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.

Posted in Tax Evasion | Comments Off on A Dose of Evasion for the Weekend

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.

Posted in Tax Fraud | Tagged | Comments Off on Bozo Tax Preparer Stymied

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.

Posted in Canada | Comments Off on Tax Day Up North

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.

Posted in Gambling, IRS | Comments Off on Humorous Mail During Tax Time

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

Posted in Tax Fraud | Tagged | Comments Off on Setting A Sterling Example….Not

The Fiction Strikes Back

Posted on April 25, 2007 by Russ

I haven’t blogged about the arrest, conviction, and sentencing of Ed & Elaine Brown. “Ed and Elaine Brown insist tax laws do not exist and have holed up in their hilltop home in Plainfield, which has a watchtower, concrete walls and the ability to run on wind and solar power. Ed Brown, 64, said he has stockpiled food and supplies…Elaine Brown, 66, said Monday that she doesn’t recognize the government, and that its officials are ‘a fiction in my life.'”

Roth Tax Updates has been covering this story from day one. Eventually, the Browns will surrender, and they’ll find that instead of being self-imprisoned in their New Hampshire home, they’ll be at a ClubFed facility.

Posted in Tax Fraud | Comments Off on The Fiction Strikes Back

Ex Parte Means Ex Parte

Posted on April 24, 2007 by Russ

Yesterday, the Tax Court decided Industrial Investors v. Commissioner. Industrial Investors, a corporation in Santa Monica, California, had fought the IRS in Tax Court. The case was then appealed to the 9th Circuit Court of Appeals. After the case was settled in court, the IRS attempted collection of the tax owed; Industrial owed tax for 1990 – 1992. Industrial requested a collection due process (CDP) hearing.

When Industrial made the request, the IRS revenue officer working the case sent a letter to the IRS appeals office…in Oklahoma City. (An interesting point is why the appeal went to Oklahoma from California when the IRS has several offices that I’m all too familiar with in Southern California…but I digress.) An appeals officer is supposed to independently judge the facts; thus, ex parte communications are not allowed. Here are a few of the lines from the letter of the IRS revenue officer:

“Therefore, no CDP hearing on the recorded Notices of Federal Tax Liens should be considered. As for the Notice of Intent to Levy, this should proceed accordingly….

Since Mr. William G. Wells has had numerous opportunities to sell, refinance or secure a second mortgage on all real property owned by Industrial Investors Inc and has not done so to this date, it is time that the government secure any and all interest for all assets owned by the Corporation to pay the outstanding tax debts.

That’s just part of this letter. I’m not an attorney, but I do know that this is an ex parte communication.

Among the other gems of the IRS’ behavior is how quickly they forced Industrial to respond. On June 21, the IRS demands information by July 8; on July 8, the IRS schedules a telephonic CDP hearing on July 19, without checking that the representative from Industrial could make that time. He couldn’t, as was under subpoena for that date and time. He wrote back, asking for a change of time/date, but the IRS didn’t receive the request until after July 19.

The IRS’ behavior was atrocious in this case. And the Tax Court rightly takes the IRS to task. The Court notes regarding the ex parte communications,

“The Commissioner then made the guarantee of impartiality part of the IRS’s standard operating procedure by issuing Revenue Procedure 2000-43, 2000-2 C.B. 404. This procedure prohibits ex parte communications by IRS employees that would appear to compromise the independence of an Appeals officer…There can’t be any suspense in our holding on this point–the cover letter sent to Talbott that accompanied the administrative file was precisely the sort of prohibited ex parte contact that the Commissioner and Congress wanted to ban.”

The IRS also lost on other issues. Industrial impliedly requested a face-to-face CDP hearing. That request is required to be granted, and the hearing is required to be at a local IRS office, not one 1500 miles away. And the IRS should have allowed more time for a corporation to prepare for a hearing, “We merely note that eighteen business days from the date of initial contact hardly seems an adequate amount of time for a corporation to provide all relevant documentation, and putting Industrial into default when Wells left word that he was under subpoena to appear in court is inexplicable.”

So Industrial Investors will get a CDP here in Southern California. This is a case the IRS deserved to lose, and hopefully the patterns of behavior that were shown in this case by the IRS will go into the trash heap…but I’m not holding my breath.

Case: Industrial Investors v. Commissioner, T.C. Memo 2007-93

Posted in IRS, Tax Court | Comments Off on Ex Parte Means Ex Parte

Some More Fraud

Posted on April 23, 2007 by Russ

Crime doesn’t pay, especially when you get caught. As I mentioned yesterday, I’ve got another full slate for you tonight.

We’ll start with some garden variety fraud in Georgia. Stephen Taylor operated 20/20 Payroll Solutions, and he made sure that your tax deposits went…mostly to his personal expenses. That’s bad. When clients began to get dunning notices from the IRS and state tax agencies, he showed them false confirmation receipts. That’s worse. Then he started using payroll tax monies from one client to pay other client’s taxes—sort of a Ponzi scheme. In the end, it fell apart, and Taylor pleaded guilty last week to one count of fraud after diverting about $4 million in deposits. He’s looking at a lengthy stay at ClubFed.

Trusts have a surgeon in Carthage, Missouri in trouble. He purchased trusts from Aegis Co., of Palos Hills, Illinois, in an attempt to avoid $1.6 million in income tax. The government alleges that the trusts are shams. Not only has the surgeon, Brian Ellefson, been arrested, the founders of Aegis are also awaiting trial. Remember our standard warning: if it sounds too good to be true, it probably is.

David Stewart of Bowling Green, Kentucky, had a rags to riches story. Unfortunately, it will now be featuring a trip to ClubFed after Stewart pleaded guilty to four counts of tax evasion. Stewart admitted to not paying about $169,000 in income tax while not filing returns from 1999 through 2002. Along with some time at ClubFed, he faces a fine of up to $1 million.

Heading now to South Florida, the owner of a tax preparation service is accused of setting up sham corporations in Panama and Nevada to get extra deductions for his clients. Robert Payne of Miramar is charged with conspiracy and preparing false tax returns. If the allegations are true, he’s looking at a stint at ClubFed.

Finally, from Buffalo (and I’ll be nearby Buffalo for a day next week) comes the story of another bozo tax preparer. Corwin Johnson used to manage the EZ Income Tax Service. However, he pleaded guilty to tax fraud and bank fraud. He admitted to falsifying W-2 forms, identity theft, and submitting false tax refund claims. He could spend up to 30 years at ClubFed.

And I only posted a few of the stories from the last week….

Posted in Tax Fraud | Comments Off on Some More Fraud

A List You Don’t Want to Be On

Posted on April 23, 2007 by Russ

There are many ways to catch tax scofflaws. California is trying something new—publicizing the worst offenders. Will shame cause payments?

The Board of Equalization collects sales and use tax in California. Under a law passed last year, both the BOE & the Franchise Tax Board must post lists of the worst offenders. The BOE has come out with their list of 227 who owe $219 million to California. A company can get off the list by paying the amount in full or by agreeing to a payment plan. Debts being appealed or in bankruptcy will not be listed.

The list will eventually grow to 250 names. For now, you need to owe $201,000 to make the list. Topping the list is Southland Federal Enterprises at $17,152,957.96 (we wouldn’t want to forget those 96 cents); their debt dates back to 2000. Next on the list are Khaled Mohammed Tabbah of Walnut and Ammar Assad Tabbaa of Orange; each owes $16,887,211.88. In fourth place is the former owner of the Los Angeles Kings, Bruce McNall (also a former resident of ClubFed); he owes a measly $7,138,011.08 dating back from 1994.

Later this year the FTB will issue its list. As noted in the press release announcing the list, the BOE has received one payment of $300,000 and two payment plans totaling $1.5 million. So it appears that shame works.

Posted in California | Tagged | Comments Off on A List You Don’t Want to Be On

A Tax That’s Typical California

Posted on April 22, 2007 by Russ

California’s legislature has plenty of warped ideas. Now there’s a piece of legislation that would tax big vehicles to subsidize small vehicles. Under the “Clean Car Discount” bill, big vehicles that emit lots of Carbon Dioxide would pay a tax of up to $2500. This tax (after appropriate amounts are siphoned off by the state bureaucracy) would subsidize small cars through a rebate program.

Forgetting that global warming is a theory—a theory that is looking more dubious (to me) day by day—I doubt this will have any impact on global warming. In fact, the only thing this will do for certain is raise agriculture prices as farmers are big users of big vehicles (they need them), and they’ll pass on their costs, of course.

Just another typical day in Sacramento….

Posted in California | Comments Off on A Tax That’s Typical California