The Hospital’s Closing; Who Will Notice the Missing Charity Money?

August 31st, 2015

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.

Sergeant Schultz to the Rescue!

August 30th, 2015

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.

The IRS refused to release anything, stating that Section 6103 of the Internal Revenue Code prohibits the IRS from even divulging such requests. Cause of Action then filed a lawsuit demanding the information, and Judge Amy Jackson agreed with Cause of Action that Section 6103 can’t be used to refuse to divulge the requests.

“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.

Addendum: Here is a link to Judge Jackson’s ruling.

When Even IRS Employees Are Tempted to Commit Identity Theft…

August 30th, 2015

…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.

You Will EFile and Electronically Remit to California’s EDD

August 30th, 2015

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.

Will the Last One Out Turn the Lights Off?

August 27th, 2015

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.

How to Commit Tax Fraud 101

August 23rd, 2015

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?

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

August 23rd, 2015

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.

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

August 17th, 2015

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….

Two Sets of Returns Aren’t Better than One

August 16th, 2015

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.

A Pseudo New Nominee for Tax Offender of the Year

August 13th, 2015

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