Individual F: Has Kermit Washington Fouled Out?

May 25th, 2016

Yesterday I wrote about the guilty plea of former San Diego Charger Ron Mix; today, the other shoe dropped. “Individual F,” as former NBA basketball player Kermit Washington was called in the Mix indictment, was arrested on charges of corrupt interference with the internal revenue laws, wire fraud, obstruction of justice, and aggravated identity theft.

The Department of Justice press release details the charges:

It is alleged that Washington referred professional athletes to Ron Mix, a former professional football player and an attorney licensed in the state of California, whose practice focused on the filing of workers’ compensation claims on behalf of former professional athletes. In exchange for the referrals, Mix made payments to PCA and claimed those amounts as charitable deductions on his personal tax returns. Upon receipt of these payments, Washington diverted the funds for his own personal benefit. Washington filed false individual income tax returns for 2010 through 2013, failing to report the funds he diverted from PCA and false Forms 990-EZ on behalf of PCA. Washington also falsified PCA’s corporate minutes to obstruct the investigation and used the identity of another individual to perpetrate this scheme.

It is further alleged that Washington conspired with others to defraud eBay and PayPal, customers and donors of PCA by allowing the co-conspirators to use PCA’s name, tax-exempt status and IRS Employee Identification Number (EIN) with eBay and PayPal so the co-conspirators could avoid substantial listing and registration fees incurred in operating online, for-profit businesses. Moreover, customers who made purchases falsely believed that 100 percent of the proceeds from the co-conspirators’ online eBay sales benefited PCA. In exchange for allowing the co-conspirators to use PCA’s tax-exempt status, Washington received payments from the co-conspirators.

According to the indictment, Mr. Washington diverted about $500,000 of donations to a charity he founded and used them for his personal benefit. That money also allegedly didn’t make it onto his personal tax return. There are also allegations of fraud against eBay and PayPal, and identity theft. This alleged identity theft was not for purposes of obtaining a tax refund; rather, he used the name of someone without their knowledge as the “Secretary” of his charity on the Form 990-EZ filed for his charity.

Of course, these are just allegations but one thing is certain: Mr. Washington is looking at a lengthy term at ClubFed if he’s found guilty of the charges.

Mix Sacked: From Hall of Fame to ClubFed?

May 24th, 2016

Ron Mix is in the NFL Hall of Fame for his play as an offensive lineman for the San Diego Chargers. He was nicknamed the “Intellectual Assassin” for the combination of his physical play and his law degree. Mr. Mix’s law practice focused on civil litigation with an emphasis on workers compensation claims for professional athletes.

Mr. Mix paid a referral fee to a non-attorney for clients. That’s prohibited. From the Kansas City Star:

Instead of paying the person directly, Mix donated about $155,000 over three years to a charity operated by that person (identified as “Individual F” in the indictment), prosecutors said. Then Mix claimed those payments on his tax returns as charitable deductions…

Individual F operated The Sixth Man Foundation, which did business as the charity Project Contact Africa, according to the documents.

According to court documents, Individual F falsely told Mix that the donations would be spent on “alleviating suffering in Africa.”

However, Individual F used the bulk of the donations “for his own personal enjoyment and to fund his lifestyle,” according to the plea agreement.

Had the payments gone to a real charity (rather than Individual F), everything might have been copacetic. (This still could have been against ethics rules for attorneys, but the charitable deductions Mr. Mix made would have been legitimate.) Mr. Mix could have used the IRS’s online search tool to verify that the Sixth Man Foundation was a legitimate charity, eligible to receive tax-deductible contributions.

Mr. Mix has already made restitution. Given that and his cooperation, I expect his sentence will be light. Still, had he followed a former president (“Trust but Verify [the charity]”) it’s likely this would not have happened.

DOJ Press Release

UPDATE: It is clear from reading the indictment of “Individual F” (Kermit Washington) that Project Contact Africa was a real charity. The Department of Justice is alleging that very few of the donations that were meant for PCA actually made it to Africa. (See this post for more.)

Taxes and the WSOP: 2016 Update

May 16th, 2016

I’ll be heading to the Rio Hotel and Casino tomorrow for three days of continuing education. In a little over two weeks, the poker world will be descending on the Rio for the annual World Series of Poker. (I’m probably one of the few individuals who is in both groups.) The 2016 WSOP consists of 68 “bracelet” events culminating in the championship event that begins on July 9th. There are also daily tournaments, satellite events, and cash games at the Rio. Other Las Vegas hotels run poker tournaments, so there are tournaments for almost any size of buy-in available.

I’ve been writing about the tax impacts of the WSOP for years. The first post, back in 2007, noted that the Rio refuses to follow the rules regarding issuing W-2Gs when a poker player presents a correctly completed Form 5754. In 2011 I looked at staking and the WSOP. I presented “updates” in 2014 and 2015 (though essentially nothing has changed).

And that’s still the case today. The Rio won’t issue multiple W-2Gs (though they’re getting closer to admitting the real reason: cost) and the IRS hasn’t come after them (yet). The onus remains on the player to issue required paperwork and withhold taxes when required when the player has backers. (See the 2011 and 2015 updates.)

I have received several inquiries from non-Americans who plan on playing at the WSOP regarding withholding of US taxes and if there’s any means of avoiding this. As noted in IRS Publication 515, withholding is required on gambling winnings (for poker tournaments, of $5,000 or more net) except for residents of these countries:

Tax treaties. Gambling income of residents (as defined by treaty) of the following foreign countries is not taxable by the United States: Austria, Belgium, Bulgaria, Czech Republic, Denmark, Finland, France, Germany, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Netherlands, Russia, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Tunisia, Turkey, Ukraine, and the United Kingdom.

Gambling income of residents of Malta is taxed at 10%.

If you’re from one of these countries, you should not have tax withheld from your winnings. My understanding is the Rio is authorized to issue Individual Taxpayer Identification Numbers (ITINs) to winners. (If you already have an ITIN, make sure you bring that number with you.) You may still owe tax to your home country for those gambling winnings; be aware that the IRS does share information with other countries’ tax agencies.

But what if you’re from a country that does not have a tax treaty with the US? Suppose you’re from Portugal, and you play in a WSOP event and are lucky enough to cash. Let’s say your net win is $100,000. Will you get the full $100,000 or not?

The Rio is required to withhold 30% of your net win, so you will receive $70,000 in my hypothetical. You will also receive paperwork showing the withholding (IRS Form 1042-S). If you owe income tax to Portugal on your gambling winnings, you should be able to claim a tax credit for the double taxation.

I’ve been writing about this for nearly a decade and almost nothing has changed. Eventually the WSOP will be called out by the IRS for their violation of the rules on issuance of W-2Gs (and 1042-S’s). It doesn’t look like that will happen in 2016, though.

Caesars Bankruptcy: An Update

May 15th, 2016

When last we left the bankruptcy of Caesars Entertainment Operating Company (CEOC) (nearly four months ago), a complete reorganization wasn’t ruled out but Caesars was still in control of the bankruptcy. Over the last four months:

  1. In mid-March, a bankruptcy investigator reported that Caesars management deliberately hurt CEOC through its transactions prior to bankruptcy.  This is what junior creditors claimed both to the bankruptcy court and various lawsuits.  Bankruptcy investigator Richard J Davis wrote,

    The principal question being investigated was whether in structuring and implementing these transactions assets were removed from CEOC to the detriment of CEOC and its creditors.

    The simple answer to this question is “yes.” As a result, claims of varying strength arise out of these transactions for constructive fraudulent transfers, actual fraudulent transfers (based on intent to hinder or delay creditors) and breaches of fiduciary duty by CEOC directors and officers and CEC. Aiding and abetting breach of fiduciary duty claims, again of varying strength, exist against the Sponsors and certain of CEC’s directors. None of these claims involve criminal or common law fraud.

  2. Marc Rowan, of Apollo Global Management, resigned from the board of directors of Caesars three days after that investigative report was released.
  3. From Fortune comes the report that an extramarital affair by a restructuring advisor working for CEOC cost Caesars a team of key advisors.  Melissa Knoll had been hired by Caesar to probe the allegations noted above.  “She was sleeping with the enemy,” bankruptcy judge Benjamin Goldgar said.  “Because the investigation is tainted in this way, there isn’t any point in pursuing it.”
  4. On May 2nd Judge Goldgar gave Caesars’ creditors another two weeks to agree or disagree with Caesars’ restructuring plan.  Creditors are waiting for details that were supposed to have been provided to them by April 22nd; Judge Goldgar ordered that the information be released by last Saturday, May 7th.  The next hearing is set for May 25th.
  5. On May 6th Caesars announced that it hired former federal bankruptcy judge Robert Gerber as “Chief Restructuring Officer” and warned that it could be forced into bankruptcy.
  6. Caesars has reportedly received multiple unsolicited offers for its interactive gaming unit.  This unit, Caesars Interactive Entertainment, offers interactive games on Facebook; it also owns the World Series of Poker.  The bids are supposedly in the $4 billion range.  Do note that this unit is one of those that creditors claim was transferred at less than fair market value from CEOC, so a sale would likely get tied up in court.

I am not an attorney, so my speculation is just that: speculation. That said, Caesars’ goal of creating a bad Caesars and a good Caesars and having just the bad Caesars go through Chapter 11 doesn’t look like a good bet to succeed.

1500 Full Tilt Remission Petitions Denied by Department of Justice

May 8th, 2016

Most (but not all) of the remission payments for balances on Full Tilt Poker have been resolved. However, a notice appeared on Friday on


GCG has been informed that the Department of Justice Asset Forfeiture and Money Laundering Section has denied approximately 1,500 Petitions. Petitioners flagged for denial have been notified via email. Please be sure to check your email account’s spam or junk folder to ensure the message was not filtered. Denied petitioners have ten days to appeal the decision.

Impacted individuals have until Monday, May 16th to file appeals.

HatTip: Kevmath

He Didn’t Wear His Sunglasses at Night

May 8th, 2016

Speaking of guilty pleasures, one of my favorite 1980’s songs is Corey Hart’s “Sunglasses At Night.” One New York seller of sunglasses forgot a not-so-minor detail of selling sunglasses, and may be finding his way to ClubFed.

Michael Stern was the owner of Prestige Optical in New York City. He branched out to selling sunglasses (and other glasses) online, collecting $656,780 of sales for 2007 and 2008. Just one minor detail was forgotten by Mr. Stern: Putting those sales on his tax return.

Yes, online income is just as taxable as through a brick and mortar store, and the IRS discovered the omission. He pleaded guilty to two counts of filing a false tax return; he’s already agreed to make restitution to the IRS of $190,781 but he also faces up to three years at ClubFed and a $250,000 fine.

I didn’t remember that the music video of Corey Hart’s “Sunglasses At Night” has a prison theme. It’s definitely apropos here:

Well, He Did Make At Least One Payroll Tax Payment

May 3rd, 2016

As an Enrolled Agent, I know that if I have employees and collect payroll tax for the employees, I had better remit it to the IRS (and state tax agencies). When I’ve been the employer, I’ve done that without fail. A CPA in Utah is alleged to do that once in twelve years. He’s also alleged to have not paid his personal income taxes for eight years.

David Bybee of Kaysville, Utah is alleged to have run several businesses. The IRS supposedly wanted him to remit his income taxes for eight years from 2000 – 2009 (2003 and 2004 were paid). The US Department of Justice was called in when the IRS couldn’t get anywhere. Mr. Bybee was indicted; he allegedly “…took steps to conceal and attempt to conceal the nature, extent and location of his assets from the IRS to avoid paying the taxes.”

I’ve repeated numerous times over the4 years that if you want to get in trouble with the IRS the easiest way is to simply not remit payroll taxes. From the DOJ press release:

A second count of attempt to evade and defeat payment of tax relates to efforts the indictment alleges Bybee took to evade paying payroll taxes to the federal government on behalf of the employees of three companies he controlled from about April 30, 2000, to about March 14, 2011. Bybee deducted and collected payroll taxes totaling at least $39,244.49 but did not report the payroll taxes with the exception of one employment tax payment of $899.32 in April 2012. Bybee was determined to be responsible for the payroll taxes and was assessed penalties totaling $47,919.06 for the unpaid taxes. According to the indictment, he has failed to make any payments.

Mr. Bybee is also accused of not remitting all the federal income tax that was withheld to the IRS. In all, a trifecta of trouble for a CPA.

Once again, you may notice that we have an individual who should absolutely know the rules on remitting taxes. And once again you may notice that we have an individual who didn’t follow through on those rules. Licensing tax professional will get rid of the lowest of bad hanging fruit, but it won’t stop bad people from behaving badly.

Under the Table Worked for a While…

May 1st, 2016

Here’s a scheme that has a somewhat better chance of working than the usual employer tax fraud (of not remitting employment taxes, a scheme with a 0% chance of working). Let’s pay employees “under the table” using income to pay for it. I’ll take remittances, cash them at a check cashing location, and then pay my undocumented employees using the cash I generate. The employees won’t complain, so I won’t be caught! And I’ll pay less in income taxes and workers compensation! What can go wrong?

Ignoring the multiple felonies being committed (tax evasion and workers compensation fraud to start), this scheme will likely be discovered in time. Some undocumented employees actually file tax returns, and those taxes won’t match. A 1099 might be issued from a customer, and that income might not make it onto the books of the company. Or the workers compensation company might get suspicious: How are you doing all of your work without that many employees?

A Watertown, Massachusetts business owner executed this plan. He began paying his employees (of a window and gutter cleaning company) under the table in 2008…and it worked! So he continued this plan for 2009, 2010, 2011, and 2012. The Department of Justice press release doesn’t say when someone caught on, but someone did. IRS Criminal Investigations, Homeland Security, and the Massachusetts Insurance Fraud Bureau all investigated. This past week Richard Moxley pleaded guilty to one count of tax evasion and one count of mail fraud. Mr. Moxley will likely be heading to ClubFed.

As usual, the best idea is simply to pay employees “above the table” and pay your taxes…but that rarely occurs to the Bozo mind.

Neither Rain Nor Sleet Nor Snow…But What About Theft?

May 1st, 2016

Rain–which we had here in Las Vegas this past weekend–didn’t stop the postman from delivering bills I have to pay. Sleet and snow don’t stop the US mail, either. However, theft of the mail will stop it. One postal carrier will likely be heading to ClubFed because he stole mail used in an identity theft ring.

Earl Champagne delivered mail in Pennsaucken, New Jersey. From the Department of Justice press release:

Champagne admitted that from March 2014 to July 2014 he stole U.S. Treasury Checks from the mail and gave them to others. He said he was approached by two individuals who asked him to retrieve checks from the mail with the promise that he would be paid. The individuals told Champagne that the checks were IRS checks and that they would mostly be addressed to individuals with “Spanish” names. The individuals expected to either pick up the checks from Champagne or for him to notify them that the checks were in the mailbox so that they could retrieve the checks themselves. For this service, Champagne was paid $50 per check for every check stolen from the mail. Champagne admitted that he stole 72 U.S. checks totaling $442,776.

Theft of mail is a felony–and can be subject to a lengthy term at ClubFed (up to 15 years and a $250,000 fine per offense). This wasn’t a brilliant idea as sooner or later someone would notice the lack of the refund check, and then the IRS would be notified and it would be fairly easy to figure out the issue. For Mr. Champagne, the Bozo aspect of his crime didn’t occur to him…but it likely does now (a bit too late for him).

What FINCEN Should Do Regarding FBAR Filing Dates and 25 or More Accounts

April 27th, 2016

On March 1st, FINCEN issued a press release noting that they requested comment regarding a proposal such that individuals with 25 or more foreign financial accounts would have to report the details on those accounts rather than just noting they have 25 accounts. Buried in the actual Notice of Proposed Rulemaking was the fact that this rulemaking would include complying with the new law that for 2016 FBARs filed in 2017 the due date would be April 15th with a six-month extension available upon request.

This latter issue (the due date) is key. I can easily see bureaucrats reading the law and saying, “Well, now the deadline is April 15th regardless of whether or not that falls upon a weekend or holiday in the District of Columbia” rather than taking the common sense approach of aligning the FBAR due date to the tax return due date. It’s pretty clear to me that Congress intended the dates to be aligned. I felt it important to submit a comment on the record to note this.

My comments are available here. If you wish to respond to the proposed rulemaking, the deadline is May 9th.