Taxable Talk

It’s time again to be considered for that most prestigious of awards, the Tax Offender of the Year. To be considered for the Tax Offender of the Year award, you must do more than cheat on your taxes. It has to be special; it really needs to be a Bozo-like action or actions.

Coming in second was Mark Leitner. Mr. Leitner felt that the government shouldn’t lean on him, so he filed liens against the government…to the tune of $48.489 billion from seven individuals involved in prosecuting him. Mr. Leitner is not enjoying that money (those liens were, as you would imagine, quashed); instead, he’s spending some time relaxing at ClubFed.

Coming in third was Norma Coronel. Ms. Coronel gave birth to one child in December 2002. However, she thought that she could do better on her tax return by claiming she gave birth to 19 children…all at once. That truly Bozo tax fraud got her the joy of repaying, with interest, the over $300,000 she received from the IRS.

I’m giving a dishonorable mention to the IRS Automated Underreporting Program (AUR). I’ve had several clients who have responded to notices from the AUR group, and the AUR group, when writing back, helpfully notes that they’ve reconfigured the amount that the clients allegedly owed. The trouble is that the AUR group ignores the correspondence from the client, and simply restates the amount owed. I’m going to be sending Nina Olson, the National Taxpayer Advocate, a letter on this issue; I’ll post a copy of the letter in the blog in the coming weeks.

This year’s winner has a proud history; indeed, without them we likely wouldn’t be here. I’m talking about the United States Congress, who have moved up from being runner-up the past two years. Congress, especially the Senate, forsook its duties. Consider the budget passed by the US Senate…but that would be problematic as the US Senate didn’t pass a budget in 2009 or 2010 and waited until the closing days of December to actually pass one. However, these are minor issues in comparison with the major problem: The needless and horrible complexity of the US Tax Code.

Nina Olson, the National Taxpayer Advocate, has noted the problem year after year in her reports to Congress. For example,

The National Taxpayer Advocate on numerous occasions has identified the complexity of the tax code as the most serious problem facing taxpayers and urged Congress to simplify it. In this section, we discuss the sources and impact of code complexity and the practical obstacles to simplification. In an accompanying legislative recommendation later in this report, we outline principles and proposals that we encourage Congress to consider as it explores tax reform options.

In 1986, Congress simplified the Tax Code. It’s high time again for another round of simplification. Consider one of my areas of practice, dealing with individuals with foreign financial accounts. Not only do those individuals now have to file an FBAR (Form TD F 90-22.1), they must repeat that information on Form 8938 (if they have sufficient foreign financial accounts). I don’t blame the IRS for this duplication. Rather, I blame Congress. Congress enacted the laws requiring these forms; it is Congress that needs to enact laws that would simplify the Tax Code.

I’d like to see a simple, fair Tax Code. This is likely one of the few issues where the Tea Party protesters and the Occupy Wall Street protesters would agree. Again, consider Form 8938. The instructions note that the estimated average time to complete this form is one hour, five minutes. And that’s just one form. No wonder I’m not worrying about my employment.

I’d like to be put out of a job–at least, on the tax preparation side. Realistically, I doubt that will ever happen: There will still be plenty of complex corporate and business returns that need completion.

Today, taxpayers who do not have simple situations–and that’s millions of Americans–have tremendous difficulties completing tax returns on their own. Albert Einstein stated that, “The hardest thing in the world to understand is the income tax,” and that was over 60 years ago! The situation today is far, far worse and the blame is squarely with Congress. Unfortunately, 2012 is an election year and I believe there’s zero chance of anything coming out of this Congress. Indeed, President Obama has shown no inclination at simplifying the Tax Code. We likely need new leadership in Washington to ease the pain of all Americans.

And that’s a wrap on 2011. Everyone have a safe, happy, and healthy New Year. I’m sure I’ll find plenty of other Bozos to write about in 2012.

Another year, and many, many worthy candidates for the 2010 Tax Offender of the Year. To be considered for the Tax Offender of the Year award, you must do more than cheat on your taxes. It has to be special; it really needs to be a Bozo-like action or actions.

Coming in second for the second straight year was the 111th Congress. I’m trying to think of something they did right, but I’m having trouble doing so. Yes, they passed an AMT patch, and yes, they finally addressed the Bush Tax Cuts, but there was no need to wait until December and cause at least one-third of individuals to be unable to file their tax returns until late February. As for the negative actions of the 111th, they are so numerous that I’m convinced this Congress will go down in history as one of the worst ever.

Coming in third was Wesley Snipes. Last year I wrote about how he showed remorse, and was now looking at paying his tax debts. However, in 2010 he went back to the ‘old’ Wesley Snipes, and began spouting off all sorts of vitriol. In any case, for the next 35 months he’ll be enjoying a stay at ClubFed.

Several years ago, some unknown taxpayer was audited. He had used a “pure trust” and was told by the seller of the trust that it magically allowed him to avoid paying income taxes. The IRS informed the unlucky taxpayer that such was not the case; the taxpayer paid his taxes and the file went into the bureaucracy.

It stayed there until the IRS discovered that these “pure trusts” were being used by multiple taxpayers. The IRS launched an investigation, and discovered they were being peddled by Tony and Micaela Dutson. The Dutsons were doing quite well selling these shams, especially since they, too, didn’t pay any income tax on their own profits. The Dutsons were selling these instruments from at least 2002; the IRS obtained an injunction in 2006 barring the Dutsons from further selling of these fraudulent trusts. (The Dutsons began their activities in Oregon, but moved to the Phoenix area in 2003.)

Meanwhile, the Oregon Department of Revenue notified the IRS that Mrs. Dutson, an attorney, had received money from the state for helping indigent clients; somehow she failed to file a state tax return. Mrs. Dutson resigned from the Oregon Bar in 2002.

Eventually, the IRS began criminal investigations of the Dutsons. And then the Bozo activities began. (Yes, trying to peddle sham trusts is a Bozo action, but that pales with respect to what the Dutsons then tried to do.)

First, they told their clients to file lawsuits against the IRS. They charged their clients $3,500 each for filing these frivolous lawsuits. The Dutsons neglected to tell their clients that these lawsuits were frivolous after the first of them was thrown out…for being frivolous.

Next, the Dutsons filed a lien against several IRS employees in California. Now, if you were going to file a baseless lien, would you file it for a reasonable amount or would you just shoot the moon and aim for a nice, Bozo sum of $1 Trillion ($1,000,000,000,000)? Yes, the Dutsons filed that $1 Trillion lien. Needless to say, that lien was soon thrown out as completely baseless.

Well, if you don’t succeed you should try, try again. And the Dutsons did file another lien, against one John Snow for only $108 Million. If you don’t remember the name John Snow, he was Secretary of the Treasury under President George W. Bush. That’s chutzpah, but the second lien soon met the same fate as the first.

The Dutsons also believed in filing tax returns…just not their own tax returns. They managed to file 30 bogus returns seeking $185 million in refunds.

Eventually, the Dutsons were accused and indicted on numerous tax charges. They were found guilty in June on nine counts, with the charges spanning ten years. As noted in the DOJ Press Release, the Dutsons made $1 million and paid no tax. Though the Dutsons were due to be sentenced in September, it appears there sentencing has been delayed. They are looking at lengthy terms at ClubFed plus restitution.

While I always hope that next year–2011–will bring a year free of Bozo Tax Offenders, it’s far more likely that I’ll again have several worthy candidates for the Tax Offender of the Year.

That’s a wrap on 2010. I wish everyone a Happy, Healthy, and Safe New Year.

It’s time once more for nominations for the Tax Offender of the Year. To be considered for the Tax Offender of the Year award, the individual must do more than cheat on his or her taxes. It has to be special; it really needs to be a Bozo-like action or actions.

For your reference, here’s a list of prior winners:
2009: Mark Anderson
2008: Robert Beale
2007: Gene Haas
2005: Sharon Lee Caulder

If you have a nominee, feel free to send me an email (use the Contact button on the right side of the page).

It’s only February and we have our second nominee for the Bozo Tax Offender of the Year award. Via the TaxGirl comes the sorry story of Jonathan Wiktorchik, Jr.

Mr. Wiktorchik lost his Chiropractic license in 2007. He had pleaded guilty to insurance fraud after he submitted 1800 phantom claims for $90,000. He ended up going to prison and had to pay $50,000 in restitution.

Meanwhile, the IRS was investigating him for 2005. So what did Mr. Wiktorchik do? Did he hire a good tax attorney? Did he get his records in order? Or did he allegedly burn down his office to destroy his tax records while blaming it on phantom gang members?

Well, the indictment handed down by a federal grand jury on Monday alleges that Mr. Wiktorchik did just that. Besides arson, he’s also accused of lying to the IRS (never a good idea) as his tax records were apparently not destroyed in the fire. The indictment states they were at his home. The fire, on March 30, 2008, not only destroyed his office but four neighboring businesses as well. If convicted, Mr. Wiktorchik is looking at 15 years at ClubFed and a mandatory $1,505,000 fine.

Needless to say, this is a sterling example (if true) of what not to do if you find yourself in tax trouble.

It’s only January, and we already have a truly Bozo story to report. We start with a gentleman named “P.M.” who prepared a fraudulent tax return. P.M. apparently prepared the return for the girlfriend of one Orlando Nunn. Mr. Nunn and his girlfriend were apparently going to split the proceeds. Via Joe Kristan and Citypages comes the following:

But apparently Nunn’s girlfriend thought she didn’t get her fair share. She told 21-year-old Nunn about it, and Nunn went for revenge: He and two other men paid a visit to P.M. at his girlfriend’s home and tried to rob him. Nunn allegedly waved a .45-caliber pistol around and told everybody to “get on the floor as this was a robbery and to get on the floor and get out their money as they know what time it is,” according to the complaint. P.M. grabbed the pistol from Nunn, and shot him dead.

The shooting will likely be classified as self-defense, so P.M. won’t get in trouble over that. Unfortunately for him, sooner or later the IRS will come knocking. As for the boyfriend, he’s no longer able to complain about the size of the refund.

There were, as usual, several deserving individuals for the 2009 Tax Offender of the Year. To be considered for the Tax Offender of the Year award, you must do more than cheat on your taxes. It has to be special; it really needs to be a Bozo-like action or actions.

Coming in a close second to our winner was the 1st session of the 111th United States Congress. This Congress, dominated by Democrats, managed to take the art of spending to new heights of lowness. Budget sanity? Who needs that! Our children, grandchildren, and great-grandchildren will be paying for Congress’ largess.

In third place was James Traficant. Mr. Traficant, just out of ClubFed for ten felonies including tax evasion, will be running for Congress next year. The pride of Youngstown, Ohio figures to have a good shot at being in the 112th Congress.

The other nominee was our friend Wesley Snipes. Mr. Snipes is appealing his three misdemeanor tax evasion convictions. While some of Mr. Snipes’ actions were Bozo, he is now promising to pay any tax he owes and that’s definitely not a Bozo action.

To find our winner we must head to Northern California. Mare Island used to be a naval shipyard. Today, it’s been redeveloped into a variety of uses. One of those uses was for storing wine. Mare Island is also a National Historic Landmark.

That seems mundane, but Mare Island is in Vallejo, conveniently close to Napa Valley and the heart of California’s wine industry. Mark Anderson, then a City Commissioner in nearby Sausalito, capitalized on this by starting a wine storage facility utilizing a warehouse at Mare Island early in this century.

But things started going wrong. By 2005, the Marin County District Attorney was investigating Mr. Anderson; he was accused in February 2005 of selling some of the pricey bottles of wine that he was supposed to be storing and using the proceeds for his own good. That’s fraud and embezzlement if true. That case is still pending. He allegedly used the proceeds to support an extravagant lifestyle.

Concurrently, Mr. Anderson’s business was being evicted from the warehouse. Apparently none of the proceeds from the alleged fraud and embezzlement were diverted to paying the bills for the warehouse.

To add insult to injury, Mr. Anderson was being investigated for tax evasion. Illegal income is just as taxable as legal income. With the noose tightening as the calendar turned to Fall, Mr. Anderson faced a dilemma.

There are options available. Finding a good attorney and challenging the charges is one good option. Perhaps bankruptcy would be a possible solution. Yet another options would be to tone down the lifestyle.

One option that you and I would never consider is to burn down the wine storage facility. Committing arson would only compound his troubles, and given Mare Island’s status would be yet another federal offense.

But that’s exactly what he did. He set fire to the warehouse, and 92 million bottles of wine and the entire warehouse burned to the ground. Many wineries lost all of their stored wine. Some wineries went out of business and many wine collectors lost everything.

What did it gain Mr. Anderson? Perhaps four years of semi-freedom. But that freedom ended on November 16, 2009 when Mr. Anderson pleaded guilty to 19 counts, including arson and tax evasion. Federal prosecutors will recommend a sentence of 15 years, 8 months at ClubFed. Mr. Anderson, age 61, is not in good health; even this reduced sentence is likely equivalent to a life sentence.

It’s a sad story, with an ending that hurt an entire community. Unfortunately, instead of making what good could have been made of a bad situation Mr. Anderson made a bad situation far, far worse. For that he wins our award as the 2009 Tax Offender of the Year.

While I’m hopeful that 2010 will be a year when this award is not given, I’m realistic. Every year it seems that there’s yet another horribly Bozo tax offender.

That’s a wrap for 2009. I wish everyone a Happy, Healthy, and Safe New Year.

In one week I’ll release the name of 2009′s Tax Offender of the Year. To be considered for the Tax Offender of the Year award, you must do more than cheat on your taxes. It has to be special; it really needs to be a Bozo-like action or actions.

I’ve thought of a couple of possibilities, but I’m sure you may have an idea or two. Simply email them to me (click on Contact Russ Fox on the right) or leave a comment on this post.

I’ll announce the 2009 Tax Offender of the Year in one week.

There are all sorts of awards given, but the award I give is special. To be considered for the Tax Offender of the Year award, you must do more than cheat on your taxes. It has to be special; it really needs to be a Bozo-like action or actions.

There were several worthy nominations who just missed the cut. The Orange County Great Park Board for wasting nearly all of the nearly $200 million they received to fund the Great Park. Yet the Great Park Board hasn’t violated any laws; they’re just acting like many governmental entities.

Another government nominee was the legislature and the governor of California. Revenues into the Bronze Golden State have increased since 2000 yet California faces a $15 – $20 billion budget deficit. They have “balanced” recent budgets solely by accounting gimmicks. The day of reckoning has arrived but both the Democrats and Republicans refuse to compromise. This is another deserving nominee yet there’s the same problem as with the Great Park. They’re acting like Bozos, but they haven’t violated any laws.

Coming in just out of the money for this year’s prize is Randy Nowak of Tampa, Florida. Mr. Nowak was facing an IRS audit and it wasn’t going well. So he hired a hit man. Of course, assuming the unlucky IRS auditor died the IRS would just assign another Revenue Agent to the case. Mr. Nowak will likely spend several years at ClubFed (and pay the tax, penalties, and interest). This was truly Bozo.

Yet Mr. Nowak’s case falls just a little short of this year’s winner. For that, we must head to Maple Grove, Minnesota, a suburb of the Twin Cities. Robert Beale founded a company that became Comtrol Corporation in 1982. Comtrol specializes in computer connectivity products. Mr. Beale, as CEO, earned a respectable $700,000 salary. But Mr. Beale had different ideas than most of us about income taxes.

He became a member of the tax protester movement, arguing one of the numerous schemes (all of which have been thrown out by the courts) that you don’t have to pay income taxes. Mr. Beale became a follower of Irwin Schiff. Mr. Schiff claimed that no one had to pay income taxes. Mr. Schiff is now serving a 13-year sentence for following his own advice. (Hint: You do have to pay income taxes.)

Mr. Beale directed the bookkeeper at his company to first not withhold taxes on the $700,000 and then to pay him through an offshore shell company. He began to file statements with the IRS claiming he didn’t have to pay income taxes. In January 2006 he was indicted for tax evasion. Now, if you were indicted for tax evasion you’d get a good attorney, perhaps talk settlement with the IRS, and you’d certainly start planning your defense.

Not Mr. Beale. When his case was called for trial in August 2006 Mr. Beale was nowhere to be found. Mr. Beale told the Minneapolis Star-Tribune that he resided with friends during his fourteen months of being a fugitive. He went to Orlando and made the “dumb mistake” of using the same cellphone for eleven months to call his wife. He was arrested in November 2007 in Orlando.

His case finally came to trial this past April. Again, if you’re facing tax evasion and unlawful flight charges it’s time to hire a good attorney. Not Mr. Beale. He represented himself during his trial. But there’s more, and now we get to the truly Bozo aspect of this case.

Mr. Beale and three confederates decide to arrest the judge. No, I’m not making this up. As Joe Kristan noted (quoting TwinCities.com),

Robert Beale, 65, was charged Monday in federal court with one count of conspiracy to impede an officer and one count of obstruction of justice. Also indicted on the same charges were Frederick Bond, 62, of Champlin; John Pelton, 67, of Stillwater; and Norman Pool, 43, of Blaine.

“God wants me to destroy the judge,” Beale is accused of saying in court records…

The men issued fake warrants for Montgomery’s arrest, filed fraudulent liens, planned to disrupt court proceedings and planned to arrest Montgomery. The plans were concocted at meetings of their “common law court” in Little Canada and in phone calls from Beale, after he was jailed.

Going after a federal judge is an excellent way to make sure that you reside in ClubFed for a long, long time. And using prison telephones to threaten a judge is really Bozo given that calls are routinely monitored.

Meanwhile, the trial of Mr. Beale on tax evasion charges moved forward. The trial took eight days but the jury needed only two hours to convict Mr. Beale on all five tax evasion charges and the count of unlawful flight. Mr. Beale, in closing arguments, apparently recognized the futility of his case, noting, “[the trial was] such a waste of time and resources because of my beliefs.”

Mr. Beale received 11 years at ClubFed for these convictions. When sentenced, he told Judge Ann Montgomery, “I do not consent to incarceration, fine or supervised release…I have not committed a crime.” No matter, he’ll still be spending the time at ClubFed.

In October Mr. Beale was found guilty of conspiracy to impede an officer and obstruction of justice for his attempt to arrest the judge. He’s still awaiting sentencing on those charges.

All-in-all Mr. Beale is a worthy winner. He joins our two prior winners: Sharon Lee Caulder, a voodoo priestess, won in 2005 and Gene Haas, a businessman who decided to get back at the government after he lost a patent case by committing tax fraud, the 2007 winner.

What will 2009 bring? I’m always hopeful that I’ll be able to say that no one rose to the heights necessary to win this award. Based on past history that’s very, very unlikely to be the case.

Yesterday was the first day of winter. For those of you suffering in the cold, I should point out that it is a little cold this morning in Orange County. As I write this it’s 53 F, with light rain. Of course, that’s nothing compared to my hometown of Chicago (-3 F, but it is sunny) or Joe Kristan in Des Moines (-6 F). Brrrr…

But what does the end of the year really mean? It’s nearing the time for award season. I saw an advertisement last night for the Golden Globe Awards. Tax bloggers give out awards, too. I give out the Tax Offender of the Year award.

Over the past twelve months I’ve noted many fraudsters and other miscreants in the blog. You may have come across someone especially deserving. There are some prerequisites for this award: The offensive behavior and/or trial (and conviction) must have taken place in 2008. And the offense must be especially noteworthy.

If you have any nominations feel free to email them to me at rcfox at claytontax dot com. I’ll announce the winner on New Year’s Eve.

Here are the posts on the two previous winners:
2005 Tax Offender of the Year
2007 Tax Offender of the Year

There are all sorts of awards given, but the award I give is special. To be considered for the Tax Offender of the Year award, you must do more than cheat on your taxes. It has to be special; it really needs to be a Bozo-like action or actions.

In 2005 Sharon Lee Caulder won the inaugural award. Quoting from my post, “Sharon Lee Caulder, formerly of Oakland and now from New Orleans, our voodoo priestess who wrote a book and was convicted of tax evasion. She did not include the $1.7 million she earned between 1998 and 2002 (mainly from sales of her book, Mark of Voodoo, on her tax returns”. As I wrote when she was convicted, “Voodoo is more profitable than I realized, especially if your net income after taxes is the same as your net income before taxes (until Uncle Sam catches you).”

Now, on to 2007. There have been lots of tax fraudsters this year. But one stands out. No, it’s not Wesley Snipes. Mr. Snipes hasn’t been convicted yet, so technically he’s not an offender. (He certainly has a good shot at the 2008 award, though.)

The story begins back in 2000. A Camarillo, California company is sued for patent infringement and settles the case for “tens of millions of dollars.” Now, if you owned that business what would you do? Would you look for new income producing lines of business? Would you develop workarounds so that you wouldn’t be infinging on the patents? Or would you decide to commit tax fraud just to get back at the federal judge who allowed the miscarriage of justice (in your view) to happen?

If you’re thinking that no one could have such a bad motive to commit tax fraud you’d be wrong. This actually happened.

As I detailed earlier this year, Gene Haas did exactly that. The former CEO and owner of Haas Automation, Inc. created a phony Nevada company and enlisted the help of his then CFO to commit tax fraud. Here’s what I wrote:

So, enlisting the help of his then CFO, John Phillips, the business created a phony company in Nevada called “Supermill,” and then paid the phony company from phony invoices. Then Mr. Haas and Mr. Phillips got in a business dispute, Mr. Haas sued Mr. Phillips for $27 million (apparently related to the phony transactions), and Mr. Phillips went to the FBI and told them of the scheme. (Mr. Phillips was not indicted.) It’s not a good idea when you commit tax fraud to get a co-conspirator angry enough to go to the FBI.

The DOJ, in a press release announcing Haas’ indictment, claimed that the tax fraud was upwards of $20 million. Now, with a $5 million fine added in, penalties, and interest, the total judgment is somewhere around $70 million. And Mr. Haas will be receiving two years at ClubFed.

If you find yourself losing a court case, I strongly recommend that you do not follow Mr. Haas’ path, and decide that committing tax fraud is a way of getting back at the judge. Kenneth Barish, an attorney for Mr. Haas, in describing the plea deal, noted, “[u]nder the circumstances, it was a good result.” When paying $70 million and getting two years at ClubFed is a good result, you wonder what a bad result would be.

As for Gene Haas, he was formally sentenced in November to two years at ClubFed, payment of the taxes, penalties, and interest (totaling about $70 million), and a fine of $5 million. Added to the $30 million or so he paid for the patent infringement case, that’s a whopping $105 million plus two years at ClubFed. Yes, Mr. Haas threw away two years of his life and $75 million.

That’s a wrap for 2007. While I’d love to not have anyone commit such a bozo tax crime as Mr. Haas did, I fully expect to see at least one similar story in the coming year. I have complete confidence in Americans to commit bozo tax crimes.