Perhaps Michael Williams subconsciously wanted to go to ClubFed. He sure did just about everything he could to make sure he did. Let’s run down the list of things he did.
First, have a business that makes money and not file tax returns. Check.
Next, set up trusts that don’t file tax returns. Check.
Let’s add some bank fraud. How about creating phony US government checks and trying to deposit those. Not only is that bank fraud, but it’s probably some other felonies. Check.
And then let’s target the state officials and judges who are involved in state investigations. Let’s refer them to the IRS. That will get them. (No, it didn’t.) The IRS won’t care about that. Check.
(Here, I should point out that this likely got a separate agency involved: TIGTA, the Treasury Inspector General for Tax Administration. TIGTA is the internal affairs department of the IRS, and phony criminal referrals would likely get referred to TIGTA rather than IRS criminal investigation.)
Mr. Williams, a resident of Colorado, was indicted in 2012. He was found guilty on November 5, 2013 after a six-day trial. It took the jury just three hours to find him guilty of tax evasion, currency structuring, bank fraud, and interfering with internal revenue laws.
US District Court Judge Linda Arguello called Mr. Williams “a danger to the community…[He] is continuing to show his contempt for the government and he appears to believe he is exempt from the laws of the United States.” He received 71 months at ClubFed to think things over.
I’m generally a supporter of the National Association of Enrolled Agents and its policies. However, I disagree with the idea that both the NAEA and the IRS have that regulating tax preparers will magically make preparer fraud go away. It’s just not true.
Yet another case in point comes out of the San Joaquin Valley in California. From the DOJ press release:
The United States filed a civil complaint asking a federal court in Fresno, Calif., to enjoin Ken Mendoza and Alice Mendoza from preparing federal tax returns for others, the Justice Department announced today. The complaint alleges that the Mendozas frequently prepare tax returns for individuals claiming refunds from the federal government that are not deserved. According to the complaint, since 2010, the Mendozas have prepared over 600 tax returns for individuals in the Fresno area.
According to the complaint, the Mendozas improperly understate their customers’ federal tax liabilities by fabricating business expenses, claiming false or inflated credits, particularly educational credits, and deducting customers’ personal expenses that are not legally deductible. In total, the complaint alleges that the loss to the U.S. Treasury from the Mendozas’ activities could be as much as $2.8 million for tax years 2010 through 2011.
California requires all tax professionals who are not EAs, CPAs, or attorneys to register with CTEC. If the IRS is right that regulating tax professionals stops tax preparer fraud, Mr. Mendoza wouldn’t be registered. The IRS’s view is just another fairy tale.
Mr. Mendoza is registered with CTEC (I checked). That means he went to some continuing education and regurgitated some basic information on taxes. Taking continuing education courses does not turn a good person into a bad person (or vice versa).
I’m hoping that cases such as these–and mind you, I do want the Bozo side of my profession to be gone–will put a stop to the idea that regulating tax professionals will magically make all tax professionals angels. Let me be blunt: Wherever there is money around, there will be bad people around. There will always be people going after the dishonest buck and nothing anyone says or does will ever change that.
I do want to point out the other point of this post for taxpayers who read this: You are responsible for your tax return. Read it. Ask questions if you don’t understand something. The Tax Code is complex, and there are things that seem obvious that aren’t on a tax return. If you have a good tax professional, he or she will want to answer your questions.
I used to live in Orange County, California. Earlier this week a US Postal Service caught fire as it was heading toward an airport after leaving the Santa Ana mail sorting center. So if you mailed something on Monday, March 3rd from ZIP Codes starting with 926, 927, 928, 906, 917 and 918, it might have been burnt to a crisp. All the mail the truck was carrying was destroyed (an estimated 120,000 pieces). (No one was hurt in the accident.)
If you happen to have mailed a tax payment or tax form hopefully you used certified mail. When your payment doesn’t show up–and you should check to see if the check cleared–tax agencies will normally consider the certified mail receipt as proof of filing. The USPS is offering documentation of the fire (if the news stories aren’t enough).
This is the third incident like this in recent years that I can remember. Back in 2005 a truck carrying payments leaving the San Francisco Post Office Box where IRS payments go made a right turn on the Hayward Bridge (across the San Francisco Bay). There’s a reason why there’s a bridge and you don’t make right turns while on a bridge. Those payments went to the fishes. In 2012, a truck carrying mail to New Jersey government offices went up in flames.
Most likely, this incident will have minimal impact on taxes as it is early in Tax Season. Still, this is a good reminder why if you do mail a tax form or tax payment that you use certified mail, return receipt requested. That way should there be a problem it’s an inconvenience rather than one leading to costly penalties.
The Las Vegas Culinary Union (formally, Local 226 of the Culinary Union) doesn’t like non-union casinos here in Las Vegas. One such casino is the Cosmopolitan Hotel. It’s one of the newest of Las Vegas’s mega-resorts, and it’s a beautiful facility. Last year I attended the National Association of Enrolled Agent’s national conference in August at the Cosmo (I was taking the third and final year of the National Tax Practice Institute). The Culinary Union would like all convention business at the Cosmo to vanish. This year’s conference is also scheduled for the Cosmo. The Culinary Union decided on the strategy of calling EA’s…in the middle of tax season.
Today, someone from the Culinary Union called me. I was on the phone, so the call went to voice mail. After listening to the first 20 seconds of the message I hit delete. I don’t have time for much besides work, sleep, and the gym during the height of tax season–and it is just that right now: the height of tax season.
I’m not taking sides for or against the Culinary Union. They may be right in their fight against the Cosmo or they may be wrong. However, they’re dead wrong in calling tax professionals at the height of tax season. If anything, the Culinary Union’s current action is counterproductive. While today’s call will not impact whether or not I attend the conference, if I did make a decision based on the call I’d be attending.
A hint to the Culinary Union: Tax professionals are far less busy after April 15th. We have time to listen then…but not now.
I was on the phone today with the IRS about a client. Back in October he received an IRS notice regarding his 2012 return. We believed the IRS notice was incorrect. With this particular notice the only option was to write the IRS. I did so (I had a Power of Attorney for the client), sent it via certified mail, return receipt requested, and noted that it was received three days later.
We heard nothing until last week.
The client has now received the first of a series of collection notices (a CP501). This is the first of four steps in IRS nastygrams about balance dues (CP501, CP502, CP503, and CP504). I called the IRS noting that we had sent in a letter disputing the original notice. The helpful IRS person noted that they had received the letter but it has yet to be assigned to someone. It has been over four months since I sent in the response. The woman I spoke to thought that the nine-week delay they put on sending out additional notices should be enough time for someone to read my letter.
If it takes all nine weeks, that would mean it took over six and a half months from the time I submitted the response until my client got a response. Many times the IRS will ask for additional information, and that might mean if it takes another six months that this will have gone over one year. Actually, that’s not as bad as something else that happened today.
I had a second client I was inquiring about. I had sent a letter disputing another IRS notice; this letter was sent in mid-December and received five days later (and yes, I have the certified mail tracking to prove it). The IRS has no record of receiving it, and the unhelpful individual I spoke to refused to put a stop on notices. I resent my previous response today (again, certified mail; this is another notice where I cannot fax a response). I will call the IRS three weeks after it was received to make sure that they have it noted in the system.
There are some takeaways for both practitioners and taxpayers. For practitioners, the current state of the IRS is such that you can expect a lot of delays in responding to notices. Think months instead of weeks. Expect to have to call the IRS to verify that your response was received, and make sure clients are aware that the IRS is moving like molasses rolling uphill. Make sure anything you send is documented: certified mail with proof of receipt if by mail; if faxing, make sure you have the proof of receipt. Given the lengthy delays our clients are going to be in fear for far longer.
The current customer service delays will lead to more clients being sent to ACS. A client rightly isn’t going to pay a notice he doesn’t owe. While the IRS can stop the sending of notices, sooner or later an account gets moved into ACS. I have one of these right now, and I have to call ACS every 30 days until the underlying matter gets resolved.
This will also lead to more Collection Due Process Appeals. If things get delayed long enough, ACS will refuse to stop collection activities. The next tool a practitioner can use is a Collection Due Process Appeal. If you’ve never been able to dispute the underlying notice, this should be fair game. And a CDP appeal does put a stop to collection activities. (This could also have the indirect effect of slowing other appeals.)
For taxpayers, you need to be aware that expediency is not part of today’s IRS. You have to be expedient in responding to notices but don’t expect the IRS to be expedient in getting back to you. Do not worry if it takes a long, long time to resolve something with the IRS. That’s just par for the course today.
Nina Olson, the National Taxpayer Advocate, noted that IRS budget cuts have hurt customer service. Unfortunately, the apparent political activities by some within the IRS have forced these cuts. Until then, everyone suffers.
That’s one of my favorite lines from one of my favorite movies, North by Northwest. In that classic movie, Cary Grant’s character gets drunk and, well, I’ll be giving away some of the movie if I went on. In any case, his mother (in the movie) says the line, in perfect comedic tempo, “Just pay the five dollars.” Since the Oscars are being televised as I write this a movie reference seems apropos.
Similarly, most tax evaders (and tax deniers) would find their lives far, far easier if they just paid the tax in the first place. One Massachusetts dentist is accused of a long-running scheme that allegedly used many of the normal tricks to avoid paying taxes.
George Fenzell is the accused dentist. He allegedly began, in 1999, to not pay taxes; he allegedly used nominees to conceal receipts. He supposedly comingled funds with others and made some nominees own his business (which, according to the indictment, Mr. Fenzell does own).
Back in 2007 the Massachusetts Department of Revenue was investigating; the indictment alleges that this caused Mr. Fenzell to file his 2000 through 2005 tax returns. Those returns showed tax due of $129,000 which had grown to over $300,000 when you factor in interest and penalties. Meanwhile, the IRS couldn’t collect; the indictment alleges he continued to use cash and nominees to evade the IRS.
Mr. Fenzell is looking at a lengthy stay at ClubFed if found guilty.
The IRS has its problems, but accepting bribes isn’t one of them. The former chairman of the Woodland Park, New Jersey Democratic Committee found that out the hard way.
Michael Kazmark didn’t pay his 1997-2005 federal taxes; he owed just under $100,000 (including interest and penalties) by 2010. When you owe a large amount and cannot pay one avenue that’s open to you is an Offer In Compromise (OIC). In an OIC, you ask the IRS to settle your debt for pennies on the dollar. About 15% of OICs make it through and are accepted; it usually takes over a year for the process to play itself out. Mr. Kazmark offered to pay $48,800 of the $98,046 he owed; he sent the required deposit of $9,800 with his OIC application.
Mr. Kazmark wanted to make sure his OIC went through. Now, most of us might consult with a tax professional who could make sure the OIC had the best chance of being approved. Mr. Kazmark had another idea: bribery. From the Information in his indictment:
5. It was part of this bribery scheme that on or about October 5, 2010, in Passaic County, defendant MICHAEL KAZMARK offered, promised to make and made a $1,000 bribe payment to UC1 and UC2 in exchange for their official assistance in transferring MICHAEL KAZMARK’s offer in compromise file to UC2 so that UC2 could accept defendant MICHAEL KAZMARK’s April 18, 2010 offer in compromise.
6. It was a further part of this bribery scheme that on or about October 5, 2010, in Passaic County, New Jersey, defendant MICHAEL KAZMARK offered and promised to make a $17,500 bribe payment to UC1 and UC2 in exchange for their official assistance in accepting defendant MICHAEL KAZMARK’s April 18, 2010 offer in compromise, and thereby resolving defendant MICHAEL KAZMARK’s federal tax liability, for the amount of the check that he had already paid to the IRS, namely $9,760, as opposed to the $48,800 that defendant MICHAEL KAZMARK had initially offered.
Mr. Kazmark pleaded guilty last year; he was sentenced on Friday to two years at ClubFed. He was lucky in that federal sentencing guidelines suggested a three-year term. In any case, bribery is a strategy that is a very poor choice.
Back in 2007, Peter Hendrickson wrote a book titled Cracking the Code: The Fascinating Truth About Taxation in America. I haven’t read it, nor would I advise you to. Today, Judge Buch of the Tax Court demolished each and every argument in the book.
But I’m starting with the decision rather than the case itself. Steven Waltner challenged the IRS’s collection of a frivolous tax submissions penalty in Tax Court. He paid the IRS so that issue was moot. However, each side asked for sanctions on the other side (that being Mr. Waltner and the IRS) alleging misconduct.
Judge Buch notes,
This case has occupied an inordinate amount of the Court’s time. The Court could have disposed of the entire matter summarily by reference to Crain v. Commissioner or any number of other cases that stand for the proposition that we need not address frivolous arguments. [footnotes omitted]
Well, why does the decision go on for another 40 pages?
The Court has taken the time, however, to address those arguments because Mr. Waltner appears to be perpetuating frivolous positions that have been promoted and encouraged by Peter Hendrickson’s book Cracking the Code: The Fascinating Truth About Taxation in America (2007). Indeed, it appears not merely that Mr. Waltner’s positions are predicated on that book but that his returns and return information have been used to promote the frivolous arguments contained in that book. Consequently, a written opinion is warranted.
It’s not that the IRS didn’t err; they did. It’s what the IRS counsel did after making mistakes that contrasts with what the petitioner (Mr. Waltner) did. I’ll let Judge Buch take it:
Respondent’s counsel sought discovery that went beyond the scope ofthis case, and the Court issued orders excusing Mr. Waltner from responding to those requests. Likewise, respondent’s counsel was evasive in answering some of Mr. Waltner’s discovery requests, and the Court ordered respondent to supplement those responses. In each instance, once the Court ruled, respondent’s counsel cured the defect, through either supplementing his responses or accepting the Court’s determinations that his requests were improper.
Mr. Waltner sought to avoid answering every discovery request.
There’s more, though, a lot more. It appears that the petitioner’s aided a Web site used to market Cracking the Code. The Court then takes 30 pages to demolish the arguments in the book. Here are some additional excerpts of Judge Buch’s opinion:
Cracking the Code is written by Peter Eric Hendrickson. Nowhere in his book does Mr. Hendrickson set forth his credentials, other than on the back cover where he vaguely identifies himself as “researcher, analyst and scholar”. Add to that felon and serial tax evader.
Well, you have a lot of free time to research when you’re at ClubFed.
It is this passage that is quoted at the beginning of Cracking the Code. It is fitting because the book is largely an exercise in twisting the meaning of words into what the author wants them to mean, even if statutes, regulations, and case law define those words otherwise…
Having spent the immediately preceding chapter misinterpreting the word “including”, the author turns to the same Latin phrase discussed above and then proceeds to misinterpret it…
This chapter provides an example of how one illogical conclusion can be used to bolster another…
Turning to the subject of withholding, the author sets forth one of his fundamental, and fundamentally incorrect, positions regarding tax reporting. Having erroneously concluded that the term “employee” includes only government employees (and a few selected others), the author concludes that “this kind of withholding only applies to the pay of federal government workers”…
The positions advocated in Cracking the Code have routinely been rejected, with its author being criminally convicted and its adherents being sanctioned.
I could go on, but I think you get the point; I’m certain Mr. Waltner gets the point. While he only received a $2,500 sanction, he has other Tax Court cases in the pipeline. I also suspect that others are using arguments in Cracking the Code. They may want to rethink that. As Judge Buch stated, “And future litigants are on notice that the positions advanced in Cracking the Code are frivolous and relying on those positions may result in sanctions.”
Nevada is known for low taxes. It’s also known for subpar schools and relatively low teacher salaries. The Nevada State Education Association (aka the teachers union) decided that a solution to the problem of subpar schools was a tax on businesses. The NSEA calls it the Education Initiative; opponents call it a fiscal disaster for the state. The initiative will appear on the November ballot and is more commonly known as the Margin Tax.
Interestingly, Jon Ralston, who is probably the leading political commentator here in the Silver State, noted on his blog that both sides (pro and con) paid for a study of its impact. I have a feeling that proponents of the tax aren’t thrilled with what they’re reading. Here are two of the conclusions from the study:
With an effective tax rate approaching 15 percent, Nevada’s effective business tax rate would be materially higher than any other Western state, including, without limitation, California…
The proposed margin tax would take Nevada from below the national average in terms of businesses taxes paid per employee, per $1,000 of personal income and per $1 million of gross state product to among the top five states in the country in each of those categories.
This tax goes into effect at exactly $1 million of gross receipts. It doesn’t take a genius to figure out that this initiative would cause companies to stop growing when their sales neared $1 million.
To date, the only large union in favor of the initiative is the NSEA. I expect that as news of this study spreads that the large casino interests and the unions will either refuse to support the measure or come out against it. While the November election is just over eight months away, this doesn’t look like a good year for Democrats and supporters of new taxes. Given the devastating impact of this proposed new tax, that’s a good thing.
This hasn’t been a good year for Democratic state senators in California. Back in January State Senator Roderick White of Inglewood was convicted of five counts of voter fraud, two counts of perjury, and one count of filing a false declaration of candidacy. His sentencing is scheduled for March. This past week State Senator Ron Calderon of Montebello was indicted in a bribery scandal.
Senator Calderon is accused of 24 counts, including mail fraud, wire fraud, honest services fraud, bribery, money laundering and conspiracy to commit money laundering, and aiding in the filing of a false tax return. From the Department of Justice press release:
The indictment describes a scheme in which Ron Calderon allegedly solicited and accepted approximately $100,000 in cash bribes – as well as plane trips, gourmet dinners and trips to golf resorts – in exchange for official acts, such as supporting legislation that would be favorable to those who paid the bribes and opposing legislation that would be harmful to them. The indictment further alleges that Ron Calderon attempted to convince other public officials to support and oppose legislation.
Another part of the press release states that Senator Calderon took bribes from Michael Drobot. Mr. Drobot used to own Pacific Hospital in Long Beach. The press release goes on to note,
Drobot allegedly bribed Ron Calderon so that he would use his public office to preserve this law that helped Drobot maintain a long-running and lucrative health care fraud scheme…
In another case filed this morning in United States District Court, Drobot has agreed to plead guilty to charges of conspiracy and paying illegal kickbacks. In his plea agreement, Drobot admits paying bribes to Ron Calderon.
We also have the wonder of film credits coming into the picture. Film credits have been a magnet for corruption; such was allegedly the case here:
In another part of the bribery scheme, Ron Calderon allegedly solicited and accepted bribes from people he thought were associated with an independent film studio, but who were in fact undercover FBI agents. Ron Calderon solicited and accepted bribes in exchange for supporting an expansion of a state law that gave tax credits to studios that produced independent films in California.
Mr. Calderon is facing a maximum of 396 years at ClubFed if found guilty on all charges.