Taxable Talk

Usually when you’re sentenced to prison for a tax crime, you get a few days (or weeks) to get your affairs in order. That wasn’t the case on Friday for former New York State Senator Pedro Espada, Jr.

Let’s first cover the crimes that Mr. Espada was found guilty of. He was convicted in May 2012 of four counts of stealing from non-profit medical clinics. In October, Mr. Espada pled guilty to making false statements on his federal tax return for 2005. Mr. Espada received five years at ClubFed, must make restitution to the IRS for $118,531, restitution to the victims of his thefts (the amount has yet to be determined), and must forfeit $368,088. What did Mr. Espada do with the money he stole? Plane tickets, theater tickets, $20,000 in takeout sushi, and gifts for his family are just some examples of where the money went.

This seems just like any other public corruption story…until we get to the denouement. It seems that Mr. Espada got the particularly brilliant idea of accusing the judge of tampering with jurors. Mr. Espada submitted an affidavit stating that occurred. Before Judge Frederic Block sentenced Mr. Espada he rebutted the accusation. He had phone records to show he was home, and there were records of when he entered the courthouse. “There is so simply no way I could have spoken to the jurors between the time they arrived and the time they reached their verdict,” Judge Block said. Oh, yes, Judge Block made sure to resolve this just before he sentenced Mr. Espada.

A helpful hint to anyone who is going to be sentenced by a judge: Do not accuse the judge of misconduct unless you have absolute ironclad proof (and your attorney agrees with that). It usually does not make a good impression on the judge. Judge Block also asked the prosecutors to see if an additional charge was merited against Mr. Espada for filing a phony affidavit. And Judge Block ordered the immediate incarceration of Mr. Estrada stating that he couldn’t trust Mr. Estrada.

Mr. Espada looks like an early candidate for this year’s Tax Offender of the Year award.

A pair of reports from the South about elected officials (well, in one case former elected officials) in tax trouble. A longtime state representative allegedly took from charities while a former mayor may not have reported interest he received on personal loans.

Georgia State Representative Tyrone Brooks (D-Atlanta) is facing a 30-count indictment on mail, wire, and tax fraud. Representative Brooks is accused of misappropriating about $1 million of charitable donations from a charity he founded in 1990 and the Georgia Association of Black Elected Officials (GABEO). While Mr. Brooks accuses the government of going after him as retaliation in regards to his attempts at getting arrests in a 1946 lynching, the Department of Justice alleges that this has everything to do with Mr. Brooks using charities for his own gain.

Supposedly Mr. Brooks took the monies from the charity and moved them to his own bank account and paid personal expenses or just paid the personal expenses from the charity’s bank account. Additionally, he’s accused of naming individuals to the charity’s Board of Directors without their knowledge; of lying on solicitations for the charity; of telling the IRS that the charity had over $180,000 of various expenses while the year before he told the IRS that the expenses were under $9,000; of making false representations while soliciting for GABEO; and of filing false tax returns.

Meanwhile, the former mayor of Hialeah, Florida and his wife find themselves facing tax evasion charges. Julio and Raiza Robaina are accused of not reporting interest on more than $1 million of personal loans. The Robainas face several tax related charges, including filing a false tax return, conspiring to defraud the IRS, and lying to federal agents.

Uli Hoeness is the president of Bayern Munich. Who? Well, if you asked a resident of Bavaria this question, you’d get shocked looks–the same as you would get from a New Yorker asking about the Yankees. Bayern Munich is a soccer team in Munich. They’re very successful and already have clinched this year’s bundesliga. This New York Times story notes that the club just won their 13th straight game.

OK, I’m not a soccer fan. However, I am interested in cases of tax evasion and here’s one possible such case. Mr. Hoeness apparently has an issue with a Swiss bank account. Mr. Hoeness filed an amended tax return; the public prosecutor’s office is checking to make sure that the amended return is accurate. If the amended return is accurate, the penalties in Germany for filing the first ‘bad’ return can be lessened.

This is similar to US tax law in that the IRS (and Department of Justice) almost always take a much harder line on individuals that the government finds that have cheated on their taxes than on individuals who have voluntarily come forward.

For tax bloggers like myself, Richard Hatch has been a godsend. His antics have been, well, remarkable. While he’s no longer at the top of my Bozo Tax Tips (he’s been strangely silent since his release from prison last December), his story is one that prospective tax offenders should learn.

I keep thinking that I’ll be able to drop this Bozo tax tip one year. Yet every time I think that’s going to happen Richard Hatch makes the news again. 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.

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.

Judge Smith’s remarks from over a year ago has 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.”

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

By far the worst tax schemes in the view of the IRS are offshore (foreign) trusts. In fact, trusts of all sorts—domestic and foreign—are regularly abused.

First, not all trusts are bad. Many trusts serve a legitimate purpose, such as family trusts. (Family trusts are a device to avoid probate, and are used in many states. For tax purposes, these revocable trusts are ignored.) Survivors’ trusts are another useful vehicle.

But trusts set up to avoid income tax are abusive, and very much Bozo-like. Individuals and businesses have spent thousands of dollars trying to avoid taxes (in some cases, mid five-figure amounts)…and many times these tax structures have been challenged successfully by the IRS.

And those are the domestic trusts.

The foreign trusts are worse. These are usually organized just to avoid taxes and hide money. If you look at Schedule B on your tax return you’ll see that you are supposed to report your foreign trusts. They work great until the IRS finds out about them.

Remember: If it sounds too good to be true it probably is.

I’m shocked, just shocked to find out that there’s corruption in Chicago.

Actually, I’m not. I’m just surprised to find out that gambling led to the downfall of a cog in the Democrats’ machine politics in the Windy City. Commissioner Bill Beavers was convicted today of corruptly impeding the IRS and three counts of filing false tax returns. Beavers used his campaign warchest as a personal piggy bank to fund gambling trips to the Horseshoe Casino in Hammond, Indiana.

Beavers and his attorneys alleged that the money he took from the campaign funds were “loans.” There’s one thing about loans that I emphasize to my clients: They require documentation. As Assistant US Attorney Matt Getter said, “He put back [only] what he needed to put back to cover his tracks.” Acting US Attorney was more succinct:

The message that was sent here was that Bill Beavers took a lot of money people gave him to run his campaigns and he stuck it in his pocket, and a lot of it, he gambled…For that, at least, he should have paid his taxes, and he didn’t.

One of Mr. Beavers’ statements is interesting: “There’s no law against what I did…There’s no law against gambling with campaign funds.” I have no idea of the state of Illinois’ campaign finance laws; however, I do know something about the Internal Revenue Code. If you take money from a campaign fund and use it personally, it is almost certainly income to you. And that income is clearly taxable. Further, not reporting all your income on your tax return can be a crime. In Mr. Beavers’ case, it was a crime.

Mr. Beavers may continue to proclaim his innocence, calling the judge “unfair.” From my point of view, it looks like the government did a pretty good job of proving its case.

No sentencing date has been announced.

News Reports: Chicago Tribune, Chicago Sun-Times

An acquaintance of mine is a mixed martial arts (MMA) fighter. I’ve known him for many years; he’s smart, driven, and is definitely not the individual who I’m writing about. He’s smart enough to know that he has to pay his taxes. Unfortunately, it appears some MMA fighters need a lesson in basic tax law.

Nick Diaz is an MMA fighter; last night he lost go George St-Pierre in a championship bout. In the post-fight news conference, Diaz said the following:

I can’t be jumping teams. I just have to invest a little bit more, now that I have a little bit more money…You know what? I’ve never paid taxes in my life. I’m probably going to go to jail.

I’m certain that someone at the IRS will be checking to see if Diaz has filed tax returns. It appears that Diaz is a resident of Stockton, California; the Franchise Tax Board will also be checking their records. Diaz has fought in Hawaii, Missouri, and New Jersey, too, so three more state tax agencies will likely be looking for money.

The president of the Ultimate Fighting Championship, Dana White, made remarks that I hope Diaz and/or his agent took to heart:

What’s sad is, he better go pay his taxes…He came out publicly tonight and said he’s never paid taxes in his life? Holy s—. That’s sad. You wanna talk about sad? That’s sad. Somebody better handle that with this check and make sure that kid doesn’t end up with nothing. There’s a guy who’s Nate and Nick’s lawyer and seems like a decent guy looking out for them. I’ll probably give this guy a call and tell him, ‘Nick said he’s never paid taxes in his life, and you probably want to start working on that f—ing Sunday morning, not Monday morning.’

Yoram Globus is perhaps best known for being behind Cannon Films. With his cousin Menahem Golan, Cannon produced such films as American Ninja, Superman IV, Delta Force One, and a long, long list of others in the 1980s. Now, Mr. Globus is making news a bit differently: He was accused by the Israel Tax Authority of evading tax on NIS 27 million (Israeli New Shekel), worth about $7.3 million.

The alleged tax evasion dates back to 2005. Mr. Globus supposedly withdrew the NIS 27 million from two of his companies…but the withdrawals apparently didn’t make his tax return. Oops.

Mr. Globus’ response was, according to the Los Angeles Times, “Ask my accountant.”

Mr. Globus was released on bail of NIS 1 million (about $270,000) and ordered to remain in Israel for six months.

I know the headline is a bad pun, but I couldn’t resist. Former NBA star and current Utah Jazz assistant coach Sidney Lowe was arrested on Monday on state tax evasion charges. Lowe is accused of not filing North Carolina tax returns from 2009 through 2011. The charges are misdemeanors, but as Wesley Snipes can tell you, jail time is still possible with such charges. Lowe is a North Carolina resident, so his income is subject to North Carolina tax.

The Deseret News (of Salt Lake City) reports that Mr. Lowe will continue with his coaching duties. The Salt Lake Tribune printed Mr. Lowe’s apology to the team and fans: “This is a personal matter that I take very seriously. I am working very hard to get the issue resolved in a timely manner and I am cooperating fully with all parties involved.”

Mr. Lowe faces a March 19th court date in Winston-Salem, North Carolina.

I was going to put in a line in this post, “Will the first Chicago politician who is honest, forthright, and not corrupt please stand up?” However, I realized that there must be some politician in the Windy City who is honest (at least some of the time). The last three governors of Illinois all went to prison (and it’s equal opportunity corruption: both Republicans and Democrats). Joining them will be former Congressman Jesse Jackson, Jr. and his wife, Sandi (a former Alderman in Chicago).

Mr. Jackson resigned last November from Congress; Ms. Jackson resigned in January from the Chicago City Council. Both are pleading guilty: Mr. Jackson to conspiracy and Ms. Jackson to filing a false tax return. They pleaded guilty on Friday.

The scheme apparently had them using “business” credit cards (here, business is their re-election campaign) for personal expenses. As this blog has highlighted numerous times in the past (and will likely do numerous times in the future), you can’t put personal expenses on a business return. And we’re not talking nickel and dime purchases; the total is $582,772.58. Add in filing false campaign reports and you have problems.

There’s even a tie to Las Vegas. Mr. Jackson has a greed to forfeit $750,000 plus a host of memorabilia; much of that memorabilia was purchased from Antiquities of Nevada, a store here in Las Vegas. If you follow US Treasury auctions, you soon will be able to buy a football signed by several presidents, an Eddie Van Halen guitar, Bruce Lee memorabilia, and a lot more. But I digress….

I’m a native of Chicago and love the city. I’m a fan of the Blackhawks and Cubs. That said, the corruption in Chicago is something I don’t miss.