Taxable Talk

Back in April I reported on Martha Vernon and her daughter Tiffany Dunbar. The team engaged in perhaps the stupidest Bozo scheme a tax preparer could: They stole names and social security numbers from her employer, invented a phony W-2 for each individual, prepared a tax return which, of course, showed that the individual would receive a refund. Did I mention they had the refunds direct deposited into their own bank accounts? Given that these individuals would inevitably submit their own tax returns it was impossible for the IRS not to discover this scheme.

They received $188,931 in refunds before the IRS discovered their scheme. The pair pleaded guilty back in April and were sentenced yesterday—Ms. Vernon received 40 months at ClubFed while her daughter, Ms. Dunbar, got 33 months at ClubFed.

There's only one more item to go with this story. Ms. Vernon's attorney, Lora Collins, told the judge that her client was told how to conduct the scheme by a former prison inmate who she had gotten involved with. I wonder if Ms. Vernon asked that man what he was in prison for...but I suspect that sort of question never occurs to the Bozo brain.

Most of us have mortgages on our homes. Joe Kristan has an excellent write-up on a Tax Court case decided yesterday, where the petitioners had a mortgage, but:
- They recorded the mortgage the morning of the trial;
- They submitted a phony copy of the promissory note as evidence at their trial; and
- The note was full of typographical errors and didn't appear to be truly notarized.

There's lots more, and as Joe said, "If you want to deduct mortgage interest, get down to the county courthouse to record the mortgage when you make the loan; don't wait until the Tax Court trial date."

An activist is now attempting to obtain 694,354 signatures to place a wealth tax/California exit tax on the 2010 ballot. This initiative would:
- Impose a one-time tax of 55% on property exceeding $20 million of a California resident or held in California by nonresident;
- Imposes a tax of between 36.5% to 54.3% when a resident dies or leaves California;
- Imposes additional 17.5% tax on total incomes of taxpayers with income exceeding $150,000 if single, $250,000 if married;
- Imposes additional 35% tax if incomes exceed $350,000 if single, $500,000 if married;
- Requires State to acquire shares of specified corporations (i.e. GM, Ford, ExxonMobil, etc.) to influence environmental practices.

The initiative's sponsor, one Paul McCauley, notes that, "This act proposes to restore a measure of balance in wealth between persons living in California, to salvage the global ecosystem from ongoing destruction and to restore public supervision and influence over the nation's largest financial institutions."

First, the proposed initiative is almost certainly unconstitutional as it restricts interstate commerce. Only the federal government can do that; an exit tax (taxing me if I move to, say, Nevada) obviously imposes a restriction on interstate commerce. Further, the initiative appears to me to violate California's rules that an initiative can only cover one subject.

If somehow Mr. McCauley obtains the signatures needed to place this on the ballot—I'm hopeful that he'll be unable to find 694,000 Californians who want to destroy the state's economy—I can't imagine this initiative passing.

What liberals should consider is that without industry there can be no government revenues. Instead of increasing tax rates California needs to drastically cut tax rates. I don't see that happening yet that's the real solution to our budget crisis. Frankly, should Mr. McCauley's initiative get approved and be found constitutional (a very unlikely prospect), California would go bankrupt as any individual who has such high funds would leave the state (good luck to the FTB trying to collect such funds), venture capital would leave the state, and Arizona, Nevada, Oregon, and Colorado would find themselves with a lot more industry than they currently have.


Hat Tip: Tax Foundation Blog

It was a busy week for the bozo side of the tax profession. Three preparers found themselves in hot water, and in one case some customers will be decoded into the mess.

First, from Beaufort, South Carolina, Sally Berry, the owner of Berry's Bookkeeping and Tax Service allegedly liked sales tax. However, she also allegedly didn't like to remit it to South Carolina. The South Carolina Department of Revenue also alleges that Ms. Berry underreported the amount of sales tax due on clients' returns. Ms. Berry faces up to 34 years in prison if convicted on all ten charges that she faces.

Next, Henry Omozee operated HO Tax Services and Accounting Services in Woodbridge, Virginia. He was found guilty on three counts of filing false tax returns. He underreported his own income on his tax returns from 2001 through 2003 to the tune of nearly $85,000 in tax. He could get up to three years at ClubFed when he's sentenced later this year.

Finally, Sharon Kukhahn had a sure-fire way to avoid income tax. Just buy her "IMF Decoder" and you wouldn't have to pay income taxes. Only one problem—there's no such thing and this was yet another phony scheme to avoid taxes. The Department of Justice estimates that the government has lost $4.9 million to this scheme. Ms. Kukhahn received a permanent injunction to stop selling the scheme, and she must provide a list of her customers to the government. So if you paid between $1,750 and $3,195 for her package you'll get something else in the mail soon—A "Dear Valued Taxpayer Letter" letting you know that your return has been selected for audit.

One final thing about Ms. Kukhahn. She displayed some chutzpah; after the DOJ filed suit against her she told her customers that she had transferred funds to the DOJ to compensate her customers. As you'd expect, there was no transfer of any money and the 328 customers who wrote the DOJ are out of luck. Well, since the DOJ (and likely the IRS) already has their names and addresses they might get some bad luck—they'll probably be among the first to be audited over this scheme. For as usual if it sounds too good to be true it probably is.

Earl Wolfe was an unlicensed architect in Jupiter Farms, Florida. That's one crime in itself. He earned around $750,000 but reported only $600 on his tax returns. The IRS and Department of Justice weren't appreciative of his efforts, and he has been found guilty of tax fraud.

What did he do with the other $749,400? He allegedly cashed $600,000 at check cashing stores, put some of the money in a Nevada Corporation, and hid some as a priest (Church of the Divine Deduction?). Unfortunately, he wasn't a priest, and putting his home and motorcycles in his "ministry" wasn't successful. His co-defendants pleaded guilty earlier this month. Mr. Wolfe will be sentenced later this year and will likely get some time at ClubFed.

I've written in the past that there's something about Escort Services that somehow get their owners in tax trouble. Late last week two other individuals in related industries pleaded guilty to tax evasion charges.

First, from Eugene, Oregon, comes the story of Janine James. Ms. James, also known as Janine Lindemulder, hails from nearby Huntington Beach. Ms. James has appeared in numerous adult films and adult magazines such as Penthouse. Unfortunately for her, she decided that making a down-payment on a new home in Eugene was more important than paying the IRS. The IRS begged to differ, and she pleaded guilty to intentionally failing to pay her income taxes. She'll be sentenced later this year, and will likely need to make restitution and could end up making a short stay at ClubFed.

Meanwhile, in Charlotte, North Carolina, there was a rather high-end prostitution ring called Soft Touch Industries run by husband and wife Donald & Sallie Saxon. This wasn't a small-time ring; revenues were estimated by prosecutors to be around $3 million. Earlier this year a Raleigh cardiologist was charged in the case. On Thursday another individual pleaded guilty. James Smith, owner of Red Clay Industries, used the escort service's services. However, he decided to charge the expenses to Soft Touch Industries as business expenses. What Soft Touch provided were definitely personal in nature....In any case, Mr. Smith has pleaded guilty to tax evasion and is cooperating with federal prosecutors. He'll pay $19,000 in back taxes and prosecutors will ask for a light sentence.