Taxable Talk

With tomorrow being Memorial Day, our troops overseas should be in your thoughts and prayers. I'll be writing about some individuals who are praying to avoid ClubFed.

Let's start in Georgia, where a Bozo tax preparer allegedly decided to take advantage of the telephone tax credit. Onessimus Govereh prepared 20 tax returns that had the telephone tax credit...only, according to the indictment, the amounts were drastically inflated to the tune of $568,675. That's a lot of phone calls. He's facing 20 counts of preparing false tax returns, and a lengthy stay at ClubFed if found guilty.

Last June we reported on the indictment of civil rights attorney Stephen Yagman. His trial began this past week in Los Angeles. If you believe the prosecution, Yagman deliberately hid his assets; if you believe the defense, Yagman moved his assets for personal reasons and to keep his domicile secret. Yagman stands accused of money laundering and bankruptcy fraud. We'll update you as the trial proceeds.

From San Antonio comes the case of the Kickapoo Seven. The seven (now six, as the government withdrew the charges against one of the defendants), three of the defendants switched their pleas from guilty to not guilty; one other defendant switched his plea last week. The four are part of a group that allegedly stole funds from an Indian casino in Eagle Pass, Texas and committed tax evasion and conspiracy. The four claim that they were either coerced into pleading guilty or victims of a conspiracy. Under their now disavowed plea bargain, they were looking at two or so years at ClubFed. If found guilty, they'll be facing ten.

So if you can, don't be coerced into evading taxes...or you may be following in the footsteps of these individuals and having an unhappy holiday.

I've repeatedly said that gamblers aren't treated well under the Tax Code. One Michigan resident allegedly had a way around this problem: just ignore the gambling. This may turn out to be a much bigger problem, as he now faces a 22-count indictment.

Christopher Aaron, of Ortonville, Michigan, faces up to five years at ClubFed plus fines for allegedly filing false tax returns, and giving false social security numbers so currency transaction reports on his wins of over $10,000 wouldn't be traced to him. Unfortunately for Mr. Aaron, the government got wind of his scheme. And when the unreported gambling income totals $3 million, the government pays attention.

His attorney notes that Mr. Aaron was an overall loser, so he doesn't really owe any tax. Well, as someone who has prepared more than a few tax returns for gamblers, I can almost guarantee that his tax return would change if it had the gambling accurately stated. This is especially true if Mr. Aaron is an amateur (unable to net his wins and losses) because Michigan does not allow gambling losses on its state income tax. So while Mr. Aaron's federal tax return numbers might not change, his state income tax return would likely change. You can read more about this case here.

There is a moral to this story (besides the bad treatment of gamblers under the Tax Code). It's much better (and cheaper, considering the attorney fees that Mr. Aaron will likely incur) to prepare your tax returns correctly than to attempt to cheat the system.

Anyone can write a book these days (I know; I've written two). However, some aren't worth the paper they're printed on. Joe Kristan at Roth Tax Updates reported on Cracking the Code: The Fascinating Truth About Taxation in America. As Joe notes, the author, Peter Eric Hendrickson, advises people to just file Form 4852, show no income, and claim your refund.

I've had people come to me from time to time stating such schemes. And that's all they are: methods of tax evasion.

In any case, sales of Mr. Hendrickson's book will likely plummet as he received a permanent injunction barring him from filing tax returns based on this method, and he must submit corrected versions of his prior year tax returns.

The moral of this story is simple: There is an income tax and you do have to pay it.

I've been on the road this week, and am enjoying the nice weather in the upper Midwest. The individuals I'm going to profile are probably not enjoying much, including the weather.

In Flint, Michigan, Linda Cochran prepared tax returns. She prepared her own, and understated her income and overstated her expenses. That's not a good idea, and its especially bad when you get caught. She was sentenced to five months at ClubFed.

Down near New Orleans, in St. Tammany Parish, Louisiana, Joe Impastato was already in trouble with the law. He's awaiting trial on extortion because of a debris clearing project from Hurricane Katrina. Now he can add tax evasion charges to his troubles. He's accused of not reporting at least $90,000 of income from 2001 through 2004. His extortion trial is in June; no date has been set for the alleged tax evasion charges.

Yet another case of untrustworthy trusts from Kansas City. James & Shirley Alridge had a very good income, earning over $1.6 million from 2001 through 2005. They also used a series of sham trusts to avoid over $650,000 in income tax. The Alridges were convicted of aiding and abetting the filing of false tax returns. Oh, did I mention that the Alridges held seminars "teaching" people how to set up a home-based business that would allow you to deduct personal expenses? And that they sold trusts that allowed you to avoid taxes? Unfortunately, you can't deduct personal expenses as a tax deduction and the trusts they sold weren't worth the paper they were printed on. The Alridges are looking at ClubFed in the near future.

In Dallas, two attorneys (who should have known better) have pleaded guilty to tax evasion charges. George McDonald and David Cole admitted not reporting $134,000 in income. They may spend some time at ClubFed pondering their future.

Finally, from Washington comes a civil matter of warehouse banking. Robert Arant allegedly promised his customers untraceable banking. Since Mr. Arant is in Des Moines, Washington (just south of Seattle) that's illegal. Arant's customers deposited $28 million into his business; the funds were then allegedly co-mingled into three other bank accounts. A restraining order has been issued, and Arant faces a fine of $1,000 for each time he told a customer a false statement.