Archive for the ‘Uncategorized’ Category

It’s How They Earned the $1.46 Million of Tax Refunds that’s the Problem

Sunday, November 17th, 2013

I’d like to convince my clients to start adding gratuities when they pay me. I did have one client just add $10 to his payment (and yes, I’ll be claiming that on my tax return); I appreciated it and told him so. I really don’t expect to receive tips from clients–it’s not the norm for tax preparation. I definitely don’t expect to receive $1,458,905 in such gratuities.

Yet one pair of tax preparers apparently did receive such money. Rigoberto Cabrera and Carlos Perez of Miami had a good thing going…for awhile. They convinced some individuals that they could get taxpayers really big tax refunds. Of course, those refunds were based on phony tax credits and deductions that the taxpayers weren’t entitled to. All they asked in return was part of the refunds back. That’s not much to ask for, right?

I didn’t think so, until I read this line in the Department of Justice press release:

Through this scheme, the defendants claimed approximately $1,458,905 in tax refunds from the IRS.

Now, it’s not clear from the press release whether the $1.46 million is the total of refunds (what I assume) or the defendants’ share. No matter, it’s a lot of money. Mr. Perez earlier pleaded guilty to two counts of conspiracy. Mr. Cabrera was found guilty on 29 counts of conspiracy, fraud, making false claims to the IRS, and money laundering. Both are looking at ClubFed in their future; Mr. Cabrera is liking to be spending many, many years there.

Up in Flames

Saturday, October 13th, 2012

Back in 2005, a load of estimated payments ended up “swimming with the fishes” when a driver of a truck went off the San Mateo Bridge into the San Francisco Bay. Believe it or not, a similar incident happened last month in New Jersey.

A US Postal Service truck caught fire in an accident on the New Jersey Turnpike. The mail was destined for New Jersey state offices, including the Department of Taxation. The USPS believes this was mail collected from September 7th to 10th in New Jersey. If your mail went up in smoke, the New Jersey Department of Taxation has procedures in place so that you will not be penalized. Kay Bell has more.

Vacation

Friday, July 27th, 2012

It’s time for my annual vacation. If something earth-shattering in the tax world happens while I’m relaxing, I’ll take time out to post on it. Otherwise, enjoy the fine bloggers listed in the blogroll on the right. I’ll be back on Thursday, August 9th.

Bozo Tax Tip #1: 300 Million Witnesses Can’t Be Right

Friday, April 15th, 2011

For tax bloggers like myself, Richard Hatch has been a godsend. His antics have been, well, remarkable. Mr. Hatch has regained the top spot in this year’s Bozo Tax Tips. It took a lot of effort (and stupidity), but he’s manged the feat.

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.

1. Hatch goes to accountant #1, find out that he owes over $300,000 in taxes. He goes to accountant #2, and the tax bill is around $240,000. (At his level of income, some differences in taxes owed is normal.) He then asks accountant #2 what his return would be if he didn’t declare the $1 million in Survivor winnings. Accountant #2 makes Hatch sign a statement that he won’t file that return (it showed Hatch getting a $4300 refund). He filed that return.

2. The IRS amazingly discovers his tax evasion. (With perhaps 300 million witnesses, even the most inept attorney could prove he won $1 million.) He’s offered a plea bargain: pay your taxes, and we’ll let you off fairly easily on the jail time. He accepts the plea initially, then changes his mind.

3. The case goes to trial. Hatch claims that CBS should have withheld taxes. His attorney might want to ask any seasoned accountant about what you should do if taxes aren’t withheld but should have been. (Answer: you pay the taxes.)

4. Hatch’s attorney can’t find the OJ Simpson jury. (Hat tip: Roth Tax Updates)

5. Hatch is found guilty. Roth Tax Updates speculates that his sentence will be around 3 years in jail. Oh, he’ll also have to pay those taxes, and interest and penalties. The maximum possible sentence is 13 years in prison and a fine of $600,000.

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.

Judge Smith’s remarks hopefully will finally sink 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.

Rappin’ Your Way to ClubFed

Wednesday, March 23rd, 2011

Of course, not only are there Bozo tax professionals, there are Bozos in all professions–especially the arts.

Ja Rule is a famous rapper (well, famous in the world of rap). He also followed the tax practice that income after tax should be the same as income before tax. When you’re famous, that’s not a good idea.

Jeffrey Atkins (Ja Rule’s legal name) was the sole stockholder of two corporations. They paid him royalties from his music tours and from royalties (from sales of his music). That income neglected to make it to his tax returns from 2004 through 2008 (because he apparently didn’t file). That’s a great idea only if you get away with it…and he didn’t.

Mr. Atkins pleaded guilty to three counts of failing to file a tax return. The Department of Justice press release notes that the loss to the government is “…approximately $1,137,912.” [1] Mr. Atkins has agreed to file accurate tax returns and pay his back taxes (and penalties and interest).

Mr. Atkins will be sentenced in June, and he’ll likely get to record a rap version of “I Fought the Law” while at ClubFed…as with that tax loss that’s his likely destination. Mr. Atkins is also looking at two years in prison on a weapons charge.

[1] I’m amazed at the exactness of this approximation. I guess that cents are where the variance lies.

Bush Tax Cuts Likely Will be Temporarily Extended

Monday, December 6th, 2010

It appears that there will be a temporary extension of the Bush Tax Cuts for two years. At least, that’s the direction Congress is moving in from news reports. While the House passed a motion to only approve an extension of the cuts for the “Middle Class,” that bill died in the Senate. President Obama signaled a willingness to compromise if there’s an extension of unemployment benefits. So there’s the probable compromise: Extension of the Bush Tax Cuts for all along with an additional one-year of unemployment benefits.

Of course, that does bring up some issues:

  • When will the AMT Patch be passed?
  • Will legislation pass dealing with the Estate Tax or will I be doing lots of Estate Tax Returns in the future?
  • Will Harry Reid (D-NV) insert online poker legislation into either the AMT Patch bill or the Bush Tax Cut/Unemployment Benefits legislation?

Add to this the possibility that Harry Reid will insert online poker legalization into this bill and it should be an interesting week in Washington.

Wellek Pleads Guilty, Admits Tax Evasions

Monday, November 8th, 2010

In October I noted that Michael Wellek, the owner of three strip clubs in the Chicago area, would soon plead guilty to tax evasion. He did so last week.

Mr. Wellek admitted he didn’t file a tax return for years where he made more than $2 million. Of course, he made that in cash, and we all know that cash isn’t taxable unless you get caught, right? Well, no, all income is taxable, even cash.

Mr. Wellek also admitted he paid $2.3 million in cash to employees of his strip clubs and didn’t issue reports (either 1099s or W-2s). The report notes that Mr. Wellek plans on cooperating with the IRS. If you were one of his employees, I hope you included that cash on your tax return or you might be getting a knock on your door from the IRS.

Another Untrustworthy Trust for a Doctor

Monday, August 16th, 2010

There’s nothing illegal about having a foreign (offshore) trust. However, if you use that trust to shelter (hide) income, and if you fail to disclose the trust, and if you lie to federal agents about the trust, you can find yourself in a world of problems.

Take the case of Dr. David Alan of Rices Landing, Pennsylvania (near Pittsburgh). Dr. Alan reported taxable (joint) income of $20,254 in 2001 and just $38 in 2002. The US Attorney’s Office alleges that the true income was $148,785 in 2001 and $242,740 in 2002. Dr. Alan allegedly decided to avoid the hassle of a false tax return in 2003 and 2004 by simply not filing a return for those years.

So what did Dr. Alan do? He allegedly formed an offshore trust on Nevis, and island in the West Indies. He funneled income into the trust and a shell corporation and used a mail drop in Canada, too. He then supposedly used false invoices to ‘decrease’ his income (by allegedly inflating his cost of goods sold). He then allegedly took the leftover money and used it for personal expenses. Finally, he allegedly lied to federal agents about all of this. That’s not a trifecta but a quinfecta of troubles for the doctor.

Given that Dr. Alan is accused of under-reporting, in total, almost $900,000 of income, he’s facing a lengthy stay at ClubFed if convicted of the charges.

News Stories: Pittsburgh Tribune-Review, Observer-Reporter

Spring Ahead…

Saturday, March 13th, 2010

Tonight is not the favorite night for tax professionals: we lose an hour of sleep. Daylight Savings Time begins at 2am; before you head to bed move your clocks up one hour.