When Even IRS Employees Are Tempted to Commit Identity Theft…

Posted on August 30, 2015 by Russ

…you know there’s a huge problem. Especially given that the employee should realize that the Treasury Inspector General for Tax Administration (TIGTA) does look at alleged criminal activities by IRS employees. Yet it happens.

Take Kenneth Goheen of Austin. Mr. Goheen worked in the IRS Austin Service Center. He apparently looked at applications for an Individual Taxpayer Identification Numbers (ITINs) and used those applications to file more than 50 fraudulent returns. He pocketed over $120,000 while committing his crimes. Luckily, TIGTA and IRS Criminal Investigation found out about his malfeasance.

As noted in the Department of Justice press release,

“Goheen’s conduct is doubly offensive. He not only stole money from the government, but he used his unique position in the government—a position of trust—to wrongfully enrich himself,” stated U.S. Attorney Richard L. Durbin, Jr.

Mr. Goheen was sentenced to two years plus one day at ClubFed, must forfeit $15,442 seized from his bank account, and must make restitution of $104,292.

While it’s well and good that TIGTA and IRS Criminal Investigation caught Mr. Goheen, consider the question why did Mr. Goheen commit his crimes? Obviously he thought he’d get away with it–and that’s disturbing. No, I suspect that most criminals think they’ll get away with their crimes. Here, though, Mr. Goheen should be aware of the IRS efforts (or lack thereof) in fighting identity theft. Clearly, he felt that that the IRS efforts weren’t particularly meaningful. And that’s what bothers me here.

Posted in IRS | Tagged | Comments Off on When Even IRS Employees Are Tempted to Commit Identity Theft…

You Will EFile and Electronically Remit to California’s EDD

Posted on August 30, 2015 by Russ

Beginning in 2017, all California employers with ten or more employees will be required to electronically file all withholding tax reports and electronically remit all payments to California’s Employment Development Department (EDD). Beginning in 2018, all California employers, regardless of size, will be required to electronically file and remit.

These changes are part of legislation recently passed by the California legislature and signed into law by Governor Jerry Brown.

Posted in California | Comments Off on You Will EFile and Electronically Remit to California’s EDD

Will the Last One Out Turn the Lights Off?

Posted on August 27, 2015 by Russ

An interesting op-ed in the Orange County Register talks about how Democrats in the California legislature are considering a long list of taxes. The author, Joseph Vranich, is a business relocation consultant based in my old homestead of Irvine, California. Mr. Vranich laments the current state of California:

Think about Dan Castilleja, president of DHF Technical Products, who said when relocating that it’s easier to expand in New Mexico than in the Los Angeles area, where “We are hampered by everything from payroll to taxes to regulation.”

Examples abound of companies leaving for other states – even to the so-called “Rust Belt” – because their friendlier business environments far outshine our disadvantages.

California’s public officials come across as being uncaring about the damage they inflict on businesses, investors, employees and their families and to the towns that lose jobs to distant locations.

Nearly four years ago my business–and the one whole employee in the Bronze Golden State (me)–left for Nevada because sometimes silver is better than gold. Mr. Vranich is seeing the trend starting up again while California has a budget surplus. Consider what will happen when California actually goes through and raises taxes even more.

Today, California is horribly dependent on the stock market. The last report I saw showed that 50% of California’s tax revenues come from 1% of the population. That’s mostly from the tax on capital gains. What happens when the stock market is flat, or suffers a bear market? Meanwhile, the middle class is being driven out of the state.

The solution for California is one that Democrats in California may not like, but it’s the only one that works long-term. Government spending will need to be cut, programs will need to be pared, and regulations made far more business friendly. Businesses don’t like to move, but math is the same in California, Nevada, Tennessee, Texas, and Florida. If California continues to make businesses suffer, businesses have a solution. I made that choice four years ago; others are making it today.

Posted in California | 1 Comment

How to Commit Tax Fraud 101

Posted on August 23, 2015 by Russ

The Florida Center for Investigative Reporting (FCIR) has an article spotlighting tax return fraud. That in itself isn’t surprising given that Florida is the hotbed for this crime. What is depressing is how easy it is to commit the crime. While the Social Security Death List is no longer available for the fraudsters, FCIR reports that they turned to a commercial service called findmypast.com. The site is designed for finding your ancestors, but enterprising crooks discovered it could be used to commit tax fraud.

My guess is that old records contain social security numbers–the numbers weren’t as big a deal in the pre-Internet era–and they just find people in that manner. Sure, they are undoubtedly violating the Terms & Conditions of the website but if you’re going to commit a felony (or several), what’s the big deal about violating some T&C’s?

Meanwhile, two press releases from the East Bay (near San Francisco) highlight the magnitude of this problem. Ebony Standifer conspired to obtain false identities and used them to obtain $193,602 in false refunds. She pleaded guilty this week to one count of conspiracy to file false claims and one count of aggravated identity theft. Three other East Bay residents pleaded guilty to conspiracy to file false claims in what appears to be a separate tax fraud scheme. These individuals received $287,498 in false refunds.

Until the IRS makes it far more difficult for the fraudsters, this epidemic will continue. As I’ve said, why rob banks?

Posted in Tax Fraud | Tagged | 1 Comment

Former Oklahoma State Senator Embezzled $1.2 Million & Committed Tax Fraud

Posted on August 23, 2015 by Russ

Ricky Brinkley used to be a State Senator in Oklahoma; he represented Tulsa and nearby areas. He resigned last week and then pleaded guilty to five counts of wire fraud and one count of subscribing to a false tax return.

Over a ten-plus year period Mr. Brinkley had fraudulently obtained over $1.2 Million from the Better Business Bureau. Mr. Brinkley was President and CEO of the organization; he created phony invoices and used the money for personal expenses and to support his gambling habit. He also admitted to not reporting $148,390 in income on his 2013 tax return.

Mr. Brinkley agreed to forfeit $1,829,033.66–the proceeds from his embezzlement. FBI Special Agent in Charge Scott Cruse of the Oklahoma City Division stated,

[C]riminal investigations against those holding positions of public trust are never easy, but they are among some of the most important cases that we do in the FBI. That is because we hold our public servants to a higher standard. Our citizens expect their public servants to uphold the law in all aspects of their lives, whether it be in connection with their public responsibilities or in their personal endeavors.

Mr. Brinkley faces a term at ClubFed; he’ll be sentenced later this year.

Posted in Tax Fraud | 1 Comment

IRS Data Breach Impacted 334,000, Not 100,000 as IRS First Said

Posted on August 17, 2015 by Russ

The IRS announced today that the data breach impacting the online version of the “Get Transcript” application impacted approximately 334,000 taxpayers, not the 104,000 the agency had first said. The IRS will offer free credit monitoring services to victims.

The news story indicates that the breach began last November, not in February of this year as the IRS first thought.

Being a cynic, I wonder if the IRS’s announcement last week regarding free credit monitoring services has to do with today’s announcement. I’m probably wrong; I mean has the IRS done anything in the last couple of years where cynics have been proven right? Maybe I should rephrase that….

Posted in IRS | 1 Comment

Two Sets of Returns Aren’t Better than One

Posted on August 16, 2015 by Russ

As I get ready to teach a course in ethics, I have plenty of practical examples of things not to do. Today I look at the idea of preparing one set of tax returns for clients but using a second set of returns when submitting the returns to the IRS. Of course, those second returns had higher refund amounts with the difference being pocketed by the preparers. After all, what’s a little tax fraud?

Well, it’s a crime, and Ahmed Grant and his wife Lillian Madyun will likely get to sample ClubFed. Ms. Madyun also has the dubious distinction of being a former IRS employee. The two pleaded guilty to conspiracy to commit fraud against the United States last week. The two had pocketed at least $160,000 from their scheme (which they did in the Memphis area) but they face up to ten years each at ClubFed and fines of up to $250,000 each.

Posted in Tax Fraud | 1 Comment

A Pseudo New Nominee for Tax Offender of the Year

Posted on August 13, 2015 by Russ

Well, he probably can’t win my coveted award of Tax Offender of the Year as the alleged crimes have nothing to do with tax. However, the alleged perpetrator is a tax attorney, so there is at least some relation to tax. Robert Howell of Cary, North Carolina is accused of attempted murder, kidnapping, and first degree burglary in Isle of Palms, South Carolina. Mr. Howell is alleged to have followed his ex-girlfriend to South Carolina where he is alleged to have committed the crimes. He’s also accused of assaulting and threatening her the day before this incident in her home in Cary, North Carolina.

While the charges are pending he’s been suspended from the North Carolina Bar.

Meanwhile, Mr. Howell is locked in a custody battle with his estranged wife. And Cary police plan on serving Mr. Howell with additional charges.

Hat Tip: Tax Professor Blog

Posted in Scams | 1 Comment

IRS: Free Identity Protection Services After a Data Breach Isn’t Includable in Income

Posted on August 13, 2015 by Russ

The IRS noted Announcement 2015-22 today, that states:

[T]he IRS will not assert that an individual whose personal information may have been compromised in a data breach must include in gross income the value of the identity protection services provided by the organization that experienced the data breach. Additionally, the IRS will not assert that an employer providing identity protection services to employees whose personal information may have been compromised in a data breach of the employer’s (or employer’s agent or service provider’s) recordkeeping system must include the value of the identity protection services in the employees’ gross income and wages.

Generally, any accession to wealth is includable in income, and there’s a value for the data protection services. Of course, one of the largest data breaches this year was at the hands of…the IRS. While this is a clearly common sense approach, still one must wonder if the IRS would have released this announcement if one of the biggest entities to cause a data breach wasn’t the IRS.

Posted in IRS | Tagged | 3 Comments

There’s Innocent FBAR Violations, and There’s This

Posted on August 11, 2015 by Russ

It’s one thing when Aunt Sally inherits €8000 in the old country, it sits in the bank for one day, and she then gets the money the next day in the US. Yes she should have filed an FBAR, but it really is an innocent violation.

Then we have what David and Nadav Kalai did. The two (father and son) headed up United Revenue Service, a tax preparation firm with offices in Orange County, California and Bethesda, Maryland. The Kalais’ methods were of the very deliberate violation of the rules on FBARs:
– Take a high wealth individual,
– Have him form a foreign corporation in Belize,
– Have that corporation get a bank account with Bank Leumi (an Israeli Bank) in Luxembourg, and
– Don’t disclose any of this to the IRS, FINCEN, or the Department of the Treasury.

Last year they were convicted of one count each of conspiracy to defraud the IRS, and two counts of willfully failing to file an FBAR. Yes, they practiced what they preached: They used the same methods to not disclose their own foreign bank accounts.

The sham corporations that the co-conspirators incorporated in Belize and elsewhere were used to act as named accountholders on the secret Israeli bank accounts. The co-conspirators then recommended and facilitated the transfer of client funds to the secret accounts and prepared and filed tax returns that falsely reported the money sent offshore as a false investment loss or a false business expense, or entirely omitted any income earned by a client from a foreign source. The Kalais also failed to disclose the clients’ secret accounts on tax returns that they prepared, and caused the clients to fail to file FBARs with the U.S. Treasury as required.

The Kalais will have some time to think over what they did. David received 36 months at ClubFed and a $286,000 fine while his son received 50 months at ClubFed and a $10,000 fine. An alleged co-conspirator, David Almog, remains at large. Meanwhile, three customers (so far) of the Kalais and United Revenue Service have pleaded guilty to tax charges, and there are likely more charges coming.

Posted in Tax Fraud | Tagged | 1 Comment