Taxable Talk

The end of the week didn't bring an end to tax fraud. There's a lot to report as the fraudsters have been especially active.

First, let's look at two former public servants. From outside of Atlanta comes the indictment of former state Representative Charles "Chuck" Scheid (R-Woodside) on charges of not filing a state tax return in 2005 and evading taxes in 2003. This isn't the first time Mr. Scheid has had tax troubles; he had a tax lien of over $18,000 assessed against him in 2006. Reporters attempting to speak to Mr. Scheid discovered that his phone has been disconnected.

Let's go to Shreveport, Louisiana where former Louisiana state Senator Charles Jones (D-Monroe) has been indicted by a federal grand jury on two counts of filing a false tax return and one count of tax evasion. Mr. Jones is accused of substantially understating his gross income in 2003 and of filing a false amended tax return for 1999. The indictment alleges that Mr. Jones took monies due him for legal fees and converted them to cashier's checks which he used to buy property. It's a great scheme if you can get away with it....

Next, we head to Salt Lake City where three individuals pleaded guilty to tax fraud. The three were part of a scheme that successfully (for awhile) kept $20 million out of the Treasury. Graham Taylor, an attorney from Tiburon, California, and two CPAs, Stephen Peterson, of Coalville, Utah, and Reed Barker, of Littleton, Colorado all pleaded guilty to tax fraud. Also under indictment are six other individuals; their trial is set to begin on Monday in Salt Lake City. The scheme involved a tax shelter called "The Hybrid," and used Cayman Island nominees. The scheme alsoutilized offshore companies, foreign bank accounts, and fraudulent transactions. The six remaining defendants are looking at very lengthy terms at ClubFed if found guilty.

Finally, on a somewhat lighter note, Robert Sass of Tampa, Florida will spend a year and a day at ClubFed for his conviction on tax evasion. Mr. Sass owned a lingerie modeling business called Sophisticats, Inc. Mr. Sass' business appeared, though, to be more prostitution and less modeling; he charged "room fees" in cash for his models. Somehow those fees didn't make it on to his tax returns. Oops; illegal income is taxable. The judge noted that Mr. Sass' relatively light sentence is due to his declining health (Mr. Sass is 70).

The last two days of the Wesley Snipes trial on tax evasion and conspiracy charges has been full of paper. The government has been entering into evidence numerous documents that they claim show proof that Mr. Snipes has evaded taxes.

Today, Ocala.com reports that IRS Agent Cameron Lalli testified, identifying various documents. It's not exciting, but the government is building a paper trail so that the jury can see exactly what happened. Dotting the i's and crossing the t's is necessary for convictions.

Meanwhile, it appears that the trial may last a couple more weeks. Defense attorney Robert Barnes "...proposed introducing several exhibits that went as high as [number] 308." That's a lot of exhibits. The prosecution has objected to all of those exhibits; Judge William Terrell Hodges appears to so far have allowed one of the 308 to be introduced. The defense will have to wait for Judge Hodge's ruling on the other 307 exhibits.

If you believe Robert Barnes, one of the attorneys for Wesley Snipes, the first week of Snipes' trial went well. Mr. Barnes told the Ocala Star-Banner, "I think what they [jurors] saw was that Mr. Snipes openly, honestly engaged the IRS for years ... and never received any meaningful response." That's one way of looking at the first week of the trial.

To this observer who is, though, looking at the trial from 3000 miles away, it doesn't look like Mr. Snipes had a good week. First, Mr. Snipes went to trial in a locale which he has previously described as "racist," Ocala, Florida. An attorney that Mr. Snipes supposedly dismissed showed up as one of his attorneys, too. Second, the prosecution has presented evidence showing that Mr. Snipes' previous accountant, Kenneth Starr, told him that the idea that he didn't have to pay income tax on his millions of dollars of income was laughable.

I don't think things improved on Friday. According to Ocala.com, an ex-employee of Mr. Snipes' film production company, Carmen Baker, had some collaborating evidence of Snipes' behavior. Ms. Baker told the Court after hearing co-defendant Eddie Ray Kahn's theory that Americans don't have to pay taxes, "I was told by Mr. Snipes, Was I not paying attention? Did I not understand what I was just shown? I didn't believe it. I thought it was bogus from the beginning."

Ms. Baker made the wise decision (in my view) to consult another accountant. Mr. Snipes, though, had other ideas about the wisdom of that decision. Ms. Baker told the Court, "I got called into the office, and I was told that I was being a difficult employee and told that I should not have called an accountant. [Mr. Snipes] said, 'If you're not going to play along with the game plan, then you need to find employment elsewhere.'"

Mr. Snipes didn't want her talking to the government even under subpoena. "He said if you do contact them you will have to pay the consequences," Ms. Baker told the Court. Although Ms. Baker was under a non-disclosure/confidentiality agreement, a subpoena overrides such an agreement.

There was more evidence presented on Friday. Mr. Kahn's company prepared 'bills of exchange,' and the government introduced several such bills sent to the IRS by Mr. Snipes. Though Mr. Snipes' attorneys asked for a mistrial after several witnesses described such documents because this was evidence (in Mr. Snipes' attorneys view) solely applicable against Mr. Snipes' co-defendants, the mistrial was granted. Given that Mr. Snipes sent such documents to the IRS they appear to be yet another link in the chain.

At this point the only thing we know about the defense is that they plan on calling character witnesses such as Barbara Walters and Muhammad Ali. I think they're going to need a lot more than that for Mr. Snipes to avoid spending significant time at ClubFed. The trial will resume on Tuesday in Ocala.

Remember Richard Hatch, the Survivor winner who decided not to report his $1 million in winnings? Mr. Hatch, who is now residing at ClubFed, went to his accountant and was told he had to pay taxes on his winnings. He asked his accountant what would happen if he didn't include his $1 million prize, and was told he'd get a small refund. He asked his accountant to prepare that return; the accountant did, but stamped "Do Not File" on the return. Mr. Hatch filed the return and the rest is history.

Mr. Snipes appears to have engaged in similar behavior. He called his tax accountant, Kenneth Starr of Starr and Company, and told Mr. Starr that he didn't have to pay taxes. "I said that was ridiculous; that everyone has that obligation. He said he had spoken to some people that said he didn't have to," Mr. Starr told the Ocala, Florida court yesterday.

Mr. Snipes had the not-so-perfect rejoinder, according to Mr. Starr. "He said, 'You always think you're right and you always think you know everything. You're not right about this.'" Mr. Starr then sent a letter to Mr. Snipes terminating their accounting relationship.

Under cross-examination Mr. Starr was asked whether he had sent a written notice to Mr. Snipes that he had to pay taxes. The AP report notes, "Starr said he didn't have to; he told Snipes on the phone and needed nothing further to terminate their tax arrangement."

Joe Kristan has more at Roth Tax Updates.

Opening arguments were heard in Ocala, Florida in the trial of Wesley Snipes. Prosecutors called Snipes a tax evader, and that he didn't pay $35 million in taxes from 1999-2004 according to this Fox News story. Prosecutor Robert O'Neill told the jury, "The defendants Snipes, Kahn and Rosile willfully agreed to defraud the United States of revenue it was due."

But that's not how the defense views it. Robert Bernhoft, one of Snipes' attorneys, said that Snipes was willing to pay his back taxes once he heard from the IRS. Another of Snipes' attorneys, Daniel Meachum, said that Snipes had been duped by bad financial advisers.

Ah yes, Mr. Meachum. He's the attorney that Snipes axed for "poor representation" last year. As Joe Kristan noted, he reappeared on Tuesday:

"So who shows up at his lawyer's table yesterday but Daniel Meachum? From the A.P. report:

"'...Snipes now has two choices: keep Meachum off the case or waive his previous claims of ineffective counsel. Waiving the claim might prove to be a problem if Snipes were convicted, since that could provide fertile ground for a possible appeal.'

"...It makes it look as though the prior 'firing' may have been just a cynical delaying tactic."

I guess the defense chose waiving the claim, as Mr. Meachum was present today. In any case, tomorrow brings the first evidence and testimony in the case. Who knows, maybe Mr. Meachum will be asked to disappear again?

Day 1 of the Wesley Snipes trial has come and gone in Ocala, Florida. Jury selection began but did not conclude today.

The day began for Mr. Snipes in a prayer service. At an Ocala church Mr. Snipes was joined by 22 pastors and 150 friends before the trial began at 9:30 a.m. local time. Mr. Snipes is accused of making a false income tax return and not filing his tax returns for several years.

Then jury selection began. Judge William Terrell Hodges first read off a list of prosecution witnesses: accountants, investigators, and the like. Jurors are always asked if they know a witness (the goal is an unbiased jury). Then the attorneys for Mr. Snipes read off their witness list. Tax experts, they weren't: movie director Spike Lee, actor Woody Harrelson, actress Goldie Hawn, newscasters Tom Brokaw, Barbara Walters, and Diane Sawyer, and former boxer Muhammad Ali.

Though jury selection was supposed to finish on Monday it hadn't when court adjourned for the day. Jury selection will likely conclude on Tuesday; opening arguments will also likely be heard then.

Finally, thesmokinggun has a contribution today. They present a convenient chart showing his income and at what level you have to pay taxes. The second through fourth pages show some sort of legal document Mr. Snipes filed in Orange County, Florida (Orlando). I can't figure it out, and neither could thesmokinggun.

The defense estimates that the trial will last about a month. It should be interesting....

News Stories: AP, Orlando Sentinel

Wesley Snipes goes on trial today, facing charges of tax evasion, failing to file tax returns, and filing a false claim for an income tax refund. The TaxProf Blog has a post with links to the various media coverage of the trial; Joe Kristan also has a report on Snipes' use of the 861 defense (and its likely failure).

As there are developments I'll continue to post on United States v. Snipes.

Dessie Nelson, the ex-GSA official who sent various contracts (illegally) to Michael Holiday (after receiving bribes) pleaded guilty to accepting bribes and tax evasion.

Mr. Holiday and other contractors forwarded over $100,000 in bribes of cash, vacations, and other items to Ms. Nelson. She then recommended Holiday's company for lucrative government contracts.

Ms. Nelson will be sentenced in June. Mr. Holiday will be sentenced on January 23rd.

AP reports that four individuals who promoted an alleged tax evasion program were arrested. The Department of Justice alleges that the four, Joseph Oquendo Saladino, Richard Allen Fuselier, Marcel Roy Bendshadler, and Michael Sean Mungovan (A.K.A. “Cajun Mike”) sold a program that cost the Treasury $7.5 million in tax losses. Their programs were offered through the "Freedom and Privacy Committee."

While the US Attorney's office in Portland, Oregon didn't identify the specific programs (AP noted, "No details about the program were available, but federal prosecutors said it was not computer software."), it's easy to find out. Just go to their still operating website (but probably not for long), and click on "products/services," and you see this page. Here's some of the snake oil products they offered:

- For just $4,595 you can buy "Common Law Court Litigation." As that webpage shows, you get to litigate in a "common law court." Hey, they've gotten stays of actions (but I don't see information as to how permanent and long-lasting those stays were). I wonder if the four arrested individuals will petition to have their cases heard in the "common law court" rather than the US District Court. (Hint: There is no such thing as a "common law court.") Remember, they "...will report more as we continue to litigate and as we complete litigation in the Supreme Court of the United States." I wouldn't hold your breath.

- For just $1,095 you can buy the "Affidavit/Statement Program." As they note on this web page, "United States law, at 26 U.S.C. Section 6011(a)i, allows you to file a Return or a Statement...." They're correct. But you do have to have your forms compliant....At least this page notes, "FPC urges all its members to pay all taxes and to file all returns as required by United States law." Oh, I almost forgot to mention that besides the $1,095 you have to pay them 25% of any refund you receive over $1,000.

I think you get the idea. There's also a church program, an LLC program, and "Criminal Litigation Assistance." I know four individuals who need that right now.

If you're interested in these programs, I wouldn't wait around. They're not likely to be available for much longer. (I assume the US Attorney will ask for the website to be shut down and/or have a large disclaimer posted on it.)

Seriously, it's amazing that "more than 1000 returns" were prepared using the Freedom and Privacy Committee's products. But I guess people will do almost anything to avoid taxes except working with reputable tax preparers. As for the five accused (one is still at large), they're looking at very lengthy stays at ClubFed if convicted of Conspiracy to Defraud the United States.

Yesterday the 11th Circuit Court of Appeals dealt the final blow to Wesley Snipes' wish of a trial in the Big Apple (or anywhere but Ocala, Florida). They dismissed Snipes' motion to move the trial from Ocala and denied his motion to stay the start of the trial.

So Snipes' trial will definitely begin Monday in Ocala. It promises to inject some humor into the tax season for us bloggers but likely little humor for Snipes.

Poor Wesley Snipes. He'll have to spend several weeks in beautiful bucolic Ocala, Florida. Judge William Terrell Hodges denied Snipes' motions for a stay in the trial pending the ruling of the 11th Circuit Court of Appeals on Snipes' appeals of Hodges' earlier rulings. Given that the 11th Circuit hasn't issued an emergency stay of Snipes' trial (which they could have) it's all systems are go and Snipes' trial will almost certainly begin on Monday in Ocala.

So for Mr. Snipes' benefit, here are some of the attractions he has to look forward to while being on trial in Ocala:

- Ocala is the "Horse Capital of the World" according to their chamber of commerce. Visit a horse farm or the Ocala Carriage Museum.

- Go and see Always ... Patsy Cline at the Ocala Civic Theater (opens January 31st).

- Visit the Ocala National Forest.

- Play a round of golf at any of the 22 nearby golf courses and country clubs.

In any case, Wesley Snipes may wish to enjoy these diversions now as he may be spending a significant amount of time at ClubFed (where there just aren't that many diversions) in the near future.

Wesley Snipes attorneys appealed Judge William Hodge's rulings that the trial will take place in Ocala, Florida and that it would start on January 14th. The appeal was filed at the 11th Circuit Court of Appeals in Atlanta, according to Ocala.com. Robert Barnes, Snipes' attorney, also asked the Appeals Court to postpone the start of the trial until after the Appeals Court rules on their motions.

If the Appeals Court doesn't issue a stay in the proceedings it would start on schedule in just over a week, and would likely make Snipes' motions moot. We should know the results of these rulings in the next few days.

I've been asked about illegal income several times. Yes, you must report your illegal income on your tax return. If you don't, you're guilty of tax evasion.

Todd Olynciw seemed to be a model employee of the Hartford, the big insurance and financial services concern. He earned a company award after helping the company reestablish its New York office after the September 11th terrorist attacks. Mr. Olynciw was responsible for ordering and installing furniture and flooring for the Hartford.

Mr. Olynciw had a sideline business: he and other conspirators defrauded the Hartford. Given that the fraud amounted to $876,437, we're talking a lot of furniture. Court documents show that some of the purloined furniture was sent to his brother-in-law for free. Some contracts were awarded to firms who performed work at Mr. Olynciw's home according to this story in the Hartford Courant. And I should mention that Mr. Olynciw also received $395,720 in kickbacks.

Mr. Olynciw pleaded guilty to one charge each of mail fraud and tax evasion; he neglected to report the kickbacks on his tax return. He's looking at up to 25 years at ClubFed plus restitution to the Hartford and the IRS.

If you ask a financial institution for a loan for your business, the bank will likely want to see your tax returns and/or financial statements. One sure way to get in trouble is to tell the bank all about your positive earnings but tell Uncle Sam that your business was a loser.

That's a new definition for variable income—it depends on whom you're talking to. Unfortunately, when you deceive the IRS it's also called tax evasion. Sabi Atteyih owned a popular Madison, Wisconsin restaurant called Casbah. He did exactly what I described above and on Wednesday he pleaded guilty to tax evasion. Based on federal sentencing guidelines Mr. Atteyih is looking at somewhere under two years at ClubFed.

So if you're going to ask a bank for a loan, you should tell the truth (doing otherwise is fraud). And tell the truth to the IRS or you could see tax evasion in your future.