From Russ Fox, EA, of Clayton Financial and Tax of Las Vegas, NV. All of the items below are for information only and are not meant as tax advice. Please consult your own tax advisor to see how each item impacts your own situation.
The IRS has begun removing social security numbers from some IRS notices in the header (leaving just the last four digits, such as xxx-xx-1234). The reason for this is the problem of identity theft. And I give kudos to the IRS for this. Unfortunately, the IRS hasn’t executed this that well.
Today I opened an IRS notice that was sent to a client. The good: The social security number in the header had only the last four digits. The bad: Right below the header the IRS put in a bar code–presumably to make processing of the return mail easier. Below the bar code in relatively small print (but easily readable by me, and I wear glasses) was the deciphering of the code. Of course, it contained the social security number.
My helpful hint to the IRS: It does no good to remove the social security number from the header and then add it right below the bar code. Identity thieves can read it there, too.
Irvine, California used to have Irvine Regional Hospital. The hospital closed back in 2009 (but has since reopened as Hoag Hospital Irvine). When I lived in Irvine one of my doctors has his office in the medical building that’s attached to the hospital. I imagine he’s a bit perturbed over the following story.
Dr. Bruce Hagadorn was chief of staff at the hospital and was on the board of the hospital’s charity committee. As the hospital neared closing the committee had to decide what to do with the $250,000 in the charity fund. They decided to the Hoag Hospital Foundation.
The money didn’t end up there. Instead, it allegedly went into Dr. Hagadorn’s personal medical practice. I can’t say he embezzled the money as Dr. Hagadorn didn’t plead guilty to that. Instead, he pleaded guilty to eight tax evasion charges related to not reporting the money as income on his tax returns. Dr. Hagadorn will get to spend a year at ClubCal thinking that decision over. He has already made restitution of the funds and paid his state income tax debt of $103,865.
As readers of this blog definitely know, embezzled money–oops, money that’s income that comes into your possession–is taxable. Yes, illegal income is just as taxable as legal income. I don’t know if Dr. Hagadorn would be $147,000 wealthier if he had paid tax on the $250,000, but he might be. It also goes to show that the doctors at Irvine Regional Hospital did notice where the money didn’t go to.
Back in the 1960s there was a television show called Hogan’s Heroes. The comedy was set in a prisoner-of-war camp in Germany during World War II. One of the characters on the show was Sergeant Schultz. Here’s an excerpt via YouTube:
Schultz’s famous line was, “I know nothing, I see nothing,….” That’s what it feels like when we deal with answers from the IRS and the Obama Administration. Federal judges have come to that conclusion, too. Here are two court rulings from this past week.
The first case isn’t related to taxes, but relates to the EPA. As reported by Kimberly Strassel in the Wall Street Journal, there’s a case relating to Pebble Partnership developing a mine in Alaska. An employee of the EPA, Phillip North, apparently didn’t like the idea. He’s alleged to have used private email to coordinate his activities as an EPA employee with anti-mine activists (which would definitely be a problem). On Thursday, a federal judge issued a subpoena for Mr. North over the EPA’s objection. Ms. Stassel concludes her piece,
…U.S. District Judge H. Russel Holland strongly disagreed—noting that Mr. North “appears to be at the center of Pebble’s claims that EPA impermissibly” worked with outside groups, and that he is the “originator of documents likely related to the claims” held on “private computer equipment.” He issued the subpoena, dryly noting: “Mr. North’s personal appearance is necessary. Indeed, the court would be surprised if the EPA were not as anxious as Pebble to obtain testimony and access to documents controlled by Mr. North.”
Judge Holland, consider yourself surprised. The EPA isn’t anxious for Mr. North to appear, any more than the State Department is anxious for the FBI to scour Hillary Clinton’s server. Those agencies know exactly why their employees use private email. And they know the release of it means nothing but trouble.
Meanwhile, the organization Cause of Action won a round in federal court. Cause of Action was curious on whether the IRS sent confidential taxpayer information to the White House. This stemmed from Austin Goolsbee, the former White House Economic Advisor, making remarks on the tax status of Koch Industries. (Since Koch Industries is a private company, their tax status is known by Koch and the IRS.) Cause of Action took their curiosity one step further: They filed a Freedom of Information Act request with the IRS on any requests from the White House for confidential information.
“This court questions whether section 6103 should or would shield records that indicate confidential taxpayer information was misused, or that government officials made an improper attempt to access that information,” the judge wrote in denying the IRS’s request to close out the case.
Now, I expect the Obama Administration to appeal this ruling, but sooner or later the truth will come out. There’s a pattern in this administration, and it’s one of secrecy, denials, and cover-up. Maybe it’s all innocent, but to me it’s failing the smell test. I try hard to avoid pushing one political view over another in this blog, but there is one thing that is clear to all but the most partisan Obama Administration supporters: The administration that promised to be the most transparent in history is likely the most opaque in history. Even Sergeant Schultz could have done better.
…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.
“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.
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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.
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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.
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.
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?
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.
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.
