Taxable Talk

What happens when you make a few bets and win? Well, besides ending up with more money in your pocket, you have something else to put on your tax return; gambling winnings are taxable in the United States and go on line 21 (Other Income) of Form 1040.

Many gamblers forget to tell their accountant about their winnings. The problems begin when you get caught as you can find yourself facing tax evasion charges. Cyrus Bland, of Campbellsville, KY was convicted on Thursday of filing false income tax returns. He played craps on riverboats in Indiana and came up a big winner -- to the tune of nearly $500,000 in 1998 and almost $450,000 in 1999.

But he didn't include his winnings on his tax return. And the IRS found out, and he's looking at a possible six years in prison and a fine of $500,000. Oh, he has to pay the back taxes, interest, and penalties, too.

Sure, the tax code isn't fair for gamblers. But I bet Mr. Bland is wishing he had paid the taxes on his winnings.


News Story: Central Kentucky News-Journal

...Next Stop: Prison

Richard Hatch, the first Survivor winner, was convicted today of failing to report $1,037,000 on his tax return. He was found not guilty of related fraud charges.

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.

News Story: CBC
US Government Press Release
Roth Tax Updates post on Hatch's Sentence

Richard Hatch's fate now lies with a jury in Providence, RI.

Hatch, the former Survivor winner is either a greedy man who didn't want to pay the taxes he owed or he did the best he could to understand the tax code.

Unfortunately for Hatch, his accountants did tell him about the taxes he owed, according to testimony during his trial. One even made him sign a statement that he wouldn't file a return that didn't include his Survivor winnings. He promptly filed that return.

Hatch faces up to 73 years in prison and millions in fines if convicted. Jury deliberations resume Wednesday morning.

News Story: AP via the Boston Globe

There's been news of prisoners scamming the IRS by filing phony tax returns. Today we have the opposite happening—a tax professional and a jailer in Texarkana, AR allegedly filing phony returns using Social Security Numbers of prisoners.

The two were indicted by a federal grand jury and face 25 counts including filing false IRS claims. They allegedly only got $50,000 in phony refunds in 2003. That's $2,000 per count....

News Story: Texarkana Gazette

The trial of former Survivor winner Richard Hatch on ten counts including tax evasion continues in Providence, RI. Today's New York Times has an excellent story on the trial, including reactions from some of his fellow contestants.

Hatch, who took the stand in his own defense on Friday, will return to the stand on Monday. Hatch claims that the producers of Survivor agreed to pay his taxes. However, his Form 1099 does not indicate this. Hatch faces up to 73 years in prison if convicted on all counts.

Over ten years ago, in the nearby City of Orange, a trash magnate was born. His name was Jeffrey Hambarian, and he was a hometown hero.

Mr. Hambarian had an interesting method of operating his business. He told his vendors that they had to make phony invoices and/or pad legitimate ones, and funnel most of the phony profits to him. He then laundered the ill-gotten gains through check cashing outlets.

This scam continued for some time, until an accountant noticed a problem during an audit. The accountant told the city, there was an investigation, and eventually Mr. Hambarian found himself convicted of 47 counts including grand theft and filing false income tax returns.

On Friday he was sentenced to 15 years in state prison and to pay $12 million in restitution. While his attorney complained that, "I don't know what warehousing him in a state prison would do," a prosecutor noted that, "...these are serious crimes." Usually, those found guilty of 47 felonies find themselves behind bars.

News Story: Los Angeles Times

After taking a few days off for an annual convention, would I return to an in-basket bereft of the usual tax evaders? Hardly.

Joe Kristan of Roth Tax Updates reported on some of the more felonius evaders, including Richard Hatch (now on trial for not reporting his Survivor winnings) and a West Virginia accountant who stole more than $1 million and still owes over $500,000 in taxes.

But there's more out there (as always). Rapper Mystikal won't be on tour anytime soon, as he's added a concurrent one-year sentence for tax evasion to his 2004 six-year sentence for sexual assault. Michael Taylor (aka Mystikal) failed to report $2 million in income to the IRS. Taylor must make restitution, including interest.

Perhaps Mystikal can, when he gets out, re-record "I Fought the Law [and the Law Won]."