homes and other major assets into sham trusts. It appears to be a pretty big alleged crime; the DOJ estimates the loss to the Treasury at $55 million. The DOJ has asked for an injunction to stop the individuals from selling any more trusts. And you can be fairly certain that a request for their customer list will soon follow so that the IRS can send a heartwarming “Dear Valued Taxpayer” letter to Klosek’s and Noel’s customers.

In the end, the best kinds of sham trusts are the ones you read about in novels. They cost you $5.95 or so for a paperback. The crimes described above, if proved, could lead to much larger penalties.

I am rarely surprised when I write about tax crime. I remember reading on Fark about a 91 year old bank robber with the headline never too old to steal. Today’s subject is a little younger, but still one of our senior citizens.

Well, let’s head to North Platte, Nebraska. Thomas Miller is a retired dentist in North Platte. He also has some annuities and pensions (which isn’t unusual). But his tax returns painted a somewhat different story.

According to this article, in 1998 he allegedly reported a tax loss of $1.6 million…but it should have been zero. In 1999, he reported a loss of $22,730 but he should have reported over $369,000 in pension and annuity income. He was indicted for this, and for reporting tax losses in 2001 and 2002 when the government believes that none should have been reported.

But it gets worse. Mr. Miller also faces charges of mail fraud, wire fraud, money laundering and swindling for allegedly taking $1.3 million in investor’s money, putting it in accounts in Grenada, and then allegedly sending the money elsewhere overseas for his own use.

Mr. Miller pleaded guilty to two counts of tax fraud on September 4th. He still appears to be facing the other charges with a court date in October.

At least three times I’ve written about Renaissance, the Tax People. The company, now out of business, was a multi-level marketing firm that promoted deducting personal expenses as business expenses. The latter is why they’re out of business, with the principals finding their way to ClubFed.

Thell G. Prueitt of Kingsland, Texas used to be at Renaissance. After that company dissolved, he set up shop at several other companies. The US Government alleges that Mr. Prueitt is promoting the same schemes as used at Renaissance, and the government is suing to bar him from preparing tax returns. The DOJ alleges that Mr. Prueitt’s materials, “…have falsely claimed that customers could convert non-deductible personal expenses into deductible business expenses and be ‘audit proof.'”

My old advice stands about any tax scheme that you come across: If it sounds too good to be true, it probably is.