Archive for the ‘Tax Evasion’ Category

Mix Sacked: From Hall of Fame to ClubFed?

Tuesday, 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.)

He Didn’t Wear His Sunglasses at Night

Sunday, 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

Tuesday, 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…

Sunday, 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.

Bozo Tax Tip #9 1/2: 300 Million Witnesses Can’t Be Right!

Monday, April 4th, 2016

I am a sad person this year as I’m writing my Bozo Tax Tips. Richard Hatch did nothing this past year to keep him in my top ten tax tips. Thus, Mr. Hatch is no longer part of the top ten. But since Tax Season has been extended one business day, I am giving Mr. Hatch his own special place in my tips this year.

One tip I can give any celebrity: Be careful about your taxes. The IRS loves going after Bozo tax celebrities. So here’s the story that refuses to die.

For a tax blogger, people like Richard Hatch are wonderful. Hatch, for those who don’t remember, was the winner of the first Survivor and won $1 million. About 300 million individuals worldwide saw Hatch take down the $1 million.

Hatch received a Form 1099-MISC for his winnings. In the United States, winnings from contests are taxable. Hatch claims that CBS and/or the producers of Survivor promised him that they would pay his taxes. (Both CBS and the producers of Survivor deny this charge.)

Here’s what I wrote back in January 2006 when Hatch was convicted:

Mr. Hatch has cemented a place in the Bozo Tax Criminals Hall of Fame (a website I’ll create one day). Let’s look at his stupid not so good actions.

1. Hatch goes to accountant #1, find out that he owes over $300,000 in taxes. He goes to accountant #2, and the tax bill is around $240,000. (At his level of income, some differences in taxes owed is normal.) He then asks accountant #2 what his return would be if he didn’t declare the $1 million in Survivor winnings. Accountant #2 makes Hatch sign a statement that he won’t file that return (it showed Hatch getting a $4300 refund). He filed that return.

2. The IRS amazingly discovers his tax evasion. (With perhaps 300 million witnesses, even the most inept attorney could prove he won $1 million.) He’s offered a plea bargain: pay your taxes, and we’ll let you off fairly easily on the jail time. He accepts the plea initially, then changes his mind.

3. The case goes to trial. Hatch claims that CBS should have withheld taxes. His attorney might want to ask any seasoned accountant about what you should do if taxes aren’t withheld but should have been. (Answer: you pay the taxes.)

4. Hatch’s attorney can’t find the OJ Simpson jury. (Hat tip: Roth Tax Updates)

5. Hatch is found guilty. Roth Tax Updates speculates that his sentence will be around 3 years in jail. Oh, he’ll also have to pay those taxes, and interest and penalties. The maximum possible sentence is 13 years in prison and a fine of $600,000.

Hatch is now serving his prison sentence of 51 months. He recently appealed his conviction, though chances of it being overturned seem slim.

2008 Update: And they were slim. Last February, Hatch’s appeal was denied. As you might expect, 300 million witnesses can’t be wrong.

2009 Update: Richard Hatch continues to look for that needle in the haystack. He’s filed another appeal, though to this non-lawyer it’s more likely that he’ll be released after serving his 51 months at ClubFed than getting a favorable ruling.

2010 Update: Mr. Hatch was released in mid-2009. He then violated the terms of his release and was sent back to ClubFed. Finally, in October, Mr. Hatch was released. He’ll be spending the next couple of years in his home state of Rhode Island.

2011 Update: As part of his sentence, Mr. Hatch was supposed to amend his tax returns and declare the $1 million of income. He neglected to do that. Judge William Smith didn’t neglect to give Mr. Hatch a piece of his mind this past March: He sentenced Mr. Hatch to nine more months at ClubFed. Following his release from ClubFed (in December), Mr. Hatch will have 26 months of supervised release.

2012 Non-Update: Mr. Hatch was released from prison in late December 2011. He has filed a writ of certiorari with the Supreme Court. The chance of the Supreme Court taking his case is about the same as a blizzard in August in Las Vegas. The writ was denied.

2013 Update: Mr. Hatch’s non-payment of taxes extends north of the border. Mr. Hatch owned a piece of property in Sydney, Nova Scotia. That property was sold in a tax sale after Mr. Hatch didn’t pay the property taxes on it for at least six years.

2014 Update: Mr. Hatch still thinks he did nothing wrong. Last year, on Oprah: Where Are They Now, Hatch told Oprah Winfrey, I never did anything deserving of prison time…I never attempted to evade taxes, which was what I was convicted of.” I’ll let the reader decide on the veracity of Mr. Hatch’s statement.

Judge Smith’s remarks from over two years ago have not yet sunk in to Mr. Hatch. “You can continue to proclaim your innocence…You don’t have the option of engaging in this type of game or negotiation with the court. It needs to be a severe punishment. That’s the only thing that will deter you in the future.”

2015-2016 Non-Update: Mr. Hatch was silent on the tax front since his appearance on Oprah. It appears that this may be the last year I’ll have Mr. Hatch in my Bozo Tax Tips.

And to think I’d have had so little to write about if Mr. Hatch had just paid his $300,000 in tax in the first place.

It Was Only a 13.33% Kickback

Sunday, February 7th, 2016

Last year I reported on the case of Ronald Boyd. Mr. Boyd was Chief of Police of the Port of Los Angeles. The ports of Los Angeles and Long Beach are two of the busiest ports in the world, and Mr. Boyd had a nice job. But he saw an opportunity.

In 2011, Mr. Boyd and two other individuals entered into an agreement where Mr. Boyd would receive 13.33% of revenues related to a smartphone app called “Portwatch.” Mr. Boyd guaranteed that the port would adopt the app, and in return for that he got the promise of future revenues. There’s only one problem with that: Mr. Boyd didn’t disclose that. Oops.

Adding to his woes were the future plans of the business: The goal was to take Portwatch and get more money by developing and marketing a similar app called Metrowatch to sell to other government agencies. (The idea of Portwatch is that it would allow ordinary citizens to report crime at the port. In that sense, the app is quite good.) Unfortunately, Mr. Boyd decided that lying to federal investigators was a good idea (it’s not, of course).

Unfortunately, as the investigation into Mr. Boyd continued the government discovered something else:

Boyd also pleaded guilty to tax evasion in relation to his personal income tax return for 2011. In his plea agreement, Boyd admitted receiving income from a security business he operated, At Close Range. The income came from the owner of a company doing business with the Port, American Guard Services, and Boyd admitted that he failed to report that income on his personal income tax returns for years 2007 through 2011.

Mr. Boyd pleaded guilty to making false statements to FBI agents, tax evasion, and a misdemeanor charge of failing to file a tax return (he neglected to file a 2011 tax return for At Close Range). He’ll be sentenced in July.

An Entity a Day Will Keep the IRS Away, Right?

Sunday, January 24th, 2016

Here’s a scheme that’s sure to work to avoid remitting payroll taxes to the IRS. Every day (or week or month), I’ll form a new business entity that’s collecting the tax. Once the amount due to the IRS gets large, I’ll just use a new entity. The IRS will never catch on, right?

As I’ve said before and will say again, if you want a sure-fire way to get in tax trouble, withhold payroll taxes and don’t remit them to the IRS. I guarantee it will be investigated and you will get in trouble. Agim Zendeli apparently didn’t read my prior posts on this subject.

Mr. Zendeli operated the Ziggies chain of restaurants in Missouri. Mr. Zendeli, liked the good life; for eleven years (from 2004 to 2014), he used the restaurants as a piggy bank for his personal life.

During this period, Zendeli lived a lavish lifestyle, and spent substantial sums on vacations, gambling trips, entertainment and luxury vehicles, including three BMWs, two Cadillac Escalades, two Infiniti QX56s, a 2009 Mercedes, a 2008 Acura and a 2004 Land Rover.

That was done by not remitting the payroll taxes. His scheme was what I noted in my first paragraph.

In order to avoid IRS collection of past due employment taxes, Zendeli repeatedly formed new entities to continue restaurant operations. Once each company accumulated a large tax debt to the IRS, Zendeli ceased operating under that company’s name and opened a new entity, often in the name of a family member, partner, or employee. Zendeli, however, maintained custody and control of the businesses.

Mr. Zendeli also tried to deceive the bankruptcy court; that didn’t work:

In addition, Zendeli attempted to avoid payment of approximately $654,260 in past due federal and state employment taxes by filing bankruptcy on March 26, 2010. Prior to the bankruptcy, Zendeli divorced his wife and transferred the trademarked name “Ziggies®” to his father, for a token payment. (Funds from the 2011 sale of trade name “Ziggies®” were remitted through Zendeli’s bankruptcy proceedings, after the trustee determined a fraudulent transfer of assets had occurred.)

In the end, Mr. Zendeli pled guilty to failing to remit $1.3 million in federal payroll tax. He’s agreed to make restitution; he’s also facing up to five years at ClubFed.

As a helpful hint to any business owners who think this scheme will work: It won’t. But I’ve been reporting on these schemes for nearly 11 years, and I suspect if I keep this blog going another 11 years I’ll still be able to note these. It’s so much easier to simply pay your taxes and live a less lavish lifestyle…but that doesn’t occur to the Bozo contingent.

Those “Extra Services” Were Great for Business

Sunday, January 17th, 2016

Tips are one of those things that are done for many services. When we go out to eat, we normally leave a tip for the servers. I tip when I get my hair cut. A Denver massage parlor owner had a different idea about tips, and it likely led to an investigation that will probably lead her to ClubFed.

Jung Yoon Choi owned and operated three massage parlors in the Denver area from 2009 to 2010. Each location had a manager and workers who gave massages. Absolutely nothing out of the ordinary for a massage parlor. “Each of the spas typically had a fee schedule according to which customers paid a door fee ordinarily ranging from $40 to $50, depending on the amount of time requested (30 to 60 minutes were the norm).” That seems normal, too. It was the extra services that were an issue:

In addition, customers at the various spas often paid an additional fee which was characterized as a “tip” in many instances for “extra services” provided by Choi’s workers. At times, the “extra services” consisted of prostitution services in violation of Colorado Revised Statute, 18-7-201. Specifically, the workers would engage in sexual acts with customers in exchange for money. Choi was aware that such illicit activity was occurring at times in each of her spas and that business income was being generated from such activity.

That’s a different kind of tipping. Most likely, the FBI started to investigate and naturally wanted to look at the tax returns for the business. There was just one problem with that: No tax returns had been filed for the business or herself.

In addition to not filing tax returns and not paying taxes, Choi further impeded the IRS’s collection of taxes by several means, including: using nominees on bank accounts so as to conceal her business income; conducting cash and business transactions using nominees; conducting financial transactions in amounts that were less than $10,000 so as not to trigger the filing of currency transaction reports; and hiding and storing income in the form of cash hoards at various locations.

That brought in IRS Criminal Investigation, and not only did they discover all of this, they found $118,575 of cash in a storage locker. That’s now been forfeited. Additionally, Ms. Choi has pleaded guilty to one county of obstructing and impairing the laws of the IRS. She’ll be sentenced in April.

That’s A Lot of Roast Beef Sandwiches

Tuesday, December 15th, 2015

Nick’s Famous Roast Beef is in Beverly, Massachusetts. You can get a roast beef sandwich for $4.50 to $6.95, definitely a reasonable price. The Department of Justice is alleging that one reason the prices are low is that the owners skimmed $6 million from the business to lower their taxes. The owners of the business and the son of one of the owners have been charged with tax evasion.

Nick’s only takes cash, and the owners are alleged to have done a variation of the two sets of books idea: two sets of cash register tapes.

The indictment alleges that Eleni Koudanis had primary responsibility for the book-keeping functions of the business, and also recruited employees, including her son Steven Koudanis, to create false cash register receipts to use in connection with an IRS tax audit of Nick’s Famous Roast Beef. The true cash register receipts were allegedly destroyed and not provided to the tax preparer who prepared the business and personal tax returns.

Nicholas Koduanis, Nicholas Markos, and Eleni Koudanis were each charged with one count of conspiracy to defraud the US by obstructing the IRS and ten counts of aiding and assisting in the filing of false tax returns. If convicted, they are looking at spending some time at ClubFed.

Six Month Vacation Leads to Four and Eight Years at ClubFed

Sunday, December 13th, 2015

Everyone likes vacations. Last year, I went to New Zealand and Australia. Unfortunately, this year’s vacation wasn’t anything like that trip. An Oregon couple has learned that some vacations are better off not taken.

As I previously wrote, Ronald and Dorothea Joling decided after their conviction on tax charges to take a vacation to Arizona rather than show up for sentencing. The US Marshals Service apprehended the couple in Clarksdale, Arizona. On Thursday, Ronald Joling was sentenced to 97 months at ClubFed (eight years and one month) and Dorothea Joling received four years (48 months) at ClubFed. And there’s more! The Jolings are still waiting to be tried after being charged with filing retaliatory bogus liens against various federal judges, prosecutors, and the federal court clerk’s office.

Acting US Attorney for Oregon Billy Williams stated
,

This is an egregious case. Not only did the Jolings refuse to pay their fair share of taxes like the rest of us, they retaliated against federal employees who were just doing their jobs. After a jury convicted them at trial, they cowardly refused to show up for sentencing and fled the state. They were fugitives for six months, requiring additional resources to locate and arrest them in Arizona. They are now in custody and will serve their appropriately lengthy sentences.

You will have to wait another eighteen days to see if the Jolings’s actions are good enough to win the 2015 Tax Offender of the Year award.