The LA Weekly has a great article on the Stephen Yagman case. As I wrote earlier, Mr. Yagman was found guilty on 19 counts of tax evasion, money laundering, and bankruptcy fraud last week.
If you read the Los Angeles Times article on the case, you might have gotten the impression that Yagman was prosecuted because of his past actions against the government. The LA Weekly article ends that myth.
You can read the LA Weekly article here.
We’re taught that if at first you don’t succeed, try, try again. But sometimes it just doesn’t work.
Take the example of Warren Follum. Mr. Follum had asked the Tax Court to review the IRS’ decision to proceed with collecting tax from him for 1990 through 1993.
In those years the petitioner (Mr. Follum) included losses from sports-fishing. The IRS alleged that the petitioner wasn’t in a business but, rather, had non-deductible hobby losses of between $12,000 and $35,000 each year.
Let’s add some complicating factors. When the IRS originally sent Mr. Follum notices of deficiency to his (then) post office box, the mail was returned as undeliverable. Back in 1996, the Tax Court ruled that because Mr. Follum didn’t timely respond to the notice of deficiency (and the IRS did sent the notice to the petitioner’s last known address), the court didn’t have jurisdiction in the case. The Second Circuit Court of Appeals upheld the Tax Court’s decision.
So in 2003 the petitioner filed yet another Tax Court case. The case was remanded back to the IRS appeals office in 2005 for consideration of potentially more liability. Then Mr. Follum brought suit against the IRS in the Western District of New York, asking that their be an injunction against the collection of his taxes. He lost, as that court held that it lacked jurisdiction (it had jurisdiction for a refund claim, but not an allegation of procedural irregularities).
Petitioner then brought a suit in the Eastern District of North Carolina, claiming that the IRS had not sent the notice and demand to his last known address. He lost that suit, as it was dismissed under the doctrine of “res judicata” (when a court of competent jurisdiction has entered a final judgment on the merits of a cause of action, the parties to the suit and their privies are thereafter bound “not only as to every matter which was offered and received to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered for that purpose.”).
Eventually, the second Tax Court case made its way back to the Tax Court, and today the decision was rendered. The Court had to decide (1) whether petitioner’s claim that the notice and demand were not sent to his last known address is barred by “res judicata”; (2) whether the period of limitations on assessment of the 1990 and 1991 taxes has expired; (3) whether the petitioner engaged in sports fishing for profit; and (4) whether the lien should remain in place.
First, because Mr. Follum had never been able to contest the underlying tax liability, the Court ruled it would look at the tax liability. The Court then upheld the underlying tax (a legal expert would note that “res judicata” appeared to apply; in any event, the Court found petitioner’s underlying arguments about owing the tax at issue to be wrong).
The Court then reviewed whether Mr. Follum was sports-fishing in tournaments for fun or profit. Mr. Follum didn’t keep separate books; he didn’t earn a profit in any year. It didn’t look like he had a plan to earn a profit in future years. It gave the appearance of a hobby, and that’s how the Court ruled.
Finally, the Court noted, “Having reviewed the underlying liability de novo, we find no error. Additionally, we find no error or abuse of discretion by respondent in determining to uphold the filing of the lien against petitioner.”
So the fourth try wasn’t any more satisfying than the first for Mr. Follum. The morale of this tale is that sometimes additional bites at the apple are just as unsatisfying as the first. Also, it pays to keep your address current with the IRS.
Besides Mr. Yagman, several other individuals found their tax evading days ended. We also have a story detailing potential tax problems for a Los Angeles politician’s wife.
We have two from the high tech world. From suburban Pittsburgh comes Pradeep Kumar Walia. Mr. Walia is the former CEO of Atlas Software. Back in 1999, he reported $231,000 of income and paid $65,500 in tax. The problem? His actual tax was about $10,000 more. Oops. Mr. Walia pleaded guilty and will receive probation plus will have to make restitution.
Last year I reported on the saga of the CEO of VaporTech. John Frances Griffin pleaded guilty to two counts of tax evasion last week, and has agreed to forfeit $75,000 worth of personal items. He’s facing a term at ClubFed for his evading tax on $1.1 million of income, plus a likely fine.
>From Providence, Rhode Island, comes the story of an entrepreneur who outdid Mr. Griffin. Neil Stierhoff ran a mail-order electronics business. It was apparently doing quite well, especially as his net after taxes was close to his net before taxes. Of course, that was due to Mr. Stierhoff not paying taxes on $1.2 million of income through allegedly using aliases and cash. He was found guilty last week, and based on federal sentencing guidelines, is looking at about four years at ClubFed.
Moving to Enid, Oklahoma, we get the story of a bookkeeper who created her own W-2 form. That might be all right, if it was accurate, but she missed just a bit of her income. Actually, it might be more appropriate to say that her W-2 recorded just a bit of her income. She, too, pleaded guilty, and Margaret Renee Schram is looking at five years at ClubFed plus restitution of $270,000 to her ex-employer and restitution to the IRS.
Finally, this last story highlights the perils of public office. Rocky Delgadillo is the Los Angeles City Attorney. Recently, his wife has been accused of driving Mr. Delgadillo’s city-provided SUV. Adding an insult to the alleged injury, the Los Angeles Times reported yesterday that Mrs. Delgadillo failed to file California income tax returns for her business and didn’t obtain a Los
Angeles city business license. She has also been accused of having city employees baby-sit her sons during normal business hours. As a hint to any aspiring politicians, I strongly suggest you pay all of your taxes and ensure that all of your businesses have all appropriate licenses. You can be sure that your opponents will check public records in these days of public records being on the Internet.
So a little evasion resulted in probation, but some substantial evasion got time at ClubFed. It’s a lot easier not to evade in the first place, but that temptation is just hard to resist for some.
Civil rights attorney Stephen Yagman was found guilty on 19 counts of tax evasion, money laundering, and bankruptcy fraud on Friday in Los Angeles. Yagman will be sentenced on September 24th.
Yagman was a considered combative civil rights attorney, and fought many battles with the Los Angeles Police Department and other agencies. Yagman claimed during his trial that he was “targeted” because of his history of fighting US law enforcement agencies. However, it may have been his non-payment of taxes that caused him to be targeted. Yagman, after filing for bankruptcy, had a lavish dinner and bought expensive shoes. That didn’t sit well with the jury.
Yagman is looking at spending a few years at ClubFed.
The Tax Court looked at two cases involving the Alternative Minimum Tax (AMT) today. In both cases, the taxpayers impacted by the AMT protested that they shouldn’t have been impacted by the AMT because they either didn’t have preference items or that they’re the kind of people who shouldn’t have to pay AMT.
The Tax Court’s response? Tough.
In the first case, the petitioner had just $121,000 of adjusted gross income (AMI), and he ignored the AMT when he completed his tax return. However, the IRS computers found that he owed an additional $4,176 because of AMT. He had no preference items.
However, if you’re “lucky” enough to have a high enough level of AGI (typically over $100,000), and enough itemized deductions (and our lucky taxpayer had over $35,000), you can get hit by the AMT. Petitioners arguments were restricted to the fact that he worked two jobs to support his family and shouldn’t have to pay AMT because Congress didn’t intend for the AMT to impact the nonwealthy working class.
“The unfortunate consequences of the AMT in various circumstances have been litigated since shortly after the adoption of the AMT. In many different contexts, literal application of the AMT has led to a perceived hardship, but challenges based on equity have been uniformly rejected…Congress enacted the AMT and we have no authority to disregard them.”
In the second case, our taxpayers did have a preference item—a $342,000 capital gain. But the AMT was never intended to cover taxpayers in their situation, or so they said.
Wrong.
“We also remind petitioners that this Court has consistently and repeatedly rejected challenges to proposed deficiencies based on the fairness of the alternative minimum tax.”
So yet again the Court saw two cases where the AMT was shown to be unfair. The final score? AMT 2, Honest Taxpayers 0.
I wonder if Congress is aware of the storm that will be unleashed next year if they don’t stop the AMT monster….
Cases: Kamara v. Commissioner, T.C. Summary 2007-103 and Moore v. Commissioner, T.C. Summary 2007-104
I haven’t blogged about a tax protester case at the Tax Court in some time. But one was decided today that had several humorous elements—more than enough to make it ripe for reporting.
Chester Davis didn’t file a 2001 tax return. In 2005, he received a notice of a lien from the IRS (based on having income in 2001 but not paying tax). He filed an abuse of discretion petition with the Tax Court. Both sides asked for summary judgment.
Mr. Davis hired a representative, Jeffrey Hubacek, who had been permanently barred from dealing with the IRS. So the IRS wouldn’t talk with Mr. Hubacek. “…[I]t was not an abuse of discretion to exclude Mr. Hubacek from representing petitioner….” Strike one.
So what about his arguments? Well, “[T]he record indicates that the only issues petitioner raised throughout the section 6320 administrative process and in his petition to this Court were frivolous and/or tax protester type arguments. We do not address petitioner’s frivolous arguments with somber reasoning and copious citations of precedent, as to do so might suggest that these arguments possess some degree of colorable merit.” Strike two.
What about the tax liability underlying the case? Well, Mr. Davis never filed a return; he wasn’t entitled to contest the liability, and “…he presented nothing more than an income tax return with a zero in each pertinent box.” That’s three strikes, and Mr. Davis was out. But he did get one of his wishes granted: summary judgment. Except it was summary judgment for the IRS and against Mr. Davis.
But the Court wasn’t done. “Respondent has requested that the Court impose a penalty under section 6673 on the ground that the arguments advanced by petitioner to respondent and the Court are frivolous.” Yes, if you file a frivolous case in Tax Court, you can be penalized. The Court found Mr. Davis’ case thoroughly frivolous, and so he found himself owing an additional $2,000 for the frivolity. And that might not be the last time we see Mr. Davis’ name mentioned as there are two other cases working there way through Tax Court brought by Mr. Davis; he was warned (in a footnote) to not be frivolous. Under section 6673 the Court could have penalized Mr. Davis up to $25,000. I expect that if there’s a recurrence he’ll see a five-digit fine.
So be careful what you ask for as you might just get your wish.
I’m often asked by clients about what they can put down on a tax return. I tell them that the US works on a voluntary-based income tax system. You can put down anything on a tax return. Of course, you swear under penalty of perjury (which the government takes seriously) that everything on the return is accurate, to the best of your knowledge. I strongly believe in having my clients pay the least amount of tax legally for their returns. Of course, some don’t share my scruples.
Take the case of Beaulieu Group, of Dalton, Georgia. The third largest carpet manufacturer in the United States, Beaulieu boasts sales of $1.1 billion. That’s a lot of carpet.
But like all companies Beaulieu must look out for its bottom line. So back in the 1990s the company bought millions of dollars of machines from Europe. That’s not a problem. They apparently put those machines on their books at a value millions over what they bought them for, so that they could take extra depreciation. As long as they weren’t caught, there’s no problem…but of course, you know since you’re reading this here, they were caught.
And catching something like this isn’t easy. Indeed, the government spent over $800,000 proving the case (which Beaulieu has agreed to repay to the government). The tax savings that Beaulieu received from the over-depreciation was $7 million. They’ll be paying back taxes (including interest) of $22.7 million, $7.7 million in penalties, and a criminal fine of $2.2 million. And as part of the plea bargain, the two owners of the company will no longer be involved in the day-to-day business of the firm.
So over nine years Beaulieu saved something over $7 million in taxes. Now, seven years after their last savings Beaulieu must pay out $33.4 million. No wonder Beaulieu’s Vice President and General Counsel, Peter Farley, said, “…[T]he Company has taken steps to strengthen its tax practices and compliance programs.”
Anabolic steroids are a controlled substance (generally illegal) in the United States. If you sell/distribute/traffic steroids, you can be arrested. One Houston, Texas dealer of steroids got lucky—or so he thought. He didn’t get arrested for distributing steroids. Instead, he got charged with tax evasion.
Remember Al Capone? The Chicago mobster committed lots of murders. But in the end the government couldn’t prove he committed any of them. However, it could and did prove he didn’t pay income tax on his ill-gotten gains, and Al Capone spent the last few years of his life at Alcatraz and similar ClubFed vacation spots.
Vernon Albert Richardson III admitted importing and selling steroids from 2000 – 2003 in his plea agreement. Mr. Richardson forgot one thing that would have been useful: pay the income tax on your illegal income. Yes, illegal income is just as taxable as legal income.
When Mr. Richardson is sentence later this year, he’ll probably receive a little under two years at ClubFed (based on Federal Sentencing Guidelines)
And that’s not a typo in the title.
The telephone excise tax refund got a few bozo tax preparers thinking (an oxymoron, of course), “If the government is going to hand out this money [usually $30 – $60] with little documentation, why don’t I prepare a return asking for just a bit more? They’ll never catch me!”
And it’s likely that many, many preparers did just that. But you can definitely take things a bit too far, and that’s exactly what Herbert Jana, Aurora Perez, and Nancy Munoz are accused of doing.
Eric Martinez, Special Agent in charge of the Dallas field office of IRS Criminal Investigation, stated, “The allegations in this indictment are that this scheme in the Dallas/Fort Worth metroplex claimed more than $1.6 million in fraudulent telephone excise tax refunds, making it one of the most egregious telephone excise tax refund fraud schemes during this filing season.”
As for our alleged phone tax crooks being bozos, well, they were also a bit unlucky. As we’ve mentioned, Jackson Hewitt, the #2 tax preparation firm in the United States, is under a major investigation. So what did our alleged bozos name their firm? Jackson Hubbert.
If convicted, the defendants are looking at lengthy stays at ClubFed due to the size of the alleged fraud.
