What Happens When You Think There’s No Income Tax

Posted on March 22, 2007 by Russ

If you don’t pay your taxes, or file a return with all zeroes, things will happen. Eventually, when you owe enough money, an IRS agent will knock on your door (or send you a certified letter). If you keep ignoring them, your money will be garnished.

Or you could do what Robert Lee Cavins, Jr. of Chanute, KS did. He set up trusts: the Cavins Residential Trust and the Cavins Chiropractic Trust. The trusts didn’t pay income tax either. Mr. Cavins also took $70,000 and set up a bank account on Antigua (a tax haven). And since Mr. Cavins didn’t pay $119,595 of income tax from 1992 through 1994, eventually the IRS would catch up to him.

They did.

Mr. Cavins was found guilty yesterday of tax evasion. He faces up to five years at ClubFed plus a fine of up to $250,000. Yes, Virginia, there really is an income tax.

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A No Nguyen Situation

Posted on March 22, 2007 by Russ

When you hear that your vote doesn’t count, well, think again. Here in Orange County, the First Supervisorial District was without a Supervisor since January, when Lou Correa (elected to the State Senate in November) moved up to Sacramento. Ten candidates ran in the election in February, and the Democrats were hopeful to retain the seat—the Republicans would split the vote.

Indeed, that was the case…well, sort of. The Republicans did split the vote. After the votes were counted, Trung Nguyen (R) led Janet Nguyen (R) by 7 votes. Your vote definitely counts. The Nguyens, by the way, are not related, but are both part of the sizable Vietnamese community of Orange County.

Then there was the (inevitable) recount. And when that was completed, Janet Nguyen was on top by 7 votes. What comes after the recount? The court challenge.

The judge hearing the case, Michael Brenner, noted that California’s election law is inconsistent. Hopefully, a ruling will be made soon, so that the district has representation.

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More on Neteller

Posted on March 21, 2007 by Russ

Neteller, the beleaguered Isle of Man financial intermediary firm whose two founders were arrested on money laundering charges in the United States, announced that they have come to an agreement with the US Attorney’s Office for the Southern District of New York (where the potential prosecution will take place). While it’s very unlikely the agreement with the DOJ will be made public, Neteller’s press release notes that:

  • Within the next 75 days (by June 4th) they will announce a plan for the return of funds of their American customers;
  • A consulting firm, Navigant Consulting, Inc., will, according to the press release, “…provide a report to the USAO on the Group’s current financial condition.”
  • Neteller “is continuing to cooperate with the USAO’s investigation, under the advice of its legal advisers and in accordance with court orders in the Isle of Man”

So what does this mean for a Neteller customer?

1. Neteller is cooperating with the US Attorney’s Office (the Department of Justice). What is the DOJ interested in? Money laundering, of course. Large accounts with activity. Individuals (and entities) that haven’t reported their foreign bank accounts. Individuals and entities that haven’t filed tax returns on income earned overseas.

2. If you have a Neteller account, and you had $10,000 in it at any time during 2006, you should make sure that you mark the box on Schedule B of your tax return that indicates you have a foreign bank account. The IRS will likely, by year-end, have balance information on every Neteller account. You also need to file Form TD F 90-22.1 with the Department of the Treasury (not the IRS) by June 30, 2007.

3. If prior to 2006 you had $10,000 at Neteller and you didn’t file the TD F 90-22.1, you should consider filing it today, attaching a note that says you weren’t aware of the law requiring notification of a foreign bank account. The penalty for not filing the form is $10,000 (minimum), and it’s a felony—you can go to prison for this. Do realize you are likely going to have your tax return audited, but if you’re choosing between an audit and jail time, I know which one I’d choose.

4. A client asked me over the weekend when I thought he’d see his Neteller funds. I told him late Summer or Fall. I think a July to September time frame is a reasonable estimate.

So the Neteller saga continues, but the ending is clear. American customers will almost certainly see their funds this year, and the DOJ (and later, the Treasury Department and the IRS) will see Neteller’s records this Spring or Summer.

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Is Witness Intimidation Next?

Posted on March 20, 2007 by Russ

Erle Stanley Gardner would enjoy this plot. A madam, excuse me, an escort service operator, is accused of racketeering and money laundering. She has a list of her customers that she wants to sell. She claims to have given a copy of her list to an unnamed news organization, to help her case (according to her attorney).

Meanwhile the prosecution accuses the escort service operator to really be a madam, and they accuse her and her attorney of intimidating witnesses by suing former employees and customers. They’ve asked the judge to prevent her from instigating any of these lawsuits. On Monday the judge delayed until Thursday the hearing on whether Deborah Palfrey, the accused, can sell her list.

So is Palfrey a madam who ran a high-class prostitution business serving wheelers and dealers in the District of Columbia, or just an innocent businesswoman who operated, as she told the Washington Times, “[a] legal, high-end erotic-fantasy service [with clients] from the more refined walks of life” in Washington?

News Story: Washington Times

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A “Personal Piggy Bank” or a Well-Run Company?

Posted on March 20, 2007 by Russ

Two diametrically opposed visions of Hollinger, Inc. were presented to jurors in Chicago in opening arguments of the Conrad Black trial. Prosecutors, quoted by Bloomberg, called Hollinger Black’s “personal piggy bank.” His attorneys, though, claimed “[the] company was stolen out from under him.”

And it was only the first day.

Meanwhile, Bloomberg reports that David Radler, Black’s former partner, will be the key witness against Black. Radler settled with the SEC and the Sun-Times media group for $72 million last week. In 2005 Radler pleaded guilty to fraud and agreed to cooperate with the government.

News Story: Bloomberg

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Another $0.02 For Your Thoughts

Posted on March 20, 2007 by Russ

If you use the postal service, it will cost you $0.41 for first class mail beginning on May 14th. The good news? You will be able to buy a “forever” stamp. The new “forever” stamp will be able to used for first class postage…forever.

The “forever” stamp will not be available in rolls (to discourage businesses from using it), nor will postage meters be able to use it. But you will be able to buy books and sheets of the stamp.

Being the cynic that I am, let’s move forward to June 2009, when the Postal Service governors raise the postage rate to $0.43, effective on August 1, 2009. Do you think there will be a sudden shortage of “forever” stamps at that time?

News Story: USA Today

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Whither State Tax Revenues?

Posted on March 18, 2007 by Russ

A very interesting article from Reuters on the possibility of a decline in state tax revenues. Reuters speculates on (1) lower capital gains revenues, in states such as California, and (2) declining real estate values, in other coastal states (such as New Jersey) impacting tax collections.

As to California, real estate is not likely to be a major factor in state tax collections. Property tax is paid to each county, and mostly stays with the county and cities within each county. However, the issue to watch is the impact of stock options.

Stock options were, in my opinion, the reason why California tax collections increased in 2006. I suspect that taxes from stock options will not increase in 2007 from 2006 (and likely will decrease). This is just speculation based on a small sample size; however, we will get a much clearer picture by the end of April (when the Franchise Tax Board releases collection numbers for April).

In any case, it will be an interesting April and May for budget writers at the state, county, and local levels.

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Clear as Mud

Posted on March 18, 2007 by Russ

If I told you that there was a trial attracting a media circus in Chicago, you might wonder about my intelligence. Except for stories in the two daily Chicago newspapers (the Chicago Tribune and the Chicago Sun-Times), this trial might not even be happening. While I have reported on this trial (most recently, on Monday), the Register and the Los Angeles Times have been silent.

It’s the Conrad Black trial. As the Tribune reports, the jurors have been selected (but the names aren’t being released), and the trial will begin on Monday.

While the trial isn’t making news in the United States, it’s big news north of the border. Hordes of Canadian media have descended on Chicago to cover the trial. As this story from the Edmonton Sun notes, it’s going to be tough sledding for the jury. How would you like to be a juror and be faced with understanding the complexities behind mail fraud, tax fraud, and all the other charges that the defendants are accused of?

Well, I will continue to cover the trial. Because a good media circus makes for some fun during tax season.

Posted in Illinois, Tax Fraud | Tagged | 1 Comment

$6.8 Million and 10 Years

Posted on March 15, 2007 by Russ

Back in November I wrote about the Ozbay family of Schenectady, New York. They didn’t commit one piece of tax fraud. No, they committed lots of tax fraud. They didn’t pay income tax, they structured their transactions, and they didn’t pay withholding taxes to the government that they withheld from their employees.

Ziya Ozbay is the first of the four Ozbays to be sentenced. He got ten years at ClubFed and he must surrender $6.8 million of his ill-gotten gains. Ziya was found guilty along with his son-in-law, Yalcin Ozbay (he will be sentenced on April 13th). Mustafa Ozbay, Ziya’s brother, pleaded guilty along with Mustafa’s son, Birol Ozbay. Birol will be sentenced on March 28th and Mustafa on April 26th. (News story here.)

Meanwhile, in White Plains, New York, Duane Howell has probably prepared his last tax return for a client. The 72-year old Howell pleaded guilty yesterday to conspiring to obstruct the IRS, preparing false tax returns, and obstructing the IRS.

Mr. Howell falsified expenses on the partnership returns of his clients, adding phony expenses that reduced the liability for his clients. It’s not a bad way to attract clients—if you can get away with it. Personally, I don’t recommend it as the consequences can be disastrous. For Mr. Howell, he faces up to eight years at ClubFed according to this story.

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Plenty of Fraud to Pass Around the Table

Posted on March 12, 2007 by Russ

Well, it’s time for an uber-post. We’ve got plenty of fraud to share, with two practitioners in trouble, an IRS agent, what should be a circus of a trial, and a pilot that may be grounded.

First up comes one from the internal affairs department. An IRS agent is accused of evading $21,000 in taxes. He also allegedly offered other taxpayers by selling deductions from a company that coincidentally shares the same address as the agent. Harry Wilner could face 15 years at ClubFed if he’s found guilty, according to this story.

Meanwhile, in Chicago, a CPA has pleaded guilty to three counts of preparing false tax returns. Pepito Guinto added phony medical deductions, charitable contributions, and unreimbursed business expenses to some of his clients (a reported 57 of 4780). His brother, Pablo, has also allegedly committed the same crime. He, though, has fled the United States and is reported (by this news story) to be in the Visayas. Pepito will likely serve three years or so at ClubFed.

Staying in the Windy City, the trial of Conrad Black will soon begin. As I reported last year, Black faces multiple counts of tax fraud, mail fraud, wire fraud, money laundering, obstruction of justice, and RICO. As this news story notes, “It has just about everything a good drama should – power, money, allegations of corruption, a lord and lady of the realm and a self-perceived knight in shining armour who’s standing up for his damsel in distress.” I’ll keep you updated as the trial, scheduled to begin on Wednesday, moves along.

Moving now to South Carolina, a CPA is alleged to have forgotten something important: paying his state income tax. Rex Wicker, of Pawley’s Island, is accused of not paying $18,000 in taxes according to this story. If true, he’s certainly not setting a good example….

Finally, a pilot for FedEx is in trouble for allegedly filing false tax returns from 2000 – 2004. Michael Mason, of Cordova, TN, is accused of not filing tax returns during the years in question. According to this news story, the indictment accuses Mason of having income of over $1 million in each of those years, and using nominee bank accounts to hide his income. He faces a minimum 30 years at ClubFed if convicted on all counts.

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