Some Fraud

Posted on March 25, 2007 by Russ

This weekend’s edition of the fraud post features a bozo tax preparer, a contractor who built his dream house with the money he was supposed to send to the IRS, and a temp agency owner who allegedly did a good job withholding taxes but a poor job in sending them to the government.

Let’s start close to my home. From nearby Buena Park, California (home to Knott’s Berry Farm) comes the story of Yakoob Habib. Mr. Habib pleaded guilty in February to money laundering, tax evasion, and flight while on bail. Mr. Habib was sentenced on Friday to 11 years in state prison.

The news story indicates that Mr. Habib has a history with crime. Back in 2001, he was part of a conspiracy stealing million from California’s MediCal program. He pleaded guilty in 2002 and promised to cooperate with the government. Later he decided to flea the United States. His current offense was not reporting $10 million that went through his personal accounts and $18 million that went through his business. Mr. Habib has probably prepared his last tax return.

We all want our dream houses. Athanasios Reglas thought he had a foolproof way of getting his. He created two fictitious companies that billed his Reglas Painting Company for work that was never done. He built his dream home in Ocean City, Maryland and bought a waterfront lot for $400,000. He also transferred money from his shell companies to his personal accounts, and he committed the crime of “structuring” as he hid $873,000 in withdrawals. When he was arrested, the government found $358,000 in cash (which he has agreed to forfeit). He pleaded guilty to tax evasion and will be sentenced in July. Based on federal sentencing guidelines, Mr. Reglas is looking at 3 to 4 years at ClubFed.

Finally, Michael Monahan of Nashua, New Hampshire is alleged to have not paid the government withholding taxes. Mr. Monahan runs a temp agency in Nashua. On Wednesday, Mr. Monahan was indicted on six counts of tax evasion and three counts of mail fraud. Mr. Monahan allegedly had an interesting method of reporting his firm’s wages to the government. In 2000, for example, he reported $226,000 in wages and paid $69,000 in taxes. The problem is that he allegedly had an additional $1.9 million in wages. Oops. The IRS alleges that this continued through 2003. The government is also looking Mr. Monahan’s partner in the business (who was not named in the indictment). Mr. Monahan faces a long term at ClubFed if he’s found guilty on the charges.

There’s just no such thing as a free lunch….

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Be Afraid. Be Very Afraid.

Posted on March 25, 2007 by Russ

With the Democrats now in control in Congress, it’s time to watch our wallets. My district in Congress happens to be represented by one of the few accountants in Congress, John Campbell. Congressman Campbell is a CPA, and he’s not impressed at all with the Democrats idea of budgeting.

Congressman Campbell maintains his “Green Eye Shade Blog.” Last week he wrote about the proposed budget, and called it, “…a sham to the American taxpayer.” He believes it is a return to the “tax and spend days of old.”

Did anyone really believe that with a Congress controlled by Democrats we would be looking at lowered spending and/or a decrease in taxes?

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No Sale for Palfrey

Posted on March 22, 2007 by Russ

Pity the poor madam escort service operator accused of being a madam. She has but one tangible asset, or so she says, a phone list of her well-to-do clients in Washington, DC. Why not sell the list to finance her defense?

The government, which alleges that Deborah Palfrey is really a madam, and accuses her of money laundering and racketeering (RICO), says that could damage their case. No sale, said Judge Gladys Kessler in Washington. And further, you can’t start lawsuits against potential witnesses. Ms. Palfrey had filed one suit against one of her “escorts,” and sued 15 other unnamed escorts. That lawsuit has been effectively stopped.

Meanwhile, Ms. Palfrey still plans to have an unnamed media group look at the 46 pounds of phone records (10,000 pages). Thankfully, it’s not me. I’m seeing too many numbers in my day job as is.

The next hearing on the case is set for April 12th.

News Story: San Francisco Chronicle

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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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