Criminal Update

Posted on February 9, 2006 by Russ

The tax evaders have been busy.

First, a woman in Tullahoma, Tennessee successfully embezzled about $500,000. Only one problem: she forgot to pay her federal income tax on her ill-gotten gains. She pled guilty to four counts of tax evasion on the $129,000 she didn’t pay to the IRS. (Story here.)

Next, a San Francisco contractor pled guilty to two counts of tax evasion for failing to report about $250,000 in income. He took under-the-table cash payments instead of reporting them to his business. He could face as much as five years in jail, but will probably get about a year and a significant fine. (Story here.)

Finally, Markell Boulis, a former Pittsburgh chiropractor, is already in jail for selling drugs. He’s in a lot more trouble. This story, which appeared a little over a week ago, indicated that he’s being investigated for insurance fraud. An owner of a medical supply firm is cooperating in the investigation and has accepted a plea bargain (story here). Now, Boulis has been indicted on tax evasion and fraud charges. According to the Pittsburgh Post-Gazette, the indictment charges that Boulis underreported his income in 2001 by over $500,000 and didn’t report any of his 2002 income.

Posted in Tax Evasion | 1 Comment

Tax Reform Panel’s Recommendations DOA

Posted on February 9, 2006 by Russ

The Senate’s top Democratic tax writer declared that the Tax Reform Report issued last year is dead on arrival. “That thing’s dead. That’s dead, Mr. Secretary,” said Max Baucus, D-MT.

When the panel’s recommendations came out last year, that’s exactly the same thing that I said; these “reforms” stood no chance of passage.

News Story: AP

Hat Tip: TaxProf Blog

Posted in Legislation | 10 Comments

IRS Targets Share Lending

Posted on February 9, 2006 by Russ

According to this story [paid subscription required] in today’s Wall Street Journal, the IRS is targeting a technique used by highly paid individuals to defer capital gains taxes. The strategy is called “prepaid variable forward,” and is a hedging strategy that uses derivatives to protect the user who has a stock portfolio concentrated in one stock from a drop in the price of that stock while deferring capital gains. Typically, the firm involved in the transaction shorts some of the stock to protect itself—and that’s where the problem comes in.

If the firm borrows the shorted shares from the investor, that’s share lending. And the IRS ruled (in a Technical Advice Memorandum that applies to one investor) that when the shares were borrowed, they were effectively “sold,” and subject to immediate capital gains tax.

My generic advice about all tax shelters applies: if it sounds too good to be true….

Posted in IRS | 2 Comments

A Few More Brains than Hatch

Posted on February 8, 2006 by Russ

But it wouldn’t take much for that to be true.

Danni Boatwright, the most recent Survivor champion, paid her taxes on the $1 million she won. “I paid them right away,” she told AP Radio. “(CBS) recommends that you pay your taxes first off. Come on, you don’t need anyone to tell you that. It’s ridiculous. Poor Richard.”

News Story: AP

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Gambling in Stocks vs. Gambling in Casinos

Posted on February 8, 2006 by Russ

Professor Maule has an interesting post on whether people making their living gambling on cards should be treated differently than those gambling on stocks. His conclusion:

I wonder if the current Administration and its Congressional allies, in proposing to make permanent the special low rates [on capital gains] applicable to those who gamble in commodities, options, and similar items, understands that gambling is gambling. Do they understand that making those rates permanent will generate even more incentive for tax shelter designers to find ways to package poker games as long-term investments the income from which would be taxable as capital gains?

Definitely read the entire post—it’s well worth it.

Given the social engineering inherent in our tax code, don’t look for any changes in the treatment of gambling any time soon.

Posted in Gambling | 1 Comment

Eight Million Ways to Lie

Posted on February 3, 2006 by Russ

Lawrence Block wrote a great book, Eight Million Ways to Die. A Milpitas, CA couple could write a sequel: Eight Million Ways to Lie (on Your Tax Return).

The couple sold an invention to the predecessor of Lucent Technologies for $8 million. No problems yet. Then they didn’t report the income on their tax returns. Oops. Unlike Richard Hatch, the couple has accepted a plea agreement. They’ve paid the $2.8 million in back taxes, penalties, and interest, and will serve jail time. They’re also paying a $350,000 fine. As an aside, I believe that this couple because they settled will find themselves much better off than Richard Hatch will when he is sentenced later this month.

The news story also noted that the couple was prohibited under their employment contract from such a sale. The husband was laid off.

News Story: San Francisco Chronicle

Posted in Tax Evasion | 2 Comments

When Will They Learn?

Posted on January 31, 2006 by Russ

In last November’s election, voters roundly rejected a proposed light rail system here in Orange County. The CenterLine system would have linked Irvine, John Wayne (Orange County) Airport, and South Coast Plaza in Costa Mesa.

It’s back. But only here in Irvine.

Last week, the Irvine City Council approved spending $5.6 million on studying an Irvine mass transit system. The proposed system would run 5.5 miles, exclusively in Irvine.

Apparently, the members of the council have not been listening to the voters—the same voters who keep rejecting light rail systems. It’s unfortunate that the $5.6 million has been approved (and will be spent); it’s a certainty that yet another ballot measure will happen and the voters of Irvine will, for the fourth time (I believe) say nyet to rail transit.

News Story: Los Angeles Times

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Gambler Craps Out

Posted on January 30, 2006 by Russ

What happens when you make a few bets and win? Well, besides ending up with more money in your pocket, you have something else to put on your tax return; gambling winnings are taxable in the United States and go on line 21 (Other Income) of Form 1040.

Many gamblers forget to tell their accountant about their winnings. The problems begin when you get caught as you can find yourself facing tax evasion charges. Cyrus Bland, of Campbellsville, KY was convicted on Thursday of filing false income tax returns. He played craps on riverboats in Indiana and came up a big winner — to the tune of nearly $500,000 in 1998 and almost $450,000 in 1999.

But he didn’t include his winnings on his tax return. And the IRS found out, and he’s looking at a possible six years in prison and a fine of $500,000. Oh, he has to pay the back taxes, interest, and penalties, too.

Sure, the tax code isn’t fair for gamblers. But I bet Mr. Bland is wishing he had paid the taxes on his winnings.


News Story: Central Kentucky News-Journal

Posted in Gambling | 4 Comments

Crack Tax

Posted on January 26, 2006 by Russ

Here’s an interesting idea. Why not put a special tax on illegal drugs? If a dealer gets arrested, and they don’t have a “crack stamp” on their cocaine, they’ll go to jail for tax evasion and drug possession/selling illegal drugs. Drug dealers are promised confidentiality.

Believe it or not, such a tax exists in Tennessee. And Tennessee raised $2 million in 2005 from the tax; all the money raised goes to fighting illegal drugs.

Of course, all drug dealers must declare their drug dealing income on their tax returns, or they risk following in Al Capone’s footsteps and landing in jail.

News Story: WBIR.com

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Hatch Loses Immunity Challenge…

Posted on January 25, 2006 by Russ

…Next Stop: Prison

Richard Hatch, the first Survivor winner, was convicted today of failing to report $1,037,000 on his tax return. He was found not guilty of related fraud charges.

Mr. Hatch has cemented a place in the Bozo Tax Criminals Hall of Fame (a website I’ll create one day). Let’s look at his stupid not so good actions.

1. Hatch goes to accountant #1, find out that he owes over $300,000 in taxes. He goes to accountant #2, and the tax bill is around $240,000. (At his level of income, some differences in taxes owed is normal.) He then asks accountant #2 what his return would be if he didn’t declare the $1 million in Survivor winnings. Accountant #2 makes Hatch sign a statement that he won’t file that return (it showed Hatch getting a $4300 refund). He filed that return.

2. The IRS amazingly discovers his tax evasion. (With perhaps 300 million witnesses, even the most inept attorney could prove he won $1 million.) He’s offered a plea bargain: pay your taxes, and we’ll let you off fairly easily on the jail time. He accepts the plea initially, then changes his mind.

3. The case goes to trial. Hatch claims that CBS should have withheld taxes. His attorney might want to ask any seasoned accountant about what you should do if taxes aren’t withheld but should have been. (Answer: you pay the taxes.)

4. Hatch’s attorney can’t find the OJ Simpson jury. (Hat tip: Roth Tax Updates)

5. Hatch is found guilty. Roth Tax Updates speculates that his sentence will be around 3 years in jail. Oh, he’ll also have to pay those taxes, and interest and penalties. The maximum possible sentence is 13 years in prison and a fine of $600,000.

News Story: CBC
US Government Press Release
Roth Tax Updates post on Hatch’s Sentence

Posted in Tax Evasion | Tagged | 4 Comments