Archive for the ‘Tax Fraud’ Category

Neither Rain Nor Sleet Nor Snow…But What About Theft?

Sunday, May 1st, 2016

Rain–which we had here in Las Vegas this past weekend–didn’t stop the postman from delivering bills I have to pay. Sleet and snow don’t stop the US mail, either. However, theft of the mail will stop it. One postal carrier will likely be heading to ClubFed because he stole mail used in an identity theft ring.

Earl Champagne delivered mail in Pennsaucken, New Jersey. From the Department of Justice press release:

Champagne admitted that from March 2014 to July 2014 he stole U.S. Treasury Checks from the mail and gave them to others. He said he was approached by two individuals who asked him to retrieve checks from the mail with the promise that he would be paid. The individuals told Champagne that the checks were IRS checks and that they would mostly be addressed to individuals with “Spanish” names. The individuals expected to either pick up the checks from Champagne or for him to notify them that the checks were in the mailbox so that they could retrieve the checks themselves. For this service, Champagne was paid $50 per check for every check stolen from the mail. Champagne admitted that he stole 72 U.S. checks totaling $442,776.

Theft of mail is a felony–and can be subject to a lengthy term at ClubFed (up to 15 years and a $250,000 fine per offense). This wasn’t a brilliant idea as sooner or later someone would notice the lack of the refund check, and then the IRS would be notified and it would be fairly easy to figure out the issue. For Mr. Champagne, the Bozo aspect of his crime didn’t occur to him…but it likely does now (a bit too late for him).

Bozo Tax Tip #1: Publicize Your Tax Crimes on Social Media!

Friday, April 8th, 2016

Social media is really, really big these days. You can follow me on Twitter. I may even update my Facebook page one of these days. Of course, I’m not a tax criminal, and my posts hopefully add knowledge for others.

Of course, where you and I won’t go the Bozo contingent is quite happy to do so. Take, for instance, Rashia Wilson. Ms. Wilson posted a wonderful picture on her Facebook page:

Rashia Wilson (Image Credit: Tampa Police Department)

In the same post, she bragged:

“I’m Rashia, the queen of IRS tax fraud,” Wilson said May 22 on her Facebook page, according to investigators. “I’m a millionaire for the record. So if you think that indicting me will be easy, it won’t. I promise you. I won’t do no time, dumb b——.”

She’s doing 21 years at ClubFed. Oops…

A helpful hint to the Bozo tax community: Law enforcement does read social media. Indeed, the IRS will do a search of you on the Internet prior to a field examination (audit). So if you decide to go on the dark side of life, don’t brag about it online. A better course would be not to go on that dark side to begin with, but that rarely occurs to the Bozo community.

That’s a wrap on our Top Ten Bozo Tax Tips for the 2016 Tax Season. I’ll be back in about a week with normal content.

Maryland Suspends Processing Tax Returns from 23 Liberty Tax Service Locations

Thursday, February 4th, 2016

Maryland Comptroller Peter Franchot announced on Tuesday that he has suspended processing from 16 more Liberty Tax Service locations (bringing the total suspended to 23). The decision was made based on suspicious characteristics found on the returns:

  • Business income reported when taxpayers did not own a business.
  • Refund amounts requested much higher than previous year tax returns.
  • Inflated and/or undocumented business expenses.
  • Dependents claimed when taxpayers did not provide required 50 percent support or care.
  • Inflated wages and withholding information.

These reasons sound like tax fraud 101–what’s been done by unscrupulous preparers year after year. This year, though, at least one state is making an effort to nip these problems before they grow too large.

It should be noted that these stores were owned by franchisees. Jim Wheaton, General Counsel, Chief Compliance Officer, and Vice President of Legal and Government Affairs at Liberty, told Accounting Today that they have a “…robust compliance program, and we expect our franchisees to make sure that their offices comply with all federal and state tax requirements.”

For consumers, the advice that Maryland noted in their press release is accurate: “Taxpayers should carefully review their returns for these issues and should be suspicious if a preparer: deducts fees from the taxpayer’s refund to be deposited into the tax preparer’s account; does not sign the tax return; or fails to include the Preparer Taxpayer Identification number “PTIN” on the return.” I’ll add, if you don’t own a business and see business income on your return, there’s a problem. If you’re not attending college (or have a dependent attending college) and see education tax credits, there’s a problem. If it looks too good to be true, it probably is.

The Liberty to Commit Tax Fraud

Sunday, January 31st, 2016

There are thousands of tax professionals. These range from the huge firms such as H&R Block to mom and pop outfits. The professionals range from Enrolled Agents, CPAs, and tax attorneys to those who have just put up a sign saying that they’re “professionals.”

Liberty Tax Service is one of the huge chains. They have employees dressed up like the Statue of Liberty outside of their locations. According to the IRS and Department of Justice, a Liberty Tax franchisee in metro Detroit took quite a few liberties with tax law.

Craig Comer operates five Liberty Tax Service locations near Detroit. If the complaint lodged by the US Department of Justice is correct, the five franchise locations did the usual illegal things to increase refunds:

According to the complaint, the defendants prepare income tax returns for customers that fraudulently overstate refunds and claim refundable credits by, among other things, claiming false or inflated Schedule C income and expenses, bogus dependents, false filing statuses, improper education credits and false itemized deductions. Based on audit adjustments the IRS has made to tax returns prepared and filed by the defendants for 2008 to 2013, the defendants’ conduct has cost the U.S. Treasury approximately $4.5 million for those years alone, according to the suit.

There are also allegations of forging customer signatures, changing returns that customers have already signed, committed fraud with the Earned Income Credit, and violated IRS PTIN (Practitioner Tax Identification Number) requirements. All tax professionals who prepare tax returns for money are required to put their PTIN on every tax return they file. The government is alleging that this wasn’t done by this franchisee.

This story does show two things. First, requiring every tax professional to obtain a license won’t stop tax fraud. The alleged fraud here was started by an individual with a PTIN, someone who assuredly could obtain the former RTRP designation or the current AFSP “seal of approval.” Second, the Department of Justice news release notes, “In the past decade, the Tax Division has obtained injunctions against hundreds of unscrupulous tax preparers.” This is absolutely true, and the DOJ should be commended for their work. It also shows that licensing every tax professional isn’t needed to get rid of unscrupulous ones.

Fraudster Tries Alchemy; Will Have 20 Years to Think That Over

Sunday, January 10th, 2016

I have a degree in chemical engineering. As an undergraduate, I did research into the catalyzed production of methane (CH4) from graphite (Carbon, C) and Hydrogen (H2) using potassium hydroxide (KOH) as a catalyst. That was real chemistry.

Alchemy is a bit different. An alchemist tries to turn lead into gold. With the exception of radioactive elements, chemical elements don’t change. If you have lead, it stays lead and doesn’t change into gold.

Joseph Furando of Montvale, New Jersey thought he had the perfect way of performing alchemy. He took biodiesel fuel that wasn’t eligible for two tax credits and magically turned it into biodiesel fuel that was eligible for the tax credits:

From 2007 through 2012, Indiana-based E biofuels owned a biodiesel manufacturing plant in Middletown, Indiana. Biodiesel is a fuel that can be used in diesel engines and that is made from renewable resources, including soybean oil and waste grease from restaurants. Under the Energy Independence and Security Act, properly manufactured biodiesel was eligible for a dollar per gallon tax credit as well as another valuable credit, called a Renewable Identification Number (RIN) that petroleum refiners and importers could use to demonstrate compliance with federal renewable fuel obligations. These incentives can be claimed once and only once for any given volume of biodiesel.

Furando admitted that sometime in late 2009, he and his companies, New Jersey-based defendants Caravan Trading Company and CIMA Green, began supplying E biofuels with biodiesel that was actually made by other companies and had already been used to claim tax credits and RINs. Because these incentives had already been claimed, Furando could purchase the biodiesel at much lower prices, sometimes for more than two dollars per gallon less than biodiesel that was still eligible for the credits. The conspiracy functioned as follows: Furando supplied the product to E biofuels and his co-conspirators would claim that E-biofuels made the fuel and then they would illegally re-certify the fuel and sell it at the much higher market price for incentivized biodiesel, known as B100 with RINs. Within the circle of those he trusted, Furando referred to this fraud scheme as “Alchemy.”

In two years, that was a profit—albeit an illegal profit—of $145.5 million. It appears that $56 million of this represented fraud, as that is how much restitution Mr. Furando must make. He was also sentenced to 20 years at ClubFed, and must forfeit his Ferrari and other cars, his “million-dollar home,” and other possessions.

I’ll point out (again) that tax credits attract fraudsters like moths to flames. One day, perhaps, Congress will decide that these programs should go in the dustbin of history. Well, there’s always hoping.

2015 Tax Offender of the Year

Wednesday, December 30th, 2015

Once more it’s time to award that prestigious award, the 2015 Tax Offender of the Year. The winner of this award must do more than just cheat on his or her taxes. It has to be special; it really needs to be a Bozo-like action or actions. Unfortunately, there were plenty of nominations.

Dissatisfied with only winning the Tax Offender of the Year award once, the US Congress made a strong push for the award. However, they snatched defeat from the jaws of victory (which is a good thing; this award really isn’t something to brag about). Just two weeks ago they passed both a budget and tax “extender” legislation, and even codified the Enrolled Agent profession as part of the legislation. That last item eliminated Congress from the running.

The Miccosukee tribe was in the running again. They’ve fought a quixotic battle against the IRS, alleging that their members are exempt from US taxation on their income from a casino. The tribe has been fighting the IRS in court (and losing, time after time). Most recently, the Tax Court ruled that an IRS levy wasn’t an abuse of discretion.

However, that’s not the most recent ruling against the tribe. Just last week the 11th Circuit Court of Appeals ruled against the tribe. The tribe had appealed a dismissal of a lawsuit against former tribal officials, attorneys, a law firm, and an investment firm:

Applying the Rule 9(b) standard to the present complaint, we note that the district court previously afforded the Tribe the opportunity to amend its complaint to add particularity. In doing so, the Tribe submitted a 314-page second amended complaint which, at first blush, appears to contain particularity…The complaint’s 314 pages, therefore, appear largely to be an attempt to create the impression of specificity through page-number “shock and awe.”

Let’s just say that the Court was neither shocked nor awed:

The deficiency of the pleadings exists at a more fundamental level. Looking first at the allegations concerning the attorney defendants, the complaint suffers from a wholesale lack of detail to satisfy the plausibility standard of Iqbal and Twombly or the heightened requirements of Rule 9(b)…No attempt is made, however, to articulate what services were deemed legitimate and proper, what services comprised part of the alleged fraudulent scheme, and what rates were inflated…There is, therefore, insufficient specificity to distinguish between what attorney matters the Tribe deems to have been legitimate and what the Tribe deems to have been illegitimate. Finally, the Tribe alleges a kickback scheme in which the attorneys received payment and refunded money to Cypress, but there are no factual references to support these allegations. [foonote omitted]

The decision of the lower court was affirmed. And, yes, there’s worse to come.

Our final runner up was IRS Commissioner John Koskinen. While I applaud the lead he appears to now be taking on identity theft, Commissioner Koskinen’s reaction to the IRS scandal has been ridiculous. I agree with Joe Kristan’s comment earlier this year:

His glib, arrogant and obstructionist response to the Tea Party scandal, full of denials of the existence of information that subsequently surfaced, has destroyed his credibility. There’s no hope that the IRS will get improved funding as long as he is around to spend it.

Yet Mr. Koskinen’s bad leadership pales to the amazing tale I’m about to tell.

Stillwater, Minnesota is like many small cities in the midwest. It’s a popular day trip for residents of the Twin Cities (Minneapolis and St. Paul), and it’s largest industry appears to be tourism.

In 2006, Kenneth Harycki owned Customized Payroll Solutions in Stillwater and was its mayor. He was a CPA and had a nice business. He took on new clients in 2007, Thurlee and Roylee Belfrey (brothers) who ran some home health care businesses. So far, nothing out of the ordinary.

Unbeknownst to Mr. Harycki, the Belfreys allegedly ran their business as their own personal piggy bank. That supposedly including defrauding the US Department of Health and Human Services and skimming off payroll tax deposits. Mr. Harycki discovered this after he took the Belfreys on as clients:

Within the first few payroll cycles for Model Health Care, Harycki “concluded that while payroll taxes were being withheld from the wages of employees, those taxes were not being paid over to the government,” according to his guilty plea.

Now, when I discover a defalcation against a client I will, of course, report it to them. If I discover a client is committing payroll tax fraud (thankfully, I’ve never had this happen), I’m required to tell them to stop, and to drop them as a client. Mr. Harycki, a CPA, certainly understood the ethical requirements of his profession.

Well, maybe not.

Mr. Harycki had other ideas of what to do. Back in January when I first reported on this, I gave the three choices that could have been considered:

(a) Tell them that the taxes aren’t being paid, that’s violating the law, and you need to fix this (which could include setting up payment plans with the IRS and Minnesota, or just paying the withheld funds);
(b) Tell them that if they don’t start remitting the withheld funds that he would need to quit the engagement; or
(c) Join the conspiracy.

Yes, Mr. Harycki decided to join the conspiracy. And boy did he do so!

According to the defendant’s guilty plea, on February 18, 2010, HARYCKI created the entity MKH Holdings, Inc., to assume control over bank accounts used to fund businesses operated by the co-conspirators. The entity was used to cause funds falsely reported on income tax returns to be paid to the co-conspirators and others. During the course of the conspiracy, HARYCKI also incorporated other businesses, obtained employer identification numbers, paid for personal expenses, filed false tax returns, and opened and used numerous bank accounts for the benefit of the separately charged co-conspirators in order to avoid payment of taxes.

There’s not much to add here. Mr. Harycki should have, once he discovered the fraud, told them of the law violations and quit the engagement. The only good that is coming from this is that Mr. Harycki appears to be cooperating with the Department of Justice in the cases against the Belfreys (who are now also facing a tax fraud charge).

That’s a wrap on 2015! While I’m hopeful that 2016 will find me bereft of candidates for the Tax Offender of the Year award, I suspect my cup will again run over.

I wish you and yours a happy, healthy and prosperous New Year.

Yet Another Reason Why Requiring Tax Professionals to Obtain a License Won’t Stop Tax Professionals from Behaving Badly

Sunday, December 6th, 2015

In California, everyone who prepares a tax return for money must have a license. Individuals must either be an Enrolled Agent, a CPA, an attorney, or obtain a license from the California Tax Education Council. Of course, that means that no California tax professional would commit tax fraud, right?

Of course not. Where there’s money involved there will always be people trying to obtain that money fraudulently. That’s the case whether you need no license, one license, or 100 licenses to prepare a tax return. Take the case of Melissa Ann Vega (aka Lisa Vega).

Ms. Vega owned L&T Works, a tax preparation firm in San Diego. Last year, stories in San Diego media describe deductions that were $3,000 that became $31,000. The IRS raided the facility in April 2014.

Come January 2015, Ms. Vega was arrested and released on bond. What she then did has gotten her a coveted nomination for Tax Offender of the Year:

Vega was released on bond in this case on January 28, 2015. Although the court informed her not to commit another federal crime, Vega once again began filing false tax returns with the IRS within days of her release. Without the clients’ knowledge, Vega fraudulently inflated or created credits and deductions to maximize her clients’ false returns. The IRS uncovered her fraud, and Vega was arrested on February 25, 2015. In furtherance of her conspiracy, Vega agreed with Deanna Dave (charged in Criminal Case No. 15CR2715-JM) to misrepresent to the grand jury that Dave was the owner and paid-return preparer for the tax returns filed in February 2015. In truth, Vega continued as the owner of her tax preparation business and prepared the false tax returns which she filed for her clients. On November 17, 2015, Dave pleaded guilty to making a false declaration before the grand jury, and her sentencing is scheduled for February 5, 2016 before Judge Miller.

As for her initial crimes, these are detailed in the DOJ press release:

Vega told her co-conspirators and employees that they should maximize clients’ refunds by filing for a $4,000 education credit, even though the client did not attend school for that tax year. To conceal her role in the fraud, Vega intentionally omitted her name and tax return preparer identification number on the false tax returns she prepared for her clients. In total, Vega’s fraud caused the IRS to pay more than $7 million in artificially-inflated tax refunds based solely on the false education credits. Moreover, Vega admitted that she and her co-conspirators stole the identities of other persons, including minors, and used them on the false tax returns in order to further inflate the amount of the tax refund paid by the IRS.

Vega did not shy away from personally profiting from her fraudulent scheme. In addition to charging her clients between $150 and $200 per return, Vega also admitted that she stole more than $300,000 in false tax refunds from her clients by directing their refunds into bank accounts that she controlled. Vega spent this money for her own personal benefit. Vega also admitted that she evaded her own income taxes and filed false personal tax returns in which she fraudulently claimed withholding credits, education credits, and tax credits for minor dependents that she did not support and were not related to her. According to court documents, Vega evaded more than $156,000 in taxes due to the IRS for tax years 2009 through 2013.

As noted above, Ms. Vega was in California; she needed a license to prepare tax returns. That included annual continuing education in ethics. She apparently missed that, along with the commandment, “Thou shalt not steal.” Given she prepared more than 4,000 false tax returns with the IRS (and presumably an equal number of false returns with California’s Franchise Tax Board) in attempting to obtain more than $7 million in phony refunds, she’s likely heading to ClubFed.

Don’t Go to Lawrence Siegel to Have Your Taxes Done

Sunday, November 15th, 2015

There are good tax preparers, bad tax preparers, and then there’s Lawrence Seigel. Mr. Siegel, who resigned from the California bar in 1994 and lost his CPA license in 1997 after being convicted of tax evasion (among other crimes) also faces a 20-count criminal complaint “…charging him with Medi-Cal fraud, grand theft, forgery, identity theft, financial dependent adult abuse and tax evasion.” The US Department of Justice filed a civil action against him, and he was a no-show for the court date last Monday.

As for what Mr. Siegel is alleged to have done, he supposedly has impersonated California attorneys, used multiple aliases, and proposed tax fraud schemes. From the DOJ press release:

Siegel falsely advised his customers, typically high earners who own profitable businesses, that they can establish companies in another state, usually Nevada, then treat their California home as an out-of-state corporate office. Siegel claimed that doing so would transform a vast array of non-deductible personal expenses into tax deductible business expenses, according to the complaint. The complaint details how Siegel boasted about this tax fraud scheme in e-mails, including one where Siegel falsely claimed that his customers are entitled to free housing as tax-free compensation from their out-of-state companies and that “[t]he housing can [b]e luxurious and cost thousands a month” because “[t]here is an assumption that corporations don’t waste money.”

Well, housing can be expensive in California. That said, personal expenses aren’t deductible.

For example, the complaint states that Siegel deducted on one couple’s tax returns purchases at Tiffany & Company, Royal Caribbean Cruise Lines, Louis Vuitton and Princess Cruise Lines. Siegel allegedly attempted to conceal these fraudulent deductions from the Internal Revenue Service (IRS) by lumping them together and reporting them as large expenses for “supplies” or “medical records and supplies.”

It’s great if you can get away with it. Mr. Siegel appears to be lucky to have escaped a federal indictment, given that he is also accused of providing false documents to the IRS and lying to IRS officials. In any case, Mr. Siegel, if found, faces trial in California on that criminal complaint.

As a reminder, if it sounds too good to be true it probably is. No, you can’t deduct personal expenses if you run them through a corporation. And while I wish I could take a deduction for the cruise to New Zealand and Australia that I took last year, I also know the law–and you just can’t do that.

Chaka Fattah, Jr. Guilty of Tax and Fraud Charges

Sunday, November 8th, 2015

Chaka Fattah Jr., son of Democratic Congressman Chaka Fattah Sr. (D-PA), was found guilty on Friday of 22 of 23 tax and fraud charges. As the Department of Justice press release notes,

Between 2005 and 2012, Fattah Jr.: made false statements to banks to obtain loans; made false statements to banks and the Small Business Administration (SBA) to settle loans for less than what was owed; filed false federal income tax returns; failed to pay federal taxes; and stole from the Philadelphia School District, which had received federal funds for its operations.

His father, Chaka Fattah Sr., is under indictment on separate racketeering charges filed earlier this year.

Chaka Fattah Jr. is scheduled to be sentenced in February. He’s looking at a “substantial term” at ClubFed.

Over 1,100 Returns Filed from Two Addresses Lead to Two Heading to ClubFed

Sunday, October 25th, 2015

Two separate cases out of Broward County, Florida highlight that if you submit lots of tax returns from the same address even the IRS will get suspicious. A former band director and another Floridian will be heading to ClubFed in separate identity theft cases.

In the first case, a former band director apparently used his position to steal 419 identities. From the DOJ press release:

According to court documents, IRS-CI investigators noticed that 419 suspicious tax returns claiming refunds totaling $754,470 were filed from Rogers’ residential address from January 25, 2014 to April 20, 2014. Based on this information, a search warrant was executed at Rogers’ residence and agents discovered and seized papers, notes, and documents containing thousands of PII (including names, dates of birth, and social security numbers) including PII contained in records of more than a dozen Broward County School District students, some dating back to the late 1990s and others into the late 2000s. Agents also seized numerous printed 2013 tax returns.

Delvis Rogers of Hollywood, Florida admitted when his apartment was searched (under a search warrant) that he had prepared and filed hundreds of phony tax returns from his apartment. Mr. Rogers pleaded guilty to two identity theft related charges. He received 61 months at ClubFed and agreed to make restitution to the IRS of $129,321.

In the second case, Keyiona Wright of Plantation, Florida pleaded guilty to conspiracy to commit wire fraud and aggravated identity theft. From the DOJ press release:

According to court documents, from March 25, 2014 to May 6, 2015, forty-six federal tax returns were filed with the IRS claiming refunds of $135,196 from an IP address in Plantation. From September 16, 2014 to May 5, 2015, at least 688 rejected federal tax returns, claiming refunds of $733,276, were electronically transmitted to the IRS from this same IP address. Agents confirmed that the IP address was assigned to an apartment rented by Wright.

A search warrant found notebooks, bags, documents, papers, and computers containing personal identification information. “A forensic analysis revealed that the documents, computers, and debit/credit cards seized from Wright’s residence contained identifying or account information for over 14,000 individuals.” And agents found another computer that had a video with Ms. Wright counting money. At least she didn’t post it on Facebook like the Queen of Tax Fraud.

In the end, Ms. Wright pled guilty. She’ll have plenty of time at ClubFed to think over her decisions; she was sentenced to 7 years.