Archive for the ‘Tax Evasion’ Category

Copying Steven Martinez’s Idea Is Not a Good Choice

Sunday, October 19th, 2014

I’m on the road this weekend, but a story from the San Francisco Bay Area caught my eye. Charles Waldo was already in jail. He was arrested on a 50-count indictment for insurance fraud, tax evasion, felony vandalism, and a high speed chase through central Costa Contra County. While awaiting trial, Mr. Waldo was in the Martinez, California jail.

When you’re in prison you do have time on your hands to determine your defense. There’s plenty of time to research the law on the charges you’re facing, work on strategy with your defense counsel, and perhaps other means of helping your case. Mr. Waldo allegedly decided to follow the idea of Steven Martinez. Mr. Martinez, for those who don’t remember, won the coveted 2012 Tax Offender of the Year award for hiring a hit man to eliminate the witnesses against him. Yes, Mr. Waldo supposedly did the same thing.

Mr. Waldo was indicted on Friday on nine counts of solicitation to commit murder and one count of conspiracy to commit murder. According to the press release from the Contra Costa County District Attorney’s office,

The indictment alleges that while serving time in custody at the Martinez Detention Facility, the defendant solicited and conspired with other inmates to arrange the killing of nine different witnesses that were set to testify against him at an upcoming trial. These ten new charges will be added to the fifty charges the defendant currently faces.

There is one bright spot for Mr. Waldo if he is found guilty and spends a very lengthy term at a California penal institution: He’s a shoe-in to be nominated for Tax Offender of the Year in a future year.

Legaspi Gets 21 Months

Sunday, October 5th, 2014

Francisco Legaspi didn’t want to go to jail. Back in November 1992, he pleaded guilty to tax evasion. Instead of showing up for his sentencing in January 1993, he headed to Mexico and then Canada to avoid prison. That worked for 20 years. In 2012, the State Department found him when the Bureau of Diplomatic Security found his Facebook page. (A helpful hint to any fugitives out there: Avoid posting anything on the Internet. Law enforcement reads the Internet, too.) They forwarded his information to the Royal Canadian Mounted Police who arrested him; the Mounties always get their man.

It was justice delayed last week as Mr. Legaspi received 21 months at ClubFed. He also received one year of supervised release following his term at ClubFed.

They Both Begin With “E”

Sunday, September 21st, 2014

Here’s a good way to make some money (for a while). You create a phony vendor, and send invoices to your company for that vendor for work that was, of course, never preformed. The money from the phony vendor isn’t reported on your tax return–it’s always good when your after-tax income is the same as your before-tax income.

Now, there are some potential drawbacks to this scheme. You would be embezzling from your company. Depending on how you do that, it will be some sort of felony. Not reporting the illegal income on your tax return is tax evasion, another felony. And if you do this scheme over multiple years, that’s multiple felonies.

If your business were audited, it’s possible that the IRS might discover this (or a state tax agency). That would be problematic.

Now, you might think that no one would do this–especially that no one would do this and steal money from his own company. You would be wrong.

Michael Stover of Plymouth, Michigan did this exact scheme. Mr. Stover was president of Omni Facility Service and did this scheme with his invented subcontractor from 2004 through 2010. And we’re talking big dollars here: Per the Department of Justice press release, “Stover embezzled approximately $2,178,423 from Omni.” He also didn’t report this income on his tax returns.

Mr. Stover is looking at spending some time at ClubFed, a possible fine, and restitution. He’ll be sentenced in January.

Zuckermans Sentenced; No Word on Fido & Lulu

Wednesday, September 17th, 2014

Earlier this year I reported on the case of Mathew and Sandra Zuckerman. The Zuckermans stopped filing and correctly paying taxes back in 1986. When you’re doing something illegal it’s best to keep a low profile. The Zuckermans eschewed that philosophy. Mr. Zuckerman became very successful in leading companies through reverse IPOs. They owned two expensive homes: one in Colorado and one in California. That’s not keeping a low profile.

But what drew my attention to the case was a strategy that probably will never be tried again. No, it wasn’t the interlocking web of corporate entities Mr. Zuckerman created to hide his transgressions; that’s been done countless times before and will be done countless times in the future. Rather, Mr. Zuckerman put his dog and cat on the board of one of his companies. Unfortunately, members of a board of directors must be human: Fido and Lulu don’t qualify.

The Zuckermans pled guilty earlier this year. Yesterday, the day of reckoning arrived. Mr. Zuckerman received 24 months at ClubFed and must make restitution of $693,706; he also will serve three years of supervised release once he’s released from ClubFed. Mrs. Zuckerman received 36 months of probation. Of Mr. Zuckerman’s restitution, Mrs. Zuckerman was held to be jointly liable for $112,511. Fido and Lulu escaped prosecution.

Cash & Carry

Wednesday, September 10th, 2014

Myong Ho Pak is the owner of Yama Sushi restaurant here in Las Vegas. The restaurant is popular and has done quite well; it features all you can eat sushi. It may have done a bit worse on its 2008 to 2010 tax returns than it really did, though. You see, the owner only included his credit card receipts on his tax return.

It turns out that Mr. Pak’s accountant received his business bank statements but the cash from the business went directly into his personal bank accountant. It’s a good scheme when it works. Unfortunately for Mr. Pak, the IRS discovered the evasion.

Mr. Pak pleaded guilty on Monday to tax evasion, and has agreed to make full restitution to the IRS of $244,045. He’ll be sentenced in December.

Lies, Deceit, and Nefarious Schemes

Sunday, September 7th, 2014

As a poker player, I know there’s a time to lie. As a tax professional, I know that time is not while preparing your tax return or advising others on taxes. These individuals learned that the hard way.

First, we head to my old stomping grounds. From Orange County, California, comes the case of Kenneth Elliott. Mr. Elliot sold welfare benefit plans (also known as 419(e) plans). When these are legitimate, they provide benefits to employees for things such as health, disability, and long-term care. Legitimate plans allow contributions to be deductible business expenses.

Mr. Elliott’s plans were different. His plans allowed you to both get the tax deduction and, “then later access the full cash value of their plan contributions by taking out loans against the life insurance policies purchased with plan contributions.” That’s not allowed. Mr. Elliott has been barred by a federal court from ever selling and/or operating any purported welfare benefit plans; he must also send a copy of the injunction to his customers.

Next, Randall Due and Donna Kozak were already in trouble. The two had been convicted of tax evasion. (They believe they’re “sovereign citizens” so not subject to income tax. That didn’t work.) Well, there are various things you might do after being convicted. You might find grounds for an appeal; that’s a good idea. You might file liens against the judge, the US Attorney for the District of Nebraska, the Assistant US Attorneys, and an IRS Special Agent (in Criminal Investigations); that will get them! This is a really, really bad idea.

But that didnt’ stop Mr. Due and Ms. Kozak. Both were convicted of filing false liens. They’re looking at lots more time at ClubFed. The best summary of this is simple: Don’t do it!

Finally, from Philadelphia comes the case of Yaser Masso. Mr. Masso did a great job of billing the customers that used his security guards. He didn’t do so well in providing the records of those bills to his accountants. He only understated his income by $2.1 million for 2006 to 2009. Oops.

This was an especially bad problem when the IRS discovered the error. Given that the understatement resulted in a need for $429,000 of restitution, this was a big deal. Mr. Masso was sentenced to 21 months at ClubFed and must make that restitution.

All-in-all, these are three examples to avoid.

Former US Attorney Forgets to File

Monday, September 1st, 2014

Back in the 1970s, Lawrence Semenza was the US Attorney for Nevada. In a 2007 article in the Las Vegas Review-Journal, Mr. Semenza commented about how different the job was back then. After Jimmy Carter was elected President, Mr. Semenza was allowed to stay on the job until brothel owner Joe Conforte was sentenced for failure to pay payroll taxes–a case prosecuted directly by Mr. Semenza.

“It was a different era,” Semenza recalled. “U.S. attorneys, even assistant U.S. attorneys, knew they were never going to be there forever.”

One thing, though, hasn’t changed: Failing to file tax returns remains a crime. Mr. Semenza pleaded guilty last week to failing to file his corporate and personal tax returns from 2006 through 2010. He has already agreed to make restitution of $290,000 to the IRS. He’ll be sentenced in December.

Once Bitten, Twice Shy

Thursday, July 10th, 2014

Back in January 2007, Frederick John “Rick” Rizzolo was sentenced to a year and a day at ClubFed for his part in conspiring to defraud the IRS. Mr. Rizzolo was the owner of the Crazy Horse Too, an ‘adult entertainment facility’ (aka a strip club) here in Las Vegas. According to the DOJ press release from 2007,

According to the court records, beginning in approximately January 2000 and continuing through 2005, Rizzolo, The Crazy Horse Too, and its employees, conspired to defraud the United States by impeding and obstructing the IRS in the assessment and collection of income and employment taxes. Dancers at the Crazy Horse Too were independent contractors who were required by the club to pay about 15 percent of their earnings to the club as a fee for the opportunity to dance. The club’s managers then distributed these monies to certain male employees, including floormen, bouncers, bartenders, and shift managers as supplemental income, but failed to report or maintain records of these monies. The employees subsequently under-reported the amount of the cash salary payments they received to the club’s bookkeepers. Management of The Crazy Horse Too delivered inaccurate records to the club’s accountant, resulting in the preparation of inaccurate quarterly financial reports and tax returns, and provided inaccurate W-2 forms to certain employees, which the employees used to file false individual income tax returns. Management of The Crazy Horse Too, including Rizzolo also filed quarterly federal employment tax returns which under-reported the true amount of earnings received by the conspirators in order to conceal the fraud. By failing to report or record the cash payments to the club’s employees, the owners of The Crazy Horse Too and the participating employees evaded and failed to pay approximately $400,000 in FICA taxes and Medicare taxes owed to the IRS on the unreported compensation.

The defendants were also required to make restitution of $1.73 million to the IRS and $10 million to a customer deliberately injured at the club in 2001. Mr. Rizzolo allegedly had ties to organized crime. And so the story ended…except it’s now 2014 and I’m reporting it.

That’s because this morning’s Las Vegas Review Journal trumpeted the arrest of Mr. Rizzolo on tax charges. Mr. Rizzolo was charged with two counts of attempting to evade and defeat the payment of tax. From the US Attorney’s Office press release:

The indictment alleges that beginning on about June 28, 2006, and continuing to May 31, 2011, Rizzolo allegedly attempted to evade the payment of approximately $1.7 million in employment taxes that he owed for 2000 to 2002, and $861,075 in income taxes he owed for 2006, by concealing and attempting to conceal from the IRS the nature, extent and location of his assets, by making false statements to IRS employees, and by placing funds and property in the names of nominees and beyond the reach of process.

You remember that restitution to the IRS? It apparently hasn’t happened.

Mr. Rizzolo’s pleaded not guilty today. He was released on his own recognizance with trial set for September 15th here in Las Vegas.

There’s No Trust Like a Sham Trust

Sunday, June 29th, 2014

My dentist loves me…well, he loves my teeth. Years of orthodontia and ice hockey combined with some interesting genetics has helped my dentists make money off me. One local dentist decided to make money in a different way.

Dr. Leslie Kotler is a cosmetic dentist in nearby Henderson. He found some tax advisors who believed that a phony trust is a good way of avoiding tax. (It is, until you get caught.) Dr. Kotler had a large tax debt to the IRS; he used a sham to hide his assets along with a bankruptcy petition to delay the IRS. Dr. Kotler pleaded guilty to one felony count of tax evasion related to the $437,456 he owes the IRS.

Dr. Kotler does have one thing going for him when he is sentenced in November: He has agreed to cooperate with the US government as they attempt to stop individuals involved with creating the phony trusts. The Las Vegas Review Journal noted that three individuals have been named in a civil complaint; those individuals may have a lot more to worry about in the future.

One Good Crime Deserves Another

Sunday, May 18th, 2014

I’ve written about Nifty Fifty’s before. It’s a Philadelphia-area chain featuring food themed from the 1950s. The owners of the chain used ideas from the 1850s to help their profitability: They skimmed cash, paid employees in both paychecks and the skimmed cash, paid supplies with the skimmed cash, inflated expenses on their tax returns, and submitted false tax returns to bank to obtain loans. The five owners all pled guilty to various tax charges and were sentenced last year. Full restitution is being made to the IRS.

However, that wasn’t the end of the story. The accountant who prepared Nifty Fifty’s tax returns is now under indictment. William Frio is charged with conspiracy to commit tax evasion, filing false tax returns (his own returns), structuring, and loan fraud. Mr. Frio is alleged to have taken active participation in the Nifty Fifty’s tax evasion scheme. Frio is also alleged to have falsified a loan application and structured transactions with the same bank. And the structuring that happened is alleged to be quite large ($2.6 million). During this same time period he allegedly didn’t report some income that he received from another corporate account on his personal tax return.

The most interesting accusation in the indictment is that Mr. Frio allegedly embezzled “hundreds of thousands of dollars” from Nifty Fifty’s. “Oft evil will shall evil mar.”

Mr. Frio faces up to 57 years at ClubFed plus restitution to the IRS if found guilty of all charges.