Another New Jersey Conviction

Posted on September 18, 2006 by Russ

I almost labeled this post, “The Shock! The Horror!” Yes, another New Jersey corruption arrest. But my sarcasm quotient is slim when I’m low on sleep (I’m just back from Dallas), and I discover that Jack Westlake, a partner of John Lynch has also pleaded guilty to tax evasion. Mr. Westlake, 76, admitted that he didn’t pay tax on $350,000 in taxes in 1999.

Posted in New Jersey | Comments Off on Another New Jersey Conviction

Taking a Bite Out of Tax Crime

Posted on September 17, 2006 by Russ

Over the weekend there were several stories about tax scofflaws. They fought the law and the law won.

First, a tax preparer in Georgia filed returns electronically. There’s no problem with that. However, she filed returns for people who had not hired her to prepare their returns, using numbers made out of thin air (she also filed returns for people who gave her information, but used incorrect information). Amazingly enough, these lucky taxpayers got refunds, deposited into bank accounts of friends of the tax preparer (or the refunds were subsequently turned over to the preparer). The preparer, Lisa Lyle, has pleaded guilty to ten counts of tax fraud and will be sentenced on November 30th according to this article.

Meanwhile, in Shelby County, Michigan (suburban Detroit), Kenneth Heath was convicted of four counts of tax evasion and one count of passing a phony document. Mr. Heath believes in the views of convicted tax protestor Irwin Schiff, and didn’t pay federal taxes between 1999 and 2002. That was strike one. Strike two was sending the IRS a “Registered Bill of Exchange.” But there’s no such thing as a Registered Bill of Exchange. Heath, 69, who faces up to 30 years in prison will be sentenced in December according to this story.

>From Utah comes the story of a couple that believed in philanthropy. Both individually and through their business, they gave millions of dollars for the handicapped, an olympic center, and other charitable ventures. They also believed that giving starts at home: they were convicted of tax evasion. They didn’t report overseas income of $4 million to their business. The couple, now divorced, will each spend over two years in jail and pay fines of $60,000 and $75,000. They also must pay the $14,000 cost of their jury trial and pay the back taxes of nearly $300,000 according to this story.

Finally, we have two stories from the swamplands (New Jersey). First, a bar owner harbored illegal aliens and was involved in an illegal alien smuggling ring. He forced the aliens to work off their debts in his bar. And he also didn’t pay taxes on $750,000 of income from his bar. In the second story, the former president of the State Senate in New Jersey pleaded guilty to fraud and tax charges. John Lynch, who used to be involved in New Jersey’s “Democratic Machine,” admitted accepting a payment from a company that was attempting to build a park. Besides accepting the $25,000 payment, he failed to declare $150,000 in income. Lynch faces up to ten years in prison and a fine of up to $500,000.

All-in-all, it was a weekend to forgot for these scofflaws.

Posted in Tax Evasion | Comments Off on Taking a Bite Out of Tax Crime

California Propositions: Proposition 1A

Posted on September 14, 2006 by Russ

Californians will have a long ballot to wade through this November. Over the next few weeks, we’re going to review all of the tax-related propositions on the ballot, beginning with Proposition 1A.

This is one of five propositions that Governor Schwarzenegger has placed (with the consent of the Legislature) on the ballot. Proposition 1A would require sales tax revenues collected from motor fuel taxes to be used only on transportation improvements. The measure is supported by the Automobile Club, the Highway Patrol, the state police association, the California Chamber of Commerce, and most legislators.

As Bill Leonard, a member of the Board of Equalization, said, “Proposition 1A will let us get started on the backlog of transportation projects, and it will finally put into practice the will of the voters: the taxes we pay at the pump should go to help improve and expand the roads on which we drive.” If you’re a Californian, consider this when you make your choice in November.

Posted in California | Comments Off on California Propositions: Proposition 1A

When You’re Not Feeling Charitable

Posted on September 13, 2006 by Russ

The Tax Court was not in a charitable mood today. Five cases dealing with charitable deductions, all from Pennsylvania, were decided. In all of them, the petitioners were unable to provide proof of the donations and they all lost their cases.

As the Court has stated numerous times, “Deductions are strictly a matter of legislative grace and the taxpayer bears the burden of proving entitlement to the claimed deduction. Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).” The Court then states the rules for charitable donations:

Deductions for charitable contributions are allowable only if verified under regulations prescribed by the Secretary. Sec. 170(a)(1). In general, the regulations require a taxpayer to maintain for each contribution of money one of the following: (1) A canceled check; (2) a receipt from the donee; or, in the absence of a check or receipt, (3) other reliable written records. Sec. 1.170A-13(a)(1), Income Tax Regs. Where it is impractical to obtain a receipt, taxpayers must maintain other written records indicating the name and address of the donee, the date and location of the donation, a description of the property, and its fair market value at the time the contribution was made. Id.; sec. 1.170A-13(b)(2)(ii), Income Tax Regs.

In all of these cases, the petitioners supposedly made the donations in cash and had no receipts or other written records that the Court would accept. So the donations were disallowed. To add insult to injury, most of the petitioners had to pay an accuracy-related penalty.

Cases:
Lewis v. Commissioner, T.C. Summary 2006-140
Harrell v. Commissioner, T.C. Summary 2006-141
Warren v. Commissioner, T.C. Summary 2006-142
Muhammad v. Commissioner, T.C. Summary 2006-144
Warfield v. Commissioner, T.C. Summary 2006-145

Posted in Tax Court | Comments Off on When You’re Not Feeling Charitable

The AMT Is Unfair, But You Still Have to Pay It

Posted on September 12, 2006 by Russ

Like clockwork, about once a month someone challenges in Tax Court the Alternative Minimum Tax. It’s unfair, it’s too complex, it’s just plain old mean…those are just some of the arguments used against the AMT.

There’s jut one problem: The AMT is the law, and the Tax Court has held, time after time, that Congress must change it, not the Tax Court. Would today’s case be any different?

No.

The petitioners today argued, “…that although they know that the Court has no authority to usurp the role of the Congress, they would like the Court nonetheless to relieve them of their Federal income tax obligations so as to ‘make a statement’ that would spawn a thorough and complete legislative review of the alternative minimum tax.”

But they didn’t get that response. Instead, the Court noted, “The Court has consistently and repeatedly rejected challenges to proposed deficiencies based on the fairness of the alternative minimum tax.” After citing six precedents, the Court tersely rejected the petitioner’s ‘argument.’

Case: Falcone v. Commissioner, T.C. Summary 2006-139

Posted in Tax Court | Tagged | Comments Off on The AMT Is Unfair, But You Still Have to Pay It

Remember…

Posted on September 11, 2006 by Russ

Today is the fifth anniversary of 9/11.

Remember those who serve our country in the Armed Forces.

Remember those who have given their lives fighting a tyrannical foe over the last five years.

Remember those who lost their lives on that dreadful day.

Remember.

Posted in Taxable Talk | Comments Off on Remember…

“The U.S. Marines Couldn’t Keep Me Away”

Posted on September 10, 2006 by Russ

So said Conrad Black, also known as Lord Black of Crossharbour. Lord Black waived extradition from Canada (his native home) or Great Britain (where he is a Lord) and will face a March 2007 trial on fraud, racketeering, and tax evasion charges.

Mr. Black built Hollinger International, a newspaper publishing company that owned the Chicago Sun-Times among other papers. Mr. Black and three other defendants are accused of selling some of their smaller papers to other companies they owned for less than the fair market value. At the same time, they allegedly received lucrative non-compete agreements.

Mr. Black is free on a $21 million bond. Last month a Canadian judge put Mr. Black and his wife on an allowance…of $45,000 a month. There is now also a restraining order prohibiting Mr. Black from selling various assets.

Former Sun-Times publisher pleaded guilty earlier this year to one count of fraud and is cooperating with prosecutors.

Links:
Chicago Tribune Story
Bloomberg Story
Ottawa Citizen Story

Posted in Tax Evasion | Tagged | Comments Off on “The U.S. Marines Couldn’t Keep Me Away”

How to be a Millionaire, Illegal Style

Posted on September 10, 2006 by Russ

There are lots of ways to become a millionaire. You can build a successful business, have real estate appreciate, and of course inherit money. You can win the lottery. Or you can do it illegally.

One way is to collect $1,078,392.27 in sales tax and not remit that money to the state. That’s what Randall Lee Malin is accused of doing in Tennessee. If Mr. Malin is convicted on all charges, he faces 92 years in prison and fines of $181,000.

News Story: Jackson Sun

Posted in Sales Tax, Tax Evasion, Tennessee | Comments Off on How to be a Millionaire, Illegal Style

Largest Tax Fraud Case In US History

Posted on September 8, 2006 by Russ

Walter Anderson, a former telecommunications executive, pleaded guilty to evading $200 million in taxes today. Anderson had apparently hid $450 million in offshore bank accounts in the Channel Islands and elsewhere.

In the not-so-brilliant category, investigators found a copy of the book, Poof! How to Disappear and Create a New Identity while searching his home. Anderson also “forgot” to file tax forms on two paintings he bought that were worth over $1 million.

Although eligible for 80 years in prison (effectively a life sentence for Anderson, who is 52), the plea agreement sets a maximum sentence at ten years. Given that Anderson still disputes some of the allegations, stating that some of the purloined funds would have been used to “privatize space” and for charity, it’s no surprise that Anderson is still being held without bail. Sentencing will likely be in January.

MSNBC Story
DOJ Press Release (2005)
TaxProf Blog Story

Posted in Tax Fraud | Tagged | Comments Off on Largest Tax Fraud Case In US History

Telephone Tax Refunds

Posted on September 6, 2006 by Russ

As mentioned earlier, 2006 saw the end of the Spanish-American War (of 1898)…well, the funding for the war. The telephone excise tax, a “luxury” tax, has ended for most services. Taxpayers will receive refunds with their 2007 tax returns.

The IRS has computed standard amounts for the refunds, based on the number of exemptions on the tax return. You can choose the standard amount (between $30 and $60 dollars) or the actual amount (which will require you gathering phone bills from February 28, 2003 through July 31, 2006). The IRS has an excellent question and answer page. But here are some answers to other questions:

How do businesses get the refund? Businesses will have to figure the actual amount of tax paid, and complete a new IRS Form, Form 8913. Individuals who wish to receive the actual amount paid in tax will also complete this form.

I was charged this tax on my local service, my long distance, my cellular, and my Internet phone service. Which phone services are eligible for the refund? Courts held that whern the tax was based on transmission time, rather than distance, the tax was invalid. This means that the tax applies today only to local telephone service. The tax will be refunded for all other services where it was charged.

Why the specific dates (February 28, 2003 – July 31, 2006)? The Internal Revenue Code has a statute of limitations; the government only has to refund the money that was collected during this time-frame.

I’m still being charged the tax on my long-distance service. What should I do? Call your carrier and complain, and demand an immediate refund of the illegal tax. Then write your Public Utilities Commission and/or the FCC (Federal Communications Commission).

I don’t have to file a tax return this year. How do I collect the refund? The IRS announced that there will be a special tax form, Form 1040-EZ-T, for such individuals.

It really took 108 years for the government to stop funding the Spanish-American War? Unfortunately, the telephone excise tax continues on local phone service, so we’re still paying to “Remember the Maine!”

Posted in IRS | Tagged | Comments Off on Telephone Tax Refunds