Taxable Talk

I’m a resident of Orange County (well, if you read the next post I write…), and I missed the Real Housewife Tax Cheats in Orange County. Luckily, Joe Kristan caught it.

The Orange County Premium Fraud Task Force, a collaboration of investigators from OCDA, DOI, EDD, FTB and the Contractors State License Board investigated the couple for two years and discovered that between 2000 and 2008, they fraudulently submitted 42 claims for uninsured injured workers and underreported $29 million in payroll to SCIF in order to avoid paying Workers’ Compensation Insurance premiums.

Yes, proceeds from illegal income are taxable.

I’ve written about Sharon Kukhahn before. Ms. Kukhahn thought that there was some magical way to decode your IRS file and magically make your taxes disappear! Ms. Kukhahn sold her packages to the public and pocketed $2,000 – $3,000 per sale. As P.T. Barnum said, “There’s one born every minute.”

Back in 2008, the Department of Justice obtained an injunction against her from selling her worthless decoding scheme. (There is no secret IRS file to decode that will make your taxes disappear.) One would think that Ms. Kukhahn would fade into the sunset.

Nope.

In April 2010 Ms. Kukhahn was arrested, charged with conspiracy and tax evasion. Not only did Ms. Kukhahn allegedly promote phony tax schemes, she also supposedly orchestrated a letter writing campaign to stop the IRS from collecting taxes.

Ms. Kukhahn was found guilty back in May. Ms. Kukhahn supposedly used the proceeds from her scheme to buy a yacht and other worldly goods; meanwhile, many of her clients are suffering under tax debts they’ll never be able to repay.

Sentencing is set for Wednesday.

Now, if you really want a decoder ring, here’s an offer from nearly 60 years ago that (at the time) would get you one. It wouldn’t have removed your taxes, but it was a decoder ring:

Saku Koivu is a center for the Anaheim Ducks (they won in Minnesota last night,) and is a resident of Quebec. In September 2009 he received a tax refund of $140,899.04 from Quebec (Mr. Koivu used to play for the Montreal Canadiens). And that’s where the fun begins.

Someone stole that check from Mr. Koivu. That’s the first theft. That thief is unknown.

The person who stole the check goes to Go-Remit, a check cashing business in Côte-des-Neiges, Quebec. The former owner, David Nowak, thinks he’s dealing with an authorized agent of Mr. Koivu (the thief also has identity documents) and will cash the check. But he doesn’t keep $135,000 in his store, so he uses a third-party vendor to get the funds. He picks them up, and keeps them in a paper bag under the back seat of his car.

You’re a step ahead of me, right? Someone stole the bag containing the $135,000. That thief, too, hasn’t been found.

Meanwhile, what is Mr. Nowak to do? He decides to take small amounts from some of his clients to make up the $135,000.

Mr. Nowak’s fraud is discovered by the police after some of his clients think something is wrong. Mr. Nowak pleads guilty but gets a very lenient sentence of time served due to the unusual circumstances of the crime. He also is on probation for two years.

And I’ve only summarized the twists and turns of fate that move through this story.

News Story: La Presse (French)
Summary: Puck Daddy

There’s a new theory in the world of tax fraud promoters: Redemption. Joe Kristan had a post last week on some Kansas City fraudsters who used this method. The “idea” behind this is (as best as I can determine) that the federal government is holding money for you and all you have to do is send in various paperwork to get it.

The fraud in question was not confined to Kansas City. From Detroit comes the news of Diamond Tax Services. Damian Jackson, his wife Holly, and Tammy Daniels, are accused of promoting a tax fraud scheme. Mr. Jackson, a minister at a Detroit area church, used phony Form 1099-OID to obtain over $1.6 million in fraudulent refunds. The Department of Justice has asked a federal court to issue an injunction barring the three from preparing federal tax returns to others.

There may be a criminal prosecution in their future, too. The press release accuses the Jacksons of claiming $2.5 million in phony refunds on their tax returns. Those kinds of numbers tend to get IRS criminal investigation quite interested.

Jay Vincent was a standout player at Michigan State. He was part of the squad that featured Ervin “Magic” Johnson that won the NCAA Championship over Indiana State in 1979. Mr. Vincent played in the NBA with stops in Dallas, Washington, San Antonio, Denver, Philadelphia, and Los Angeles.

Unfortunately, Mr. Vincent’s occupation after the NBA appears to be on the dark side, so to speak. Mr. Vicnent operated a business that did home inspections on foreclosed properties. That would seem like a good business in this economy. Unfortunately, he forgot a necessary step: hiring home inspectors. But Mr. Vincent did take his customers’ payments, but they didn’t get anything in return. That’s fraud. Mr. Vincent also didn’t pay tax on the income from the fraud. He pleaded guilty earlier this year and was sentenced last week to 68 months at ClubFed on the fraud charge and 3 years on the tax fraud charge (to be served concurrently).

Mr. Vincent is also facing possible indictment on another alleged scam. In Indiana, Mr. Vincent advertised tryouts for an exhibition basketball team. The team apparently didn’t exist. His advertisements were allegedly paid for with bad checks. This doesn’t look good for Mr. Vincent

We’ve written about Thomas Parenteau before. His trial was straight out of a cheap novel: He was accused of tax fraud and money laundering while living in a 30,000 square foot mansion with his wife and his mistress. Last year, he was found guilty on 11 of 13 counts. Yesterday, Mr. Parenteau received 22 years at ClubFed for his crimes.

Joe Kristan and TaxDood have more.

Well, back in December of 2002 a woman named Norma Coronel allegedly gave birth to nineteen children. I never heard of this, and with the birth supposedly happening in nearby Los Angeles, I’m certain that a woman giving birth to 19 children would have made the news. (Yes, nondecuplets would be having 19 children at once.)

Ms. Coronel allegedly put down all 19 of her “children” on her tax return. The IRS was skeptical. Perhaps it’s the fact that the largest number of live births at once (with all the children surviving) is eight. Perhaps it was the 18 supposedly phony social security numbers. (Ms. Coronel did give birth to a son in December of 2002.)

No matter, the IRS and Social Security Administration investigated, and Ms. Coronel has been arrested and charged with 35 counts of filing false tax returns, using Social Security numbers fraudulently, and theft. She faces a maximum of 143 years in prison and fines of up to $5.6 million.

This is perhaps one of the most Bozo tax fraud cases I’ve ever read.

Nick Holquin, Jr. was a tax preparer in San Jose. He decided to invest in a Mississippi land development project. When the economy tanked, the project did, too.

Mr. Holquin was able to get twelve individuals to loan him money for this project. Unfortunately, he neglected to tell them about his bankruptcies. His attorney, Dennis Lempert, told the San Jose Mercury that he should have disclosed the one bankruptcy he was aware of. Trouble is, there were at least four others.

He also told clients he was a CPA. He wasn’t.

And the topper was that he neglected to file his own state tax returns…for the last 20 years.

Back in March Mr. Holquin pleaded no contest to tax evasion and fraud. He was sentenced on August 4th to 44 months in prison plus he must make total restitution to the fraud victims and the Franchise Tax Board of over $1.4 million.

…Nothing much happened, right? (I’m ignoring that AAA/AA+ thing, of course.)

The IRS announced that Form 8939 for estates for 2010 will be due on November 15th. However, the form has yet to be released.

Joe Kristan noted that the Wesley Snipes strategy didn’t work (again), this time in nearby Bakersfield. A Mark DeVries didn’t like the results of his audit, and among his other brilliant ideas he sued the IRS Revenue Officer and Revenue Agent handling the case…for $50 million (plus punitive damages). As Joe noted,

Suing your IRS agent for “libel, slander, nuisance, intentional and negligent infliction of emotional distress, trespass, conspiracy and imposition of a constructive trust” hasn’t worked yet. Perhaps a less confrontational approach to IRS exams would have been wise.

Peter Pappas noted that low taxes lead to economic growth. Well, I knew that but a lot of people in Washington don’t.

Phil Hodgen is running a series on PFIC’s. If you deal with them, it’s a must read.

The Franchise Tax Board has a new amnesty program (aka “Voluntary Compliance Initiative 2″). This program is for taxpayers who avoided California tax through either Offshore Financial Arrangements or Abusive Tax Avoidance Transactions. Filing period for this amnesty runs through the end of October. Taxpayers who sign up for this amnesty must file amended returns, sign a participation agreement, and pay all tax, penalties and interest by the end of October. Note that the Noneconomic Substance Transaction Understatement Penalty, the Accuracy Related Penalty, the Interest Based Penalty, and the Fraud Penalty are removed with this amnesty; however, the Large Corporate Understatement Penalty (if applicable) and the Amnesty Penalty cannot be waived.

Finally, I feel relaxed and ready for ten days of tax work to be squashed into the rest of the week. Yes, I enjoyed my vacation.

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.