Taxable Talk

I just finished re-reading Murder by the Book. Written in the 1950's by Rex Stout, the Nero Wolfe novel deals with four deaths and what a certain book ("Put Not Your Trust") has to do with them. If you've never read Stout, do so—he's a wonderful author, and the books written many years ago are still eminently readable.

Coincidentally, two sham trusts crossed my email in-basket this evening. From Kenai, Alaska comes yet another dentist who allegedly decided that a sham trust was a good way to cut his taxes. Here's the alleged scheme according to the Department of Justice.

The accused, Glenn Lockwood, formed a professional corporation. No problem so far. Then he allegedly contracted his services to an Irish company. That company allegedly leased his services to a Nevada company which, in turn, allegedly leased his services back to his own corporation. Of course, the money took a much more convoluted path, with offshore accounts, Nevada real estate development, and sham trusts supposedly thrown into the mix. The DOJ alleges that the loss to the Treasury is $575,000 for tax years 2000-2003. Mr. Lockwood will face four counts of tax evasion, and is looking at ClubFed if found guilty.

Meanwhile, in North Carolina, the DOJ has filed a civil lawsuit accusing two men of creating sham trusts to help customers evade taxes. The accused, Alexander Klosek and Bryan Noel, allegedly targeted wealthy and elderly individuals and attempted to get them to sell their homes and other major assets into sham trusts. It appears to be a pretty big alleged crime; the DOJ estimates the loss to the Treasury at $55 million. The DOJ has asked for an injunction to stop the individuals from selling any more trusts. And you can be fairly certain that a request for their customer list will soon follow so that the IRS can send a heartwarming "Dear Valued Taxpayer" letter to Klosek's and Noel's customers.

In the end, the best kinds of sham trusts are the ones you read about in novels. They cost you $5.95 or so for a paperback. The crimes described above, if proved, could lead to much larger penalties.

At least three times I've written about Renaissance, the Tax People. The company, now out of business, was a multi-level marketing firm that promoted deducting personal expenses as business expenses. The latter is why they're out of business, with the principals finding their way to ClubFed.

Thell G. Prueitt of Kingsland, Texas used to be at Renaissance. After that company dissolved, he set up shop at several other companies. The US Government alleges that Mr. Prueitt is promoting the same schemes as used at Renaissance, and the government is suing to bar him from preparing tax returns. The DOJ alleges that Mr. Prueitt's materials, "...have falsely claimed that customers could convert non-deductible personal expenses into deductible business expenses and be 'audit proof.'"

My old advice stands about any tax scheme that you come across: If it sounds too good to be true, it probably is.

Back in 2005 I wrote about Derivium Capital. They were under investigation by the IRS & FTB for making loans that converted capital gains to nothing! for tax purposes. A great scheme, if you can get away with it.

Well, the Department of Justice filed suit to stop the scheme. The defendants are Derivium Capital, LLC, Derivium Capital (USA) Inc., and Veridia Solutions LLC. Four individuals were named in the suit. The DOJ is asking for a permanent injunction to stop the loans; the lawsuit claims that the scheme has cost the US Treasury over $230 million.

Though Derivium is in bankruptcy, the lawsuit alleges that the individuals involved are still trying to peddle the loans. My advice from back in September 2005 was if it sounds too good to be true, it probably is. In this case, not only are the defendants in trouble, but if you happen to have "bought" a Derivium loan, or are considering buying one today, you will have problems with the IRS.

Wouldn't it be nice if we could buy a $39.95 package that would terminate our taxes? Tax protester Robert Schulz offered just such a package...until the US government got an injunction against him.

But the IRS had this idea. Wouldn't it be nice to know who bought these packages, and we might want to check and see if they actually filed (and paid) their taxes? So they issued a subpoena to PayPal for the records. And they won at the District Court.

Mr. Schulz appealed to the 8th District Court of Appeals. As Joe Kristan reported today, the Appeals Court upheld the subpoena. Read his entire post; it's excellent. I'll just note one sentence from the Appeals Court ruling: "[W]e conclude that Schulz’s constitutional arguments challenging the IRS’s authority to enforce the tax laws are without merit."