Taxable Talk

The Tax Foundation reported that Massachusetts voters will get the chance to vote themselves out of having an income tax this November. Question 1 on the Massachusetts Ballot will be condemned by almost every politician, newspaper, and liberal group in the Bay State.

Indeed, Governor Patrick called the proposal "irresponsible." But the mere fact that it's on the ballot—and Massachusetts is not an easy state to get an initiative on the ballot—shows that lots of voters are unhappy with taxes in Taxachusetts.

It will be an interesting November in Massachusetts.

Sometimes you read a story and wonder how in the world it can be true. How can people be so gullible and how can someone do such a stupid scheme and expect to get away with it.

Robert Doyle of Oakland had an interesting means of making a living. He would ask random individuals he'd meet on the street if he could prepare their tax returns. He'd then do so, making up a phony return and then pocketing a goodly portion of the refund. (You didn't he'd make up a return with a large balance due, did you?). The "Tax Man" (yes, that was really his nickname) pleaded guilty to one count of filing a false tax return and will be sentenced this Fall to spend some time at ClubFed. Mr. Doyle practiced his trade from 2000 - 2005, so it's likely that the loss to the government was quite substantial.

Meanwhile, Fatai Onevai of Pittsburg, California told his clientele that he could fix any and all IRS problems. And he did by a similar method—in total, he bilked the government out of $1.3 million. He pleaded guilty to one count of filing a false tax return and was sentenced in late June to 18 months at ClubFed.

As usual, if it sounds too good to be true it probably is.

Last year we covered the trial of Wisconsin dentist Frederick Kriemelmeyer. Dr. Kriemelmeyer argued at trial that the indictment was faulty because it was in English; that the American flag should not be in the courtroom; and that as long as some additional punctuation was added to a tax return the tax magically vanished. Unfortunately for Dr. Kriemelmeyer, the jury found that not reporting all of his income was what you and I would think it was—tax fraud&mdashand the judge thought he was greedy and sentenced him to 36 months at ClubFed to take remedial English.

Dr. Kriemelmeyer appealed the verdict, and Joe Kristan reported this morning on the appeal. Joe quotes from the opinion:

[In 2002], his mother began frequently cashing checks made payable to cash at a local bank. Bank employees became suspicious of these deposits and notified the IRS, which investigated and in December 2004 executed a search warrant at his dental office. In March 2007 a grand jury returned an indictment charging that Kriemelmeyer's 2000, 2002, 2003, and 2004 returns reported gross receipts substantially below his income. The IRS determined that he underreported his gross receipts by $392,023 in total for those four years, thus underpaying his taxes by $135,337.

As Joe also notes, the judge during the trial suggested that an attorney might be a good idea instead of someone who doesn't like English; Dr. Kriemelmeyer declined.

There is actually a somewhat serious lesson to be learned from this case. Dr. Kriemelmeyer got caught because of a Suspicious Activity Report (SAR). The IRS regularly investigates these, and even small banks will send them to the IRS. If you have a choice between making several deposits of $3,000 or one larger deposit of (say) $12,000, it's usually better to make the larger deposit and wait the 30 or so minutes while a Currency Transaction Report (CTR) is filed. Some of those are investigated, but not nearly as many CTRs are investigated as SARs.

Of course, it's even better to not commit tax fraud. And if you do end up in a trial, get a competent attorney who understands that English is the language used in the United States—not some weird pseudo-English dialect.

Rhode Island has joined 17 other states including California to mandate that state tax returns prepared by professionals be electronically filed. The mandate goes into effect in January.

Under Rhode Island's new law individual taxpayers can opt-out of e-filing. Additionally, the mandate only applies to preparers who submitted 100 or more returns to Rhode Island. And returns that aren't eligible for electronic filing (generally, certain complex returns) aren't covered by the new law.

Perhaps it was the holiday weekend, or perhaps it's the start of summer, but the tax evaders weren't that busy last week. Still, there are some amusing tales of evasion gone wrong.

First, we head to White Plains, New York. Yahezkel Elia and David Elyaho were accused of tax evasion. The IRS alleged that their business were far more profitable than they showed on their tax returns. And when the government found a logbook showing the 12,000 money orders that the two men used to conceal their true income the jury had no problem finding them guilty of tax evasion. Given that the evasion apparently involved millions of dollars the two men will likely soon be boarding at ClubFed.

Next, we journey to Mesa, Arizona. Last week John Stacey was indicted on tax evasion charges. The government alleges that he hid income and assets from his paving businesses by putting money into his mother's bank account, using phony social security numbers and employer identification numbers, and filing false bankruptcy financial disclosure statements. That's a trifecta of problems that could send Mr. Stacey to ClubFed if he's found guilty.

Finally, Michael Kyereme won't be scamming the City of Newark, New Jersey or Cisco Systems anymore. Mr. Kyereme pleaded guilty to mail fraud and tax evasion. Mr. Kyereme was a systems administrator for the City of Newark. When a Cisco part went bad he was supposed to use Cisco's online "SMARTNet" system to order a replacement part, and then have the bad part shipped back to Cisco. He may have done that a couple of times. More often, though, he just ordered "replacement" parts so that he could sell them to another individual and pocketed the money. He would ship other less expensive parts back to Cisco.

The indictment shows that the loss to Cisco is estimated at $4,179,667. That alone is enough to get Mr. Kyereme a stay at ClubFed. But there was an additional problem: tax evasion. Mr. Kyereme profited from his nefarious dealings but didn't report them on his tax returns. In 2006 his gains from this scheme totaled $1,242,483, or an additional $429,846 in tax.

Interestingly enough when Mr. Kyereme was taken into custody $3 million worth of Cisco equipment was found in his home and automobile. Mr. Kyereme remains out on bail until his sentencing later this Fall.

If you get a bright idea make sure it's a legal one, and make sure you pay your taxes. It's always a lot easier to pay them now then to find yourself paying them later...and possibly having to make a journey to ClubFed.

I'm not particularly familiar with the Australian Taxation Office and how they compare to the IRS. Yet I suspect that telling them, "Come and get me, you miserable bastards," is not the way to their hearts. But that's exactly what Australian actor Paul "Crocodile Dundee" Hogan said. The TaxProf Blog, AP, and Don't Mess with Taxes have more.