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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Hatch Heads Back to Court

Posted on March 12, 2007 by Russ

Survivor winner, but court loser, Richard Hatch had his appeal heard in Boston last Thursday. Hatch, convicted on multiple counts of tax evasion, is now serving his four-plus year prison term.

Hatch is arguing that he should have been able to present the argument that he had a deal with CBS and the producers of Survivor—a don’t ask don’t tell deal. They would pay his taxes and he wouldn’t tell about “deals” and cheating that happened on the television show. Hatch and his attorneys are asking for a new trial. CBS denies Hatch’s claims. The government counters that Hatch’s attorney could have asked this question during the trial but they didn’t.

The appeals court ruling will probably come out this summer.

News Story: Fox News

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Wal-Mart Fails the Pesticide Tax

Posted on March 9, 2007 by Russ

California has a lot of taxes. One of the taxes that most individuals are not aware of is the pesticide tax. As the DPR notes, “California assesses a fee on all pesticide sales, levied at the point of first sale into the state. A “mill” is equal to one-tenth of a cent. This “mill assessment” is 21 mills, or 2.1 cents per dollar of sales. Mill assessment revenues are placed in a special fund used to support the State’s pesticide regulatory program.” Of course, the retailers pass this tax on to consumers, but that’s another story for another day.

Wal-Mart used to be able to avoid this tax. California changed the law in 2005 so that “big box” retailers can’t avoid the tax by having corporate offices in another state. California requires all sellers of pesticides to pay the tax.

Wal-Mart’s bill? $1.2 million: $1.09 million from the mill tax, and $110,000 in interest and penalties (according to ISSA). Wal-Mart is pledging to work with the DPR, and given Wal-Mart’s push for positive public relations, I’m sure that will be the case.

Given California’s looming budget deficit, a million here and a million there can add up.

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Complaining Will Get You Trouble…When You’re Guilty

Posted on March 6, 2007 by Russ

Last year I wrote about David Richardson of nearby Huntington Beach. Mr. Richardson was indicted on five counts of tax fraud (filing false claims), after filing multiple phony refund claims. But what made Mr. Richardson special was what he did when he didn’t get his tax refunds. As I said last year,

“But I do like what he was then alleged to have done. The indictment charges that Mr. Richardson filed a complaint with Congressman David Drier relating to the delay in payment of his allegedly falsely claimed refunds. He also is alleged to have sent a check for $1,990,000 to the IRS that showed amounts of withholding…except that is alleged never to have happened. Oh, the check bounced, too. Now these actions show some chutzpah.”

Mr. Richardson was convicted in November. He got the bad news today: five years at ClubFed, and restitution of $286,345. He’ll have five years of supervised release when he gets out of ClubFed, too. His chutzpah will likely soon be a thing of the past.

News Story: Orange County Register

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In The News…

Posted on March 6, 2007 by Russ

CCH’s Federal Tax Weekly has an article on the Tschetschot case. My comments are included in the article. There were two major surprises in the decision:

– The IRS conceded that Mrs. Tschetschot was a professional gambler even though she earned $49,000 in wages. This is contrary to the stance that the IRS has taken in most cases and bodes well for part-time professional gamblers.

– It is unusual to read a Tax Court decision where the Court basically asks Congress to change the law.

You can find the article on page 102 of the March 1, 2007 edition of Federal Tax Weekly.

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The FTB Does Something Smart

Posted on March 5, 2007 by Russ

I’ve criticized California’s Franchise Tax Board on several occasions. However, I am going to praise them when they deserve it, and this is one of those times.

The FTB, in the past, has assessed late payment penalties when payments on some e-filed returns were not remitted with the return (on returns with a balance due). The FTB will be sending out refunds for some taxpayers, for tax years 2002-2005, where:

  • The return [was] e-filed

  • At least 90 percent of the tax due [was] paid by the original return due date.

  • The remaining amount due [was] paid within 21 days after we accept the return.

The FTB correctly notes that you are supposed to fully pay your taxes by the due date of your return (not 90% of your taxes). But the FTB has realized that the payment won’t always accompany the return, and is rectifying a problem.

As far as we can tell, none of our clients are impacted by this issue. However, if you think you are, please contact our office so we can review your situation.

FTB Notice

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Crime Log

Posted on March 4, 2007 by Russ

The last few days have seen a few interesting stories of fraud and deceit in the tax world. We begin in the heart of Texas, travel to the East Coast, and end up with two stories that have a California connection.


Carl Herrera is a former NBA player with Houston, San Antonio, Vancouver (now Memphis), and Denver. He has also been a member of the Venezuelan National Team. His next gig may be with the ClubFed team; he surrendered to federal authorities last week after being indicted on charges of not paying $554,471 in taxes between 1994 and 1997.

Remember our story on Joe Mammana, the Yardley, PA philanthropist accused of not paying tax on over $4 million? The Associated Press reports that he will admit to the tax fraud in a plea deal next week.

The Fresno Bee has a story this past week about the IRS making some changes in the whistle-blower program. The tip program now offers rewards of up to 30% of what’s recovered.

And finally, a story that’s not really about taxes. But it’s too good to pass up. From the AP headline: “Alleged California madam threatens to sell list of D.C. clients.” Deborah Palfrey of Vallejo (north of San Francisco) was indicted last week in Washington for allegedly running a prostitution ring. Her service has, according to the government, employed 132 ladies and generated $2 million in income. Her attorney says it’s a legal escort service; the prosecution charges that it’s racketeering. She’s accused on RICO charges and money laundering. Her attorney notes that Ms. Palfrey only has one asset left to sell to fund her defense: her customer list. I wonder if anyone in D.C. is sweating right now?

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Impersonation Pays Until Found Out

Posted on March 1, 2007 by Russ

I never inspired to be a football player; I’m just not big. I do enjoy watching football games, as my friends are well aware.

Joe Bowden enjoyed a nine-year career as a linebacker with Houston, Tennessee, and Dallas (he’s now a coach at Central Oklahoma). Antowain Smith was a running back for Buffalo, New England, Tennessee, and New Orleans. And these two former NFL players figure into a tax fraud case.

Anthony Quinn Welch is accused of “borrowing” Bowden and Smith’s names, and filing tax returns on their behalf from 1997 – 2002. Mr. Welch allegedly opened bank accounts in their names, created phony addresses for them, and filed tax returns…and received over $2 million in refunds. And he deposited the refunds (using phony signatures) into his bank accounts.

Most likely the scheme fell apart when the IRS saw the real tax returns for Bowden and Smith. One individual, two tax returns? Not particularly likely. Mr. Welch faces four counts of filing fraudulent tax returns, and two counts of filing false claims. He’s looking at a lengthy term at ClubFed if found guilty.

News Story: Click2Houston.com

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