Taxable Talk

I try hard to help my clients pay the lowest tax possible—legitimately. These Bozos skip that last word.

Let’s start in Valdosta, Georgia. Back in November I reported on the scheme of Pamela and Clinton Hughes to claim fraudulent tax refunds for using diesel fuel off the highways. There’s a federal tax on diesel fuel, and if you use it off the highways (they claimed they used the fuel in logging) you can get a tax refund. The only problem was that it was a lie. And not a small lie; this was a $5.2 million scheme. Pamela Hughes got 33 months at ClubFed; her husband got 48 months. Each also has to make restitution of just under $4 million.

We next head to Rockford, Illinois. Angelique Tinder, aka Angelique Howen, used to operate Your Tax Master. She catered to a niche: Bosnian immigrants. The price was right; she only charged $35 to $40 a return. And she got her clients refunds, calling money sent to the families back home in Bosnia as ‘charitable contributions.’ Unfortunately, that public service has a problem—you can’t take a charitable contribution deduction on money not given to charities. And when the total of the attempted fraud adds up to $2.5 million, you’re in trouble. She was found guilty of multiple counts of tax evasion, and must make restitution of $1,085 to her clients…and serve 63 months at ClubFed. If the judge had a sense of humor and announced the sentence in that order….

Next, we head to Omaha, Nebraska. Siyad Ali also specialized in preparing tax returns for immigrants; he specialized in Sudanese immigrants. He was a generous individual, and added foster children to his clients’ returns. Throw in some phony fuel tax credits, earned income credits, and incorrect filing statuses (Head of Household), and you end up with $67,000 of fraudulent refunds. Mr. Ali was found guilty; his clients have already had to pay back the refunds with interest and penalties. Mr. Ali will be sentenced in June.

Here in Irvine I’m a member of the Exchange Club of Irvine. One of the events we put on is the Teacher of the Year Banquet; this past week the Teachers of the Year were announced. That story headlines some of the good that teachers do.

Unfortunately, sometimes we get stories that aren’t so good. Georgia Gaines is a high school math teacher in Lake Worth, Florida. She’s been charged with 32 counts of preparing phony tax returns. Additionally, she allegedly didn’t include her income from her side job on her own tax returns. Allegedly, Ms. Gaines’ returns included $1.1 million of phony deductions. She’s looking at a lengthy stay at ClubFed if found guilty.

Remember our usual warning: If it sounds too good to be true, it probably is.

Three Bozo tax preparers are in trouble this week. Two are the target of a Department of Justice lawsuit to shut them down; the other finds himself facing tax evasion charges.

Let’s start in Clive, Iowa. Jill Schwartz-Musin and her husband Howard Musin own SSC Services. They’ve been very successful, preparing about 5,000 returns for small businesses over the last three years. And I can see why they’ve been successful. Unlike most preparers, if you use SSC you can allegedly deduct expenses such as tanning salons, hair and nail care, and gifts to family members as deductions. And even that trip to Cancun was allegedly deductible. Needless to say, such personal expenses aren’t deductible. If the allegations are true, Mr. & Mrs. Musin will likely need to find a new profession. Those who’ve used SSC are likely to receive “Dear Valued Taxpayer” letters from the IRS. Joe Kristan has more.

Let’s head next to Sarasota, Florida. Carl Prater operated New Found Freedom (doing business as Tax Escape Service). Mr. Prater basically was in the same situation as Mr. & Mrs. Musin. Back in December 2002 he was the target of a Department of Justice lawsuit, and a temporary injunction was issued against him. Mr. Prater sold packages for up to $26,000 that stated that US income was exempt from US tax (proving again that a sucker is born every minute). Most individuals would figure it’s time to move on after being the target of a federal injunction. (It appears from the record that a permanent injunction was issued in 2005.)

Apparently, that wasn’t the case for Mr. Prater. The IRS and the Department of Justice allege that he ignored the temporary and permanent injunctions that were issued, and he continued to sell his “tax escape” package that states that income earned in the US is exempt from US income taxes. (Hint: If you take that position there is a way you will escape paying taxes. You could be arrested on tax evasion and find yourself working for pennies a day at ClubFed.) Mr. Prater has been charged with a litany of tax-related offenses: aiding and assisting in filing false tax returns, failure to file tax returns, criminal contempt, structuring transactions, and lying before a grand jury. Mr. Prater is looking at a lengthy term at ClubFed if he’s found guilty and a fine of up to $1.95 million.

If someone tells you that you can escape taxes in one of the ways described above, run in the other direction.

Suppose you’re a tax preparer, and your new client owes quite a bit. Being the ever helpful kind of person that you are, you suggest to him that he add some additional business losses, charitable contributions and child care expenses, and maybe a dependent or two. Sounds familiar, no?

Well, if that client happens to be an undercover criminal investigator from the IRS, you will soon be a former tax preparer and you may soon be residing at ClubFed. Dewayne Preacely of Flossmoor, Illinois owned and operated Personal Tax. The business was successful, with three locations in Chicago Heights, Harvey, and Waukegan. The emphasis definitely needs to be on “was” because Mr. Preacely pleaded guilty last week in Chicago to tax fraud.

It’s not just Mr. Preacely who will be paying for this. There are 67 taxpayers who have been sent “Dear Valued Taxpayer” letters from the IRS and who will soon have to pay the additional tax, interest, and possible penalties.

But Mr. Preacely isn’t the only Bozo preparer from Illinois this week. Keith Edwards of Cahokia (near St. Louis) is boarding at ClubFed until his April trial. Mr. Edwards prepared tax returns and allegedly had the money wired into his own account. That in itself is bad, and the charge that he also used someone else’s social security number to file the returns makes matters worse. Plus he was apparently caught with ammunition. He was convicted of a felony count in 2002 so he’s also been charged with being a convicted felon in possession of ammunition. It’s triple trouble for Mr. Edwards.

>From the East Coast comes two tales of Bozo tax preparers. They’re joined by one from the heartland. Together, it’s a trifecta of what not to do.

First, Henderson Joseph of Clarksburg, Maryland used to own Triad Business Services. Mr. Joseph followed the Western Tax Service methods of getting refunds for clients: lying. It works great until you get caught, and with $500,000 of fraudulent tax returns Mr. Joseph did get caught. He pleaded guilty to conspiracy, and he’s looking at about three years at ClubFed.

Meanwhile, Diana Aliffi of Suffolk County, Long Island, New York took Mr. Joseph’s methods one step further. She attempted to defraud New York of $19 million in phony refunds. The New York State Department of Taxation and Finance caught her, and she pleaded guilty in state court to a 76-count indictment with tax fraud front and center. Perhaps it was the fact that she told her clients to have the refunds come to her office instead of to the taxpayers (that in itself is illegal) that got her caught. In any case, Ms. Aliffi is looking at one to three years at a New York penitentiary and must make restitution of $57,000.

Finally, Gene Franklin was convicted in March 2008 on two counts of preparing false tax returns. His business, Franklin & Company, aligned itself with Renaissance, The Tax People. Renaissance was a multi-level marketing firm (no problem yet) that sold tax kits (still doing OK) that advocated tax fraud (that’s a problem). Mr. Franklin will spend 30 months at ClubFed.

Remember, if it sound too good to be true it probably is.

If you’re a tax preparer and you want to help your clients save money, one way would be to invent a dependent or two for them. Sure, you’re violating a law (or two), but your clients will save money. Not only will they get the extra exemption, they may get some education deductions or credits.

Yes, there’s a problem with this scheme (actually, several, but I’ll focus on the biggest). The Social Security Number of dependents is reported on tax returns. The IRS isn’t perfect, but they do a good job of matching information such as SSNs. Sooner or later—probably sooner—this scheme would be doomed.

So did someone actually do this? Well, since I’m writing about it here you already know the answer. Four women in Rocky Mount, North Carolina did just that. They also inflated wages of their clients to help them qualify for the Earned Income Credit.

All of this occurred in early 2004. Last March the women were indicted. They pleaded guilty in September and they were sentenced last week. The women received terms ranging from 180 days of house arrest to 15 months at ClubFed. All must make restitution of between $1,883 and $40,041 to the government.

This was truly yet another Bozo scheme due to fail. If your tax preparer offers to sell you a dependent, find another tax preparer fast.

In August we wrote about Bozo accountant Henry Omozee. Mr. Omozee underreported his own income on his tax returns. Patrick Brown of the IRS emailed me to let me know that Mr. Omozee was sentenced to 27 months at ClubFed, followed by a year of supervised release. He must also make restitution of $82,430 and pay a $300 fine. I don’t know if Judge Brinkeman (who sentenced Mr. Omozee) said the usual morale, but I’ll remind everyone that it’s a whole lot easier to pay your tax in the first place.