Archive for the ‘Tax Evasion’ Category

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.

There Is No Tax Fairy (Yet Again)

Sunday, April 27th, 2014

Joe Kristan has the story of two CPAs who told clients that there is a wonderful Tax Fairy, that mythical creature who turns income into deductions or credits through alchemy and magic. Unfortunately, the Tax Fairy doesn’t exist, and clients who used these CPAs had total tax adjustments (audit changes) of over $3.5 million. This particular scheme revolved around Section 419 (“Voluntary Employee Beneficiary Association” plans). The Tax Fairy worked…until the IRS audited the results.

As usual, if it sounds too good to be true, it probably is.

If You Can’t Get the Refund, Why Not File Some Liens?

Sunday, April 20th, 2014

The answer to this is, perhaps it’s against the law. And it is. Let me start at the beginning.

Back in 2008, Francis Chandler filed his 2007 tax return. He claimed he had quite a bit of interest income and even more withholding…$6,222,850 of withholding. He claimed a refund of $3,969,012. He got it, too. There was a problem, though: He should not have gotten the refund; the claim was false. Two years later, Mr. Chandler was indicted and charged with making a false claim against the United States.

Now, you and I would seek legal advice about the case, but Mr. Chandler had a “better” idea. I’ll file a lien against two federal judges, the US Attorney, and an Assistant US Attorney. That wasn’t a bright idea; that’s a false retaliatory lien, and that’s a crime, too. Eventually, Mr. Chandler pleaded guilty to the false claim and filing the lien.

Mr. Chandler was sentenced on Tuesday to 37 months at ClubFed;
he must also make restitution of just over $3 million. A helpful hint to anyone who is thinking of emulating Mr. Chandler: Don’t!

While I Was Out…

Sunday, April 20th, 2014

I’ve recovered from Tax Day, my sleep is caught up, and it appears Las Vegas has moved smoothly towards summer (it reached 89 today). There has been a little bit of tax news during the past month:

Good News for Tax Professionals: The IRS announced that eServices has been updated and you can request a transcript for an individual where you have a Tax Information Authorization (Form 8821). I have not tested this new capability yet, but if this works we will no longer have to have a Power of Attorney in order to use eServices for transcripts.

That said, the IRS announcement (it came in late March) said that eServices was updated last fall. If it was, it wasn’t successfully updated; I tried to request a transcript for a client with an 8821 in December and couldn’t.

The IRS Scandal Continues to Percolate, with Bad News for Lois Lerner: Emails sent to and from the IRS and Lois Lerner have been made public, and these do not show Ms. Lerner in a good light. They show that Ms. Lerner was definitely involved in targeting conservative non-profits. They were obtained by Judicial Watch after filing a freedom of information act lawsuit against the IRS.

My favorite, though, is one where Cindy Thomas complains that Ms. Lerner and the White House through the Cincinnati “low-level” employees under the bus. I’ll let Ms. Thomas explain:

As you can imagine, employees and managers in EO Determinations are furious. I’ve been receiving comments about the use of your words from all parts of TEGE and from IRS employees outside of TEGE (as far away as Seattle, WA).

I wasn’t at the conference and obviously don’t know what was stated and what wasn’t. I realize that sometimes words are taken out of context. However, based on what is in print in the articles, it appears as though all the blame is being placed on Cincinnati. Joseph Grant and others who came to Cincinnati last year specially told the low-level workers in Cincinnati that no one would be “thrown under the bus.” Based on the articles, Cincinnati wasn’t publicly “thrown under the bus” instead was hit by a convoy of mack trucks.

Was it also communicated at that conference in Washington that the low-level workers in Cincinnati asked the Washington Office for assistance and the Washington Office took no action to provide guidance to the low-level workers?

One of the low-level workers in Cincinnati received a voice mail message this morning from the POA for one of his advocacy cases asking if the status would be changing per “Lois Lerner’s comments.” What would you like for us to tell the POA?

How am I supposed to keep the low-level workers motivated when the public believes they are nothing more than low-level and now will have no respect for how they are working cases? The attitude/morale of employees is the lowest it has ever been. We have employees leaving for the day and making comments to managers that “this low-level worker is leaving for the day.” Other employees are making sarcastic comments about not being thrown under the bus. And still other employees are upset about how their family and friends are going to react to these comments and how it portrays the quality of their work.

Another email shows that the IRS planned to meet with the Department of Justice over whether to prosecute conservative groups. I’ll leave it to the reader to decide whether or not there’s anything to see here.

Second Runner-Up for 2013 Tax Offender of the Year Gets 20 Years at ClubFed. Phillip Monroe Ballard decided to channel the spirit of 2012 Tax Offender of the Year Stephen Martinez: He decided to murder the judge of his tax evasion trial. Luckily for all concerned, an informer let authorities know of the plan. Mr. Ballard not only has a tax conviction but now a 20-year sentence for attempted murder-for-hire. Given he’s 72, he’ll likely spend the rest of his life at ClubFed.

“Just Pay the Five Dollars….”

Sunday, March 2nd, 2014

That’s one of my favorite lines from one of my favorite movies, North by Northwest. In that classic movie, Cary Grant’s character gets drunk and, well, I’ll be giving away some of the movie if I went on. In any case, his mother (in the movie) says the line, in perfect comedic tempo, “Just pay the five dollars.” Since the Oscars are being televised as I write this a movie reference seems apropos.

Similarly, most tax evaders (and tax deniers) would find their lives far, far easier if they just paid the tax in the first place. One Massachusetts dentist is accused of a long-running scheme that allegedly used many of the normal tricks to avoid paying taxes.

George Fenzell is the accused dentist. He allegedly began, in 1999, to not pay taxes; he allegedly used nominees to conceal receipts. He supposedly comingled funds with others and made some nominees own his business (which, according to the indictment, Mr. Fenzell does own).

Back in 2007 the Massachusetts Department of Revenue was investigating; the indictment alleges that this caused Mr. Fenzell to file his 2000 through 2005 tax returns. Those returns showed tax due of $129,000 which had grown to over $300,000 when you factor in interest and penalties. Meanwhile, the IRS couldn’t collect; the indictment alleges he continued to use cash and nominees to evade the IRS.

Mr. Fenzell is looking at a lengthy stay at ClubFed if found guilty.

Utopia Is Dead

Sunday, February 16th, 2014

A perfect place. That’s what comes to my mind when I hear the word “utopia.”

Vincent and Mary Giamo had a different idea; Utopia was their nightclub in Orchard Park, New York (near Buffalo). It was quite successful as they followed a formula that is illegal but helps with taxes: They kept two sets of books. One set was accurate, and showed they would owe $1.2 million in taxes to the IRS. The other set shockingly showed they didn’t owe that money. This scheme works quite well…until you’re caught.

And the Giamos were caught, tried, and convicted of tax evasion charges. Vincent received 12 months at ClubFed; his wife, Mary, received probation. They must also make restitution of another $671,840 to the IRS (they’ve already paid $550,000). They are also facing civil charges.

As usual, it’s a whole lot easier to just pay your taxes in the first place…but that though rarely occurs to the Bozo mind.

Really Big Tax Evasion Leads to Really Long Sentence at ClubFed

Sunday, February 9th, 2014

There’s tax evasion, big tax evasion, and then we have this story of really, really big tax evasion. And we also must highlight once again that tax protester arguments have as much chance of flying as the dodo bird.

I’ve actually written about this case before. Back in 2010 Bill Melot, a farmer in New Mexico, was convicted of tax evasion, agriculture program fraud, and several related offenses. His tax liability to the IRS was estimated at $18 million. When he was sentenced in 2011 he received five years at ClubFed followed by three years of supervised release. Mr. Melot appealed his conviction; the government appealed the sentence. The DOJ thought he should receive a far longer stay at ClubFed.

Last October the 10th Circuit Court of Appeals ruled on the appeals. Suffice to say it didn’t go well for Mr. Melot. Here’s a pertinent excerpt:

The Government’s evidence demonstrated overwhelmingly that Melot engaged in behavior consistent with an individual who had actual knowledge of his obligation to file returns and pay tax. Melot paid employees in cash, advising them they could avoid reporting the cash payments as income. He attempted to pay cash for inventory for his gas stations, in an effort to avoid creating a paper trail in his bank account. He used Social Security numbers he knew were false for numerous purposes. He transferred substantial assets into a foreign bank account but failed to file the necessary disclosure forms with the IRS. He frequently made domestic bank deposits in amounts slightly below $10,000, the amount at which he knew a bank must file a currency transaction report with the Internal Revenue Service. He transferred assets to corporations and trusts and used nominees to open bank accounts, but admitted he maintained control over the assets associated with these accounts and entities. He sent letters to the Internal Revenue Service denying he was a United States citizen or claiming to be either a non-resident alien or a citizen of the “republic of New Mexico.” Nonetheless, when he applied for a passport from the State Department and agricultural farm subsidies from the Department of Agriculture, Melot declared he was a United States citizen.

Both Mr. Melot and the DOJ didn’t like the sentence. Mr. Melot thought it was too long; the DOJ though it was too short. The sentencing judge had given Mr. Melot a two-level decrease (in the federal sentencing guidelines) for acceptance of responsibility. There was a problem with this according to the Court of Appeals:

…nor did [Melot] engage in any other conduct demonstrating an acceptance of responsibility for his offenses…To the contrary, the record clearly shows Melot continued to deny that he willfully engaged in criminal conduct and unambiguously shows Melot did not voluntarily pay restitution.

The Court of Appeals ordered a new sentencing hearing, with no downward adjustment in federal sentencing guidelines. It was not Mr. Melot’s day at the Court of Appeals.

The sentencing hearing occurred last week, and Mr. Melot’s five years at ClubFed lengthened to 14 years at ClubFed. The restitution hasn’t changed: $18,469,998 to the IRS and $226,526 to the Department of Agriculture.

Mr. Melot apparently believed that tax protester arguments (see the Tax Protester FAQ for a complete dismissal of each and every one of them) work. They don’t. Mr. Melot will have plenty of time to think that through.

Health Care Fraud Leads to Tax Charge

Sunday, December 15th, 2013

I’ve mentioned previously that if you fail to report illegal income on your tax return, you’re guilty of tax evasion. Yes, illegal income is just as taxable as legal income. This came into play with an ongoing investigation in Southern California.

It seems some medical practitioners came up with the idea of getting denizens of Skid Row into hospitals for unnecessary medical procedures. Dr. Ovid Mercene of La Mirada was one of the individuals involved in the practice. I’ll let the DOJ press release take it from here:

From 2008 and 2012, while Mercene worked at a Los Angeles-area hospital, he admitted patients, the vast majority of whom were homeless, who had been referred from a purported “care consortium.” The patients, many of whom did not require hospitalization, were admitted for the purpose of defrauding taxpayer-funded health programs such as Medicare, Mercene admitted in court today.

Mercene admitted the “patients” after watching them being transported by van from Skid Row to the hospital, where they were often kept on a special floor away from the hospital’s “regular” patients. These “patients” also were given smoking breaks while in the hospital, even though many of them supposedly suffered from respiratory diseases. After a short hospital stay where numerous unnecessary tests were typically performed, Mercene discharged the “patients” to skilled nursing facilities, even though they did not require such care.

Dr. Mercene received almost $700,000 in kickbacks. Somehow that income didn’t make it onto his tax returns. While I suspect the alleged health care fraud can be prosecuted under various statutes, the government had an easier charge (to prosecute) to make against Dr. Mercene: tax evasion. That’s what he pleaded guilty to last week. He’ll be sentenced next July.