Archive for the ‘Tax Evasion’ Category

The Last Roundup at Nifty Fifty’s

Monday, August 10th, 2015

Last Thursday William Frio was sentenced to five years at ClubFed. Mr. Frio was the accountant for Nifty Fifty’s, the Philadelphia-area restaurant chain with food themed from the 1950s and a tax strategy from the 1850s. Beginning in 1986, Frio and the five founders of Nifty Fifty’s skimmed cash, paid employees in cash, and generally committed tax evasion to the tune of $15 million.

That wasn’t enough for Mr. Frio. An active participant in the evasion scheme at Nifty Fifty’s, he decided to embezzle from the chain; after all, one good crime deserves another. He saw no reason to pay tax on the evaded funds, structured his deposits of those funds, and lied on a loan application. Earlier this year he pled guilty to these charges; besides the five years at ClubFed he must make restitution of $1.7 million.

Not Remitting Employment Taxes Doesn’t Work in Japan Either

Sunday, August 9th, 2015

In the United States, one of the quickest ways of getting in tax trouble is by withholding employment taxes and not remitting those taxes to the IRS. The rate of investigation is as close to 100% as you can get–and it’s normally a criminal investigation. It appears the same holds true in Japan. This story has a second component: There’s something about strip clubs–err, adult entertainment facilities, that make them hotbeds for tax evasion.

From Osaka, Japan comes the story of Naoko Hayashi. The 52-year-old former manager of the Jumeirah hostess club has been indicted and charged with not remitting 57.7 million yen ($464,000) out of 83.2 million yen ($669,000) withheld from pay of the hostesses working in the club. The article in the Tokyo Reporter notes that it costs a minimum of 50,000 yen ($402) to enter the club.

Among the problems with not remitting withholding tax is that it’s a crime that’s fairly trivial to prove. The payroll records will show the withholding, and the National Tax Agency and the Osaka Regional Taxation Bureau won’t show the withholding. It’s also a crime that is guaranteed to show up: When the hostesses file their tax returns and claim the withholding the tax agency won’t see it. But it appears the Bozo tax contingent is equally active in Japan as in the United States.

They’ll Know It in Dubuque

Sunday, July 19th, 2015

Perhaps someone will understand the reference in the title (it’s to one of my favorite novels). But this is a tale from Dubuque, Iowa about a scheme gone bad.

James Spaulding was the director of the Clarke University Bookstore; he and Thomas DeFelice came up with the perfect crime. Well, since you’re reading about it here it at least started off that way….

They created a phony book company; that company then invoiced the Clarke bookstore for books that hadn’t been sold to them (but that were approved by Mr. Spaulding). The fraud was over $300,000. Compounding Mr. Spaulding’s troubles he lied to a federal grand jury.

They both pleaded guilty: Mr. Spaulding of two counts of filing false tax returns and one of mail fraud while Mr. DeFelice pled to one count of filing false tax returns. Mr. Spaulding earlier received 57 months at ClubFed; Mr. DeFelice received 12 months at ClubFed.

As to the reference
, it’s to the Pulitzer Prize winning novel Advise and Consent. If you haven’t read this novel of Washington politics, I highly recommend it. As to why “They’ll Know It in Dubuque” is a reference to Advise and Consent, you will just have to read the novel to find out.

You Can Pay Employees in Cash, But…

Sunday, June 28th, 2015

…you’d better withhold payroll taxes. One Milwaukee restaurant owner is alleged to have forgotten that minor detail. He also allegedly didn’t include all of his cash receipts on his tax returns.

Paul Bouraxis operates three Milwaukee-area restaurants. Judging from his tax returns, the restaurants weren’t doing that well. The Department of Justice believes that a better way of judging is the $3.7 million in cash and silver in banks in the United States and Greece. ($1.7 million in gold, silver, and cash was seized.) Mr. Bouraxis, his wife, son, and son-in-law are all alleged to have skimmed cash from the business, filed phony tax returns (both personal and payroll taxes). A part-owner of one of the restaurants, Gus Koutromanos, also allegedly participated in the scheme.

The DOJ found that the accountant for the businesses participated in the scheme, too. Scott Sherman of Sheboygan will plead guilty to one count of filing a false tax return; he’ll likely testify (if need be) against the Bouraxis family if the case goes to trial.

The family is all facing extended stays at ClubFed if found guilty.

Arbitrage Is Legal, But You Better Pay the Taxes

Sunday, June 21st, 2015

Let’s say you are 100% certain that the price of a certain article will increase from $0.20 to $0.62 in a few weeks. Can you purchase a stock of that at $0.20 each and then sell them later at $0.62? If there are no laws against it, certainly. Of course, the $0.42 profit is taxable. That last line allegedly was forgotten by a Tennessee legislator.

Joseph (Joe) Armstrong is a member of the Tennessee legislature. He wanted to increase the state’s tobacco tax from $0.20 to $0.60 (per pack of cigarettes). Was he interested in the health of the residents of the Volunteer State? Perhaps. According to the indictment handed down last week, he was really interested in the health of his bank balance.

The Justice Department alleges that he entered into a conspiracy to profit from the increase in the cost of a tobacco stamp. Buy low, sell high is great, but as a legislator you’re not supposed to profit off of it. (Though Mr. Armstrong wanted a tripling of the price, the tax increase ended up being $0.42 per pack to a tax of $0.62.) Mr. Armstrong got a loan, bought lots of tax stamps at the old rate, and then sold them at the high rate. He used a nominee business (through his accountant) to hide the profits. His accountant got 15% of the profits.

(The accountant made a plea deal in July 2014 that was unsealed earlier this year. Charles Stivers, a CPA, was Mr. Armstrong’s accountant. As a reminder to the IRS, a license doesn’t make a person immune to deficiencies in ethics.)

The Justice Department alleges that Mr. Armstrong wanted to both have his after-tax income equal his pre-tax income from the scheme (always a good, albeit, illegal option) and he wanted to hide this from his wife. He is also being charged with lying to the IRS about his activities.

Mr. Armstrong pleaded not guilty to all charges on Friday. If found guilty, Mr. Armstrong will likely be residing at ClubFed.

Neymar Wins Championship but Faces Tax Evasion Investigation

Sunday, June 7th, 2015

On Saturday Barcelona beat Juventus 3-1 in Berlin, Germany to win the Champions League Final in soccer (or football as it’s known everywhere but here). Neymar, from Brazil, is one of Barcelona’s star players.

Neymar might have enjoyed the game (and results) but the news out of Brazil might put a tarnish on everything: Neymar is under investigation for tax evasion. First reported by the Brazilian Epoca magazine, the alleged evasion took place form 2011-2014 and involves the money for the transfer of Neymar from Brazil to Barcelona. What was once €17.1 million became €57 million, with some of this supposedly ending up with Neymar.

Another Las Vegas Preparer Gets In Trouble Over the Foreign Earned Income Exclusion

Sunday, June 7th, 2015

The Foreign Earned Income Exclusion is pretty simple to understand. An individual who is either a bona fide resident of a foreign country or is outside of the United States for 330 days out of a 365-day period can exclude about $99,000 of earned income from income tax. Seems fairly straightforward, right?

There is a codicil to the Exclusion. “This period can be waived when the Secretary of the Treasury determines, after consultation with the Secretary of State, that individuals were required to leave a foreign country due to war, civil unrest or other conditions that preclude the normal conduct of business, among other things.” A list of such countries is published each year. I prepare a lot of tax returns with the Exclusion. I have yet to prepare any with the Exclusion based on the waiver.

Sheila Bunting of North Las Vegas looked at that waiver list as a way to make her clients happy. She apparently repeatedly used the waiver clause of the Exclusion to get her clients a lower tax bill. Unfortunately, her clients weren’t in those countries. The IRS wasn’t amused, and Ms. Bunting found herself facing a lawsuit from the Department of Justice. She consented to a permanent injunction last week.

The DOJ press release
notes, “The injunction requires Bunting to provide a list of customers that identifies by name, social security number, address, e-mail address, telephone number and tax periods, all persons for whom she has prepared federal tax returns or claims for refund since Jan. 1, 2012, that reference foreign earned income.” If you used butning’s 5 Star Tax LLC and have the Foreign Earned Income Exclusion (Form 2555) on your tax return, you can expect to receive a “Dear Soon to be Audited Taxpayer” letter from the IRS.

This is the second Las Vegas preparer who recently has been in hot water over the Exclusion. Earlier this year Harvey Cage was sued by the Department of Justice for the same thing. I’d say it was something in the water but Las Vegas is in a desert.

I’m Shocked, Shocked! That a Chicago Attorney may have Committed Tax Evasion Related to Corruption

Sunday, May 31st, 2015

There’s one thing about Illinois politics: Both Democrats and Republicans tend toward corruption. After all, which of the past few governors haven’t gone to prison?

The DOJ news release on the indictment of Daniel Soso makes for interesting reading. Sure, he’s accused of not paying approximately $779,615.86 in income tax (I’m not sure how approximate that is when there are pennies in the press release, but whatever). But it’s the preceding paragraph that makes for intrigue:

The indictment alleges that in 1996, the Illinois Attorney General entered into a written contract with several law firms who represented the State of Illinois in its lawsuit against certain tobacco companies to recover, among other things, money damages incurred by the State of Illinois as a result of the sale of tobacco products to residents of the State of Illinois. In addition, the contract provided that the law firms representing the State of Illinois, including Law Firm B, would share a “contingent fee” equal to ten percent of the total monetary recovery realized by the State of Illinois in its planned lawsuit. The indictment further alleges that Soso, Individual A (an individual formerly licensed to practice in Illinois) and Individual B (a partner of Law Firm B) entered into agreements to pay Soso and Individual A a portion of the attorney fees awarded in the tobacco lawsuit and concealed these agreements from the State of Illinois, the Illinois Attorney General and others.

The Chicago Sun-Times let’s us know who they think Individual A is.

[Edward] Vrdolyak isn’t identified by name in the Soso indictment and hasn’t been charged with any wrongdoing in the case. But the indictment cites an unnamed “Individual A.” Vrdolyak is Individual A, two sources with knowledge of the case told the Chicago Sun-Times.

Mr. Vrdolyak is a former Chicago Alderman who was convicted back in 2008 in a kickback scheme and received ten months at ClubFed.

Chicago is a beautiful city–one of my favorite places in the world–but you can have both its weather and its politics.

Chipco President Gets 10 Months

Sunday, May 31st, 2015

Back in March I reported on the president of Chipco, John Kendall. Chipco closed a couple of years ago, and most of us in the poker world thought it had to do with the end of the poker boom. That was probably a contributing factor. Another factor was that Mr. Kendall withheld payroll taxes, but didn’t forward them on to the state of Maine. And he got caught.

Mr. Kendall was sentenced on Friday to 3 1/2 years in prison, with all but ten months suspended. Mr. Kendall will remain free on bail while he appeals his conviction.

Fake Businesses, Phony Dependents: What Could Go Wrong?

Sunday, May 17th, 2015

I’ve seen reports of Bozo tax preparers inventing deductions and dependents. This is the first time I’ve heard of a tax preparer inventing a business from scratch on a tax return. The results were good…for a while.

Ramona Johnson was the manager of Tax Office One in Fort Worth, Texas; her daughter-in-law, Nekia Everson, was a tax preparer. From 2008 through 2011 the business earned in $1.9 million in fees, so it was producing a good amount of revenue. And they were probably getting good refunds for their clients. After all, they did the “normal” things for Bozo tax preparers; phony dependents and itemized deductions for personal expenses were the norm (so that taxpayers would qualify for the Earned Income Credit). But then:

On some returns, Johnson and Everson would completely fabricate a Schedule C business, including income and expense items. For some taxpayers, Johnson would create a false and fraudulent Schedule C reflecting the taxpayers had a profit from a nonexistent business. This false profit, together with claimed dependents (both fraudulent and actual), would be used to claim the taxpayer was entitled to an earned income tax credit.

Of course, while they had gross receipts of $1.9 million, somehow the gross receipts didn’t make it onto the personal tax returns. Ms. Johnson neglected to include tax preparation income on her 2009 and 2010 returns:

In addition, the government presented evidence that for calendar years 2009 and 2010, Johnson filed tax returns in which she reported total income of $2,850 and $16,906, respectively, when she well knew that the income amount was understated in that it did not include income she received for her work preparing tax returns.

Ms. Johnson and Ms. Everson will have plenty of time to think about whether preparing accurate tax returns would have been a better strategy. Ms. Johnson will be at ClubFed for 170 months (over 14 years); Ms. Everson will be there for 95 months (just under 8 years).

For taxpayers the usual rules apply: If it sounds too good to be true, it probably is.