Taxable Talk

The Franchise Tax Board announced today that disaster relief is available to impacted taxpayers. Taxpayers who are amending their returns should write "Southern California Wildfires 2008" in red ink on the top of their return so that it is expedited. Impacted taxpayers can also get free copies of returns that were lost by filing Form 3516. Again, such taxpayers should write "Southern California Wildfires 2008" in red ink on the top of the form so that their request is correctly processed.

The Southern California fires involved are the Tea Fire in Santa Barbara County, the Sayre Fire in northern Los Angeles County, and the Freeway/Triangle Complex fire in Orange and Riverside Counties.

Every so often I get a phone call from someone who tells me, "Now Russ, I know that paying the income tax is completely voluntary and I don't really have to file." Or it might go like this: "Russ, I'm a citizen of California and not of the United States so I don't have to pay income tax." I've been referring individuals to the IRS page on frivolous arguments and Dan Evans' Tax Protester FAQ.

I now have yet another resource to refer them to. Jon Siegel, Professor of Law at George Washington University, has his own webpage titled, Income Tax: Voluntary or Mandatory? I thank Professor Siegel for his addition to the cause of educating those who continue to believe the malarkey that tax protesters dish out. Professor Siegel even has a blog where he occasionally covers tax cases.

Hat Tip: The Volokh Conspiracy

Two stories tonight, one from Tulsa and one from England; they both illustrate Bozo behavior (or should I spell that behaviour) and one adds some British understatement.

First, let's go to Tulsa, Oklahoma. Cynthia Michelle Odom was in state prison for "financial crimes." She decided that a good way to earn some money was to file tax returns for eleven individuals that she befriended while in prison. Well, if she was being helpful that wouldn't be that big of a deal. But the truth was quite different: She invented income numbers and somehow all those returns got refunds. Did I mention that she hadn't asked any of her "friends" for permission to file those returns? Presumably the IRS discovered the fraud and identity theft when one of her victims filed their own return. She used refund anticipation loans from various banks (defrauding them) and, of course, the actual refunds defrauded the IRS. She was sentenced to 8 1/2 years at ClubFed, must make restitution of about $128,000, and pay a $2,000 fine. On the bright side she'll have plenty of time to make some new "friends...."

Let's cross over the Atlantic and head to Sheffield, England. John Barrett and Edward Kirby-Dorsey ran the Omega Sauna. Now what I consider a sauna is something like this:



Well, this sauna was a bit different. Quite a bit different. The police raided the Sauna and thirteen people were arrested for, "...suspicion of conspiracy to live off immoral earnings." I like the British way of describing prostitution.

The police then raided the home of Mr. Barrett and found safes containing £270,000. Inland Revenue (the British tax agency) investigated and they found that the true revenues of the business weren't being reported. The owners were using American methods of avoiding taxation: false books, offshore trusts, and lying on their tax returns. These methods worked just as well as they do in the US when the participants are caught—the two participants pleaded guilty. Mr. Barrett must pay tax of £258,000, a non-payment of tax surcharge of £45,500, prosecution costs of £1,500, defense costs of £10,000, and serve one year in prison. Mr. Kirby-Dorsey's sentencing was postponed because of his health.

When we last looked at Walter Anderson he was being sentenced to nine years at ClubFed. We wrote, at that time, "But Mr. Anderson did get lucky in one respect. Because the plea agreement was poorly written, the judge did not order Mr. Anderson to make restitution." And since the amount of restitution would be $200 million, Mr. Anderson appeared to catch a lucky break.

The IRS appealed that portion of the sentencing, and Mr. Anderson appealed the nine years he received at ClubFed. The appeals court ruled on Friday, and it was a double dose of bad news for Mr. Anderson. First, his nine year sentence was upheld. And second, the Court found that citing the wrong statute in the plea agreement didn't preclude restitution. "...[T]he parties nonetheless agreed that restitution could be ordered on the federal counts."

Link to Appellate Court Ruling