A Bad Story with (Hopefully) a Good Ending

Posted on May 9, 2007 by Russ

In February, Steven Green pleaded guilty to not filing tax returns from 2001 to 2003 and to using a fake social security number when applying for a loan. He was sentenced to 2 years and nine months in prison, with the sentence to commence in June.

Normally, it would be just another story of tax fraud that I’d highlight—a real estate mogul who made some mistakes.

However, last night Mr. Green was walking out of Club Posh in midtown Manhattan when he was hit by a hit and run driver. His attorney, Louis Cherico, told the Associated Press that the prognosis for recovery is good (he had surgery earlier today).

Hopefully, the NYPD will catch what the New York Daily News calls “the cowardly driver.”

Associated Press Story

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Some Rather Blatant Fraud

Posted on May 8, 2007 by Russ

If you were going to commit tax fraud, would you and your partner in crime exchange checks for the same exact amount to the penny? That’s among the evidence that caused Inn-Chung Chen (aka Daniel Chen) to plead guilty to tax fraud.

Mr. Chen was president of Top Line Electronics, a contract electronics manufacturer in San Jose, from 1997 until 2000. Mr. Chen, along with three alleged accomplices, moved money from his business to other bank accounts he controlled so that he could use the money for his personal needs.

Mr. Chen wrote a check for $43,965.75 to a company controlled by one of his accomplices. Amazingly enough, days later a check was written for $43,965.75 to another bank account controlled by Mr. Chen.

The scheme wasn’t for peanuts, as the total amount involved was over $2 million (resulting in a tax loss of over $900,000). Mr. Chen pleaded guilty to two counts: one each of conspiracy and filing a false tax return. He’ll likely spend some time at ClubFed. His three alleged accomplices have warrants out for their arrest.

News Story Here

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A Horror Story (Averted) From Bill Leonard

Posted on May 8, 2007 by Russ

Once a week I receive the Leonard Letter. Bill Leonard, a member of California’s Board of Equalization, each week states his views on what’s going on in the tax world in California. It’s essential reading for anyone in California concerned about their taxes. You can subscribe here.

On April 25th Bill Leonard reported on a case that almost was argued in front of the Board. In California, a taxpayer appealing a decision of the Franchise Tax Board first must move through that agency. If he can’t get a satisfactory result through that appeals process, he then can appeal to the Board of Equalization. After that, a taxpayer can then take their case to the courts.

You can find the case in question from Bill Leonard’s blog entry of April 25th. A taxpayer hadn’t filed his return in some time, and the FTB estimated his income and then added his W-2 to it. But the W-2 was all of his income, so they double-counted his income. He went through the FTB and got nowhere, so he appealed to the BOE. Amazingly enough, on the morning of the appeal the FTB “…changed their story and returned the gentleman his money.”

There are many good people at the FTB, but this case spotlights some of the bureaucratic shortcomings that I have seen. Bill Leonard (rightly) noted, “Had this situation not been presented in public before the Board I am doubtful this taxpayer would have received justice.” Unfortunately, that’s the problem.

Yes, the taxpayer didn’t file returns, and that was a cause of the problem. But it shouldn’t take an appeal to the BOE for the FTB to realize there’s a problem with double counting of income.

There’s a moral here—actually two morals. First, if you’re a Californian, file your tax returns. Second, the Franchise Tax Board can become adversarial instead of working to resolve problems.

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Where the Wealth Is (In California)

Posted on May 8, 2007 by Russ

The Franchise Tax Board released county income statistics for 2005 last week. Not surprisingly, the San Francisco Bay Area had the wealthiest individuals (as measured by tax returns), with Marin County leading the way with a median income of $48,854 (income here is defined as an individual’s Adjusted Gross Income). Second was San Mateo County at $45,992 while Santa Clara County came in third at $45,239.

California received the most returns from Los Angeles County—which isn’t surprising when you consider it’s the most populous county in California. However, Los Angeles County ranked 39th out of California’s 58 counties in income.

At the bottom for income is Imperial County, with an average individual AGI of only $22,962. Tulare County is second lowest at $24,774.

You can find the statistics here.

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You Don’t Have to Pay Income Tax, Part 79

Posted on May 6, 2007 by Russ

Anyone can write a book these days (I know; I’ve written two). However, some aren’t worth the paper they’re printed on. Joe Kristan at Roth Tax Updates reported on Cracking the Code: The Fascinating Truth About Taxation in America. As Joe notes, the author, Peter Eric Hendrickson, advises people to just file Form 4852, show no income, and claim your refund.

I’ve had people come to me from time to time stating such schemes. And that’s all they are: methods of tax evasion.

In any case, sales of Mr. Hendrickson’s book will likely plummet as he received a permanent injunction barring him from filing tax returns based on this method, and he must submit corrected versions of his prior year tax returns.

The moral of this story is simple: There is an income tax and you do have to pay it.

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A Dose of Evasion for the Weekend

Posted on May 5, 2007 by Russ

I’ve been on the road this week, and am enjoying the nice weather in the upper Midwest. The individuals I’m going to profile are probably not enjoying much, including the weather.

In Flint, Michigan, Linda Cochran prepared tax returns. She prepared her own, and understated her income and overstated her expenses. That’s not a good idea, and its especially bad when you get caught. She was sentenced to five months at ClubFed.

Down near New Orleans, in St. Tammany Parish, Louisiana, Joe Impastato was already in trouble with the law. He’s awaiting trial on extortion because of a debris clearing project from Hurricane Katrina. Now he can add tax evasion charges to his troubles. He’s accused of not reporting at least $90,000 of income from 2001 through 2004. His extortion trial is in June; no date has been set for the alleged tax evasion charges.

Yet another case of untrustworthy trusts from Kansas City. James & Shirley Alridge had a very good income, earning over $1.6 million from 2001 through 2005. They also used a series of sham trusts to avoid over $650,000 in income tax. The Alridges were convicted of aiding and abetting the filing of false tax returns. Oh, did I mention that the Alridges held seminars “teaching” people how to set up a home-based business that would allow you to deduct personal expenses? And that they sold trusts that allowed you to avoid taxes? Unfortunately, you can’t deduct personal expenses as a tax deduction and the trusts they sold weren’t worth the paper they were printed on. The Alridges are looking at ClubFed in the near future.

In Dallas, two attorneys (who should have known better) have pleaded guilty to tax evasion charges. George McDonald and David Cole admitted not reporting $134,000 in income. They may spend some time at ClubFed pondering their future.

Finally, from Washington comes a civil matter of warehouse banking. Robert Arant allegedly promised his customers untraceable banking. Since Mr. Arant is in Des Moines, Washington (just south of Seattle) that’s illegal. Arant’s customers deposited $28 million into his business; the funds were then allegedly co-mingled into three other bank accounts. A restraining order has been issued, and Arant faces a fine of $1,000 for each time he told a customer a false statement.

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Bozo Tax Preparer Stymied

Posted on May 2, 2007 by Russ

Taxes have (justifiably) a bad reputation. It doesn’t help matters when a bozo tax preparer is on the loose.

>From Lake Worth, Florida, comes the story of bozo tax preparer Louis Wayne Ratfield. Mr. Ratfield operated LWR Accounting and Tax Service. He had some interesting methods of helping his clients and himself. He promoted common law trusts, and sold them to unwary clients for between $3,000 and $6,000. The trusts were a method of sheltering income, but were anything but trustworthy. In 2001 the IRS obtained an injunction against him prohibiting him from marketing the trusts (the injunction was made permanent in 2004).

But Mr. Ratfield wasn’t deterred. He apparently continued to market the trusts, and also told taxpayers that they could deduct items like ordinary living expenses (sorry, those aren’t deductible). The government estimates that his practices cost the Treasury over $6 million in tax revenues.

Mr. Ratfield was found guilty on 50 counts of tax fraud and criminal contempt. He’ll be spending many years at ClubFed and will likely pay a fine. And for his lucky clients, they’ll probably be seeing “Dear Valued Taxpayer” letters from the IRS, as they’ll soon be under audit.

News Story Here.

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Tax Day Up North

Posted on April 29, 2007 by Russ

Tomorrow is Tax Day in Canada. The Edmonton Journal has an article about how Revenue Canada (their equivalent to the IRS) is not feared though it perhaps should be.

There’s an interesting quiz at the end of the article. The answers to those questions in the U.S. are almost identical to those in Canada.

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Humorous Mail During Tax Time

Posted on April 26, 2007 by Russ

It’s always amazing to read the mail. I’ve received several items (mainly by email) that are interesting. So let’s take a look at some of the mail. Of course, none of the answers are specific tax advice; anyone needing specific tax advice should speak to their own tax professional.

>From Texas comes this question: My question is how can dog races, horse races, bingo, and the Texas lottery be legal, but gambling is illegal in the state of Texas. Isn’t this hypocritical?

I’m a tax accountant, not a politician. Of course it’s hypocritical, but do you expect logic and fair play from politicians? These are the same individuals responsible for crafting our tax system (at least, for you, Texas has no state income tax). By the way, dog races, horse races, bingo, and the lottery are forms of gambling…it’s just poker (I assume) that you’re upset about.

>From New York City: I looked at how much my husband and I paid in taxes this year and was appalled. What can we do?

Move. New Hampshire doesn’t have a state income tax. But make sure you’re not telecommuting; New York has a “convenience of the employer” rule that mandates that telecommuters who work for a New York based company must pay New York income tax. Otherwise, without knowing your specific situation, it’s impossible for me to comment.

>From Missoula, Montana: I wear a suit each and every day to work. I should be able to deduct the expense of those clothes but my accountant told me I can’t. My brother gets to deduct his clothes, so why can’t I?

Because those are the rules. To deduct clothes, they can’t be able to be worn during normal activities. Suits can be, so they can’t be deduct. An example of clothing that can be deducted is a uniform [his brother is a police officer]. Yes, it’s unfair; I’d love to deduct my polo shirts….

Finally, in the mail today I received a letter…but I can’t tell anyone much about it. It came from Hollywood, Florida. About 1/3 of the envelope survived the Postal Service. Yes, I got a “Dear Valued Postal Customer” letter (“I want to extend my sincere apology as your Postmaster for the enclosed document that was inadvertently damaged in handling by your Postal Service.” It appears that it was a flyer for “Stress Free Relocation.” It would have been more fitting had it been for “Stress Free Tax Preparation,” as I would have enjoyed April 17th much more. It would have been fitting to have that flyer damaged in handling by the USPS.

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Setting A Sterling Example….Not

Posted on April 26, 2007 by Russ

I’ve reported on the shenanigans committed by Renaissance, the Tax People, before. Today, former IRS District Director Jesse Cota pleaded guilty to defrauding the U.S. out of $1.3 million while he was with Renaissance. He also admitted to earning more than $300,000 from this scheme.

Renaissance was a multi-level marketing firm promoting tax savings products. There’s nothing illegal about multi-level marketing firms, nor tax savings products. The problems come when you promote, “…[A] program designed to sell illegal tax deductions through false and misleading representations.” Cota assured potential clients that the scheme was legal (and as a former IRS District Director, he knew (or should have known) it wasn’t).

Cota is the seventh individual to plead guilty to Renaissance-related charges.

Hat Tip: Roth Tax Updates

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