Taxable Talk

This weekend's edition of the fraud post features a bozo tax preparer, a contractor who built his dream house with the money he was supposed to send to the IRS, and a temp agency owner who allegedly did a good job withholding taxes but a poor job in sending them to the government.

Let's start close to my home. From nearby Buena Park, California (home to Knott's Berry Farm) comes the story of Yakoob Habib. Mr. Habib pleaded guilty in February to money laundering, tax evasion, and flight while on bail. Mr. Habib was sentenced on Friday to 11 years in state prison.

The news story indicates that Mr. Habib has a history with crime. Back in 2001, he was part of a conspiracy stealing million from California's MediCal program. He pleaded guilty in 2002 and promised to cooperate with the government. Later he decided to flea the United States. His current offense was not reporting $10 million that went through his personal accounts and $18 million that went through his business. Mr. Habib has probably prepared his last tax return.

We all want our dream houses. Athanasios Reglas thought he had a foolproof way of getting his. He created two fictitious companies that billed his Reglas Painting Company for work that was never done. He built his dream home in Ocean City, Maryland and bought a waterfront lot for $400,000. He also transferred money from his shell companies to his personal accounts, and he committed the crime of "structuring" as he hid $873,000 in withdrawals. When he was arrested, the government found $358,000 in cash (which he has agreed to forfeit). He pleaded guilty to tax evasion and will be sentenced in July. Based on federal sentencing guidelines, Mr. Reglas is looking at 3 to 4 years at ClubFed.

Finally, Michael Monahan of Nashua, New Hampshire is alleged to have not paid the government withholding taxes. Mr. Monahan runs a temp agency in Nashua. On Wednesday, Mr. Monahan was indicted on six counts of tax evasion and three counts of mail fraud. Mr. Monahan allegedly had an interesting method of reporting his firm's wages to the government. In 2000, for example, he reported $226,000 in wages and paid $69,000 in taxes. The problem is that he allegedly had an additional $1.9 million in wages. Oops. The IRS alleges that this continued through 2003. The government is also looking Mr. Monahan's partner in the business (who was not named in the indictment). Mr. Monahan faces a long term at ClubFed if he's found guilty on the charges.

There's just no such thing as a free lunch....

If you don't pay your taxes, or file a return with all zeroes, things will happen. Eventually, when you owe enough money, an IRS agent will knock on your door (or send you a certified letter). If you keep ignoring them, your money will be garnished.

Or you could do what Robert Lee Cavins, Jr. of Chanute, KS did. He set up trusts: the Cavins Residential Trust and the Cavins Chiropractic Trust. The trusts didn't pay income tax either. Mr. Cavins also took $70,000 and set up a bank account on Antigua (a tax haven). And since Mr. Cavins didn't pay $119,595 of income tax from 1992 through 1994, eventually the IRS would catch up to him.

They did.

Mr. Cavins was found guilty yesterday of tax evasion. He faces up to five years at ClubFed plus a fine of up to $250,000. Yes, Virginia, there really is an income tax.

Well, it's time for an uber-post. We've got plenty of fraud to share, with two practitioners in trouble, an IRS agent, what should be a circus of a trial, and a pilot that may be grounded.

First up comes one from the internal affairs department. An IRS agent is accused of evading $21,000 in taxes. He also allegedly offered other taxpayers by selling deductions from a company that coincidentally shares the same address as the agent. Harry Wilner could face 15 years at ClubFed if he's found guilty, according to this story.

Meanwhile, in Chicago, a CPA has pleaded guilty to three counts of preparing false tax returns. Pepito Guinto added phony medical deductions, charitable contributions, and unreimbursed business expenses to some of his clients (a reported 57 of 4780). His brother, Pablo, has also allegedly committed the same crime. He, though, has fled the United States and is reported (by this news story) to be in the Visayas. Pepito will likely serve three years or so at ClubFed.

Staying in the Windy City, the trial of Conrad Black will soon begin. As I reported last year, Black faces multiple counts of tax fraud, mail fraud, wire fraud, money laundering, obstruction of justice, and RICO. As this news story notes, "It has just about everything a good drama should - power, money, allegations of corruption, a lord and lady of the realm and a self-perceived knight in shining armour who's standing up for his damsel in distress." I'll keep you updated as the trial, scheduled to begin on Wednesday, moves along.

Moving now to South Carolina, a CPA is alleged to have forgotten something important: paying his state income tax. Rex Wicker, of Pawley's Island, is accused of not paying $18,000 in taxes according to this story. If true, he's certainly not setting a good example....

Finally, a pilot for FedEx is in trouble for allegedly filing false tax returns from 2000 - 2004. Michael Mason, of Cordova, TN, is accused of not filing tax returns during the years in question. According to this news story, the indictment accuses Mason of having income of over $1 million in each of those years, and using nominee bank accounts to hide his income. He faces a minimum 30 years at ClubFed if convicted on all counts.

Survivor winner, but court loser, Richard Hatch had his appeal heard in Boston last Thursday. Hatch, convicted on multiple counts of tax evasion, is now serving his four-plus year prison term.

Hatch is arguing that he should have been able to present the argument that he had a deal with CBS and the producers of Survivor—a don't ask don't tell deal. They would pay his taxes and he wouldn't tell about "deals" and cheating that happened on the television show. Hatch and his attorneys are asking for a new trial. CBS denies Hatch's claims. The government counters that Hatch's attorney could have asked this question during the trial but they didn't.

The appeals court ruling will probably come out this summer.

News Story: Fox News

The last few days have seen a few interesting stories of fraud and deceit in the tax world. We begin in the heart of Texas, travel to the East Coast, and end up with two stories that have a California connection.


Carl Herrera is a former NBA player with Houston, San Antonio, Vancouver (now Memphis), and Denver. He has also been a member of the Venezuelan National Team. His next gig may be with the ClubFed team; he surrendered to federal authorities last week after being indicted on charges of not paying $554,471 in taxes between 1994 and 1997.

Remember our story on Joe Mammana, the Yardley, PA philanthropist accused of not paying tax on over $4 million? The Associated Press reports that he will admit to the tax fraud in a plea deal next week.

The Fresno Bee has a story this past week about the IRS making some changes in the whistle-blower program. The tip program now offers rewards of up to 30% of what's recovered.

And finally, a story that's not really about taxes. But it's too good to pass up. From the AP headline: "Alleged California madam threatens to sell list of D.C. clients." Deborah Palfrey of Vallejo (north of San Francisco) was indicted last week in Washington for allegedly running a prostitution ring. Her service has, according to the government, employed 132 ladies and generated $2 million in income. Her attorney says it's a legal escort service; the prosecution charges that it's racketeering. She's accused on RICO charges and money laundering. Her attorney notes that Ms. Palfrey only has one asset left to sell to fund her defense: her customer list. I wonder if anyone in D.C. is sweating right now?