Taxable Talk

Courtesy of the TaxProf Blog and Roth Tax Updates, I discover that NewsGroper.com has created a tongue-in-cheek Wesley Snipes Tax Blog. From that blog:

"n fact, we have a philosophy that separates us from all those other tax advisement companies who will just jerk you around... know full well, I don't owe anybody any money. Ever."

We'll be starting our own series of Bozo tax tips on April 1st, but until then this parody blog should suffice. One note, though: The Wesley Snipes Tax Blog is definitely R-rated.

Last July I reported on the case of Timothy Heffner of Pittsburgh, Pennsylvania. Mr. Heffner had pleaded guilty to fraud, conspiracy, and tax evasion in a scheme where he "purchased" rare chemicals from Sigma-Aldrich for next to nothing and then resold the same chemicals back to Sigma-Aldrich for their normally high prices. That was very profitable as Mr. Heffner and his co-conspirator made $2.1 million in illegal income. He also committed tax evasion, changing personal expenses into business expenses.

Mr. Heffner enjoyed the fruits of his "success" with fancy cars, an estate in a nice suburb of Pittsburgh, and a yacht. Ultimately, though, neither foray into alchemy was successful as the scheme unraveled with his indictment last year.

To Mr. Heffner's credit he cooperated fully with the IRS and the Postal Inspection Service following his indictment. "I've learned a lot from this experience. It's been costly and it's been painful and it never will be repeated," Mr. Heffner said. "I meant no harm to the government of the United States of America."

Under federal sentencing guidelines Mr. Heffner was looking at 41 to 51 months at ClubFed. His cooperation paid off; Assistant US Attorney Paul Hull asked the judge to reduce Mr. Heffner's sentence because of his cooperation. Mr. Heffner has also already paid back most of the money to Sigma-Aldrich (he needs to pay only $139,000 more to the company). Mr. Heffner also has been very active in local charities. Judge Gustave Diamond noted these activities, and sentenced Mr. Heffner to 18 months at ClubFed, completion of restitution to Sigma-Aldrich, a $7,500 fine, and restitution to the IRS...once the IRS figures out how much he owes in back taxes, penalties and interest.

News Story: Pittsburgh Post-Gazette

What happens when you start paying personal expenses out of your business and call them corporate expenses rather than salary? Very bad things, and a family in Jackson, West Virginia is accused of that.

Five family members are accused of cheating Uncle Sam out of $9 million. The accused are Eddie Burl Smith, his son Edward Michael Smith, his brother, Donald Paul Smith, Donald's wife, Judith E. Smith, and their daughter, Jaclyn E. Smith.

They are alleged to have diverted proceeds from three family businesses—Carl E. Smith Inc. (CESI), Carl E. Smith Petroleum Inc. and Carl E. Smith Real Estate Inc—and used the proceeds for personal use.

According to the indictment (which runs 33 pages), Donald Smith used $800,000 to purchase horses. Edward Michael Smith is accused of spending over $300,000 on vehicles.

The defendants are accused of filing false tax returns. Further, they allegedly embezzled pension funds and health care premiums. But we're only getting started.

Edward Michael Smith is accused in the indictment of burning documents after they were subpoenaed. CESI went into bankruptcy in 2003 but the defendants are accused of diverting funds after the bankruptcy filing into another family business (so there are bankruptcy fraud charges, too). There are charges of money laundering, too. Needless to say, the defendants are looking at very lengthy stays at ClubFed if found guilty on all charges.

As the news report notes, "n 2003, Fayette Circuit Judge John W. Hatcher ruled that Eddie, Edward and Donald Smith illegally depleted $21 million of assets of Carl E. Smith Real Estate Inc., in a case brought by Larry D. Smith, former company treasurer and brother of Eddie and Donald, and other minority owners."

There are far better ways for a family to stick together than to evade taxes together.

Who is Heinrich Kieber? Mr. Kieber is the man who took €4 million from the Bundeskriminalamt, the German Federal Criminal Police, and gave Germany the list of Germans who had bank accounts in the tiny principality of Liechtenstein. The Landespolizei, Liechtenstein's police, has issued an international arrest warrant for Mr. Kieber.

The statement issued by the Landespolizei states, "The Liechtenstein law enforcement agencies demand his immediate extradition...According to media reports, Kieber received a new identity and travel documents from the German secret services."

Somehow I think Mr. Kieber will either remain in Germany (where he presumably has protection from extradition to Liechtenstein) or will carefully check his new country's extradition treaties.

It wasn't that big of a week on the tax fraud front, with the exception of the German-Liechtenstein scandal that's still around. But there's a smidgen here and there to report on.

In nearby Camarillo there's a business owner who is finding out that concealing smidgens of revenues can be a big deal. Giancarlo Pertile was the owner of Art Marble Design until 2002 allegedly decided that if he didn't tell his bookkeeper and accountant about some revenues he wouldn't have to pay taxes on them. The government alleges that his corporate tax returns from 1998 through 2002 understated revenue, and his personal tax returns during the same period were also off. Mr. Pertile is looking at up to 25 years at ClubFed if found guilty on all charges.

Farmers have it tough. I worked in agriculture for many years and still have many friends who have to deal with freezes, water issues, and other thorny problems. But one way of helping your business is to undercount revenues. Of course, that's illegal but they've got to catch you. That's what a farmer in Austin, Minnesota did. Kevin J. Morse filed his taxes between 1996 and 2000 and showed that he owed less than $1,000 a year in taxes. That's a neat trick when your gross income is about $1,000,000 and your net income is just under $700,000 each year. And when you've already been convicted once for tax evasion (for 1991-1994), it's a safe bet that the IRS will be watching you carefully. And when an accountant tells you that you owe $100,000 in back taxes but you choose not to file the return (shades of Richard Hatch) you can bet that only bad things will happen. Mr. Morse is looking at some time at ClubFed and restitution.

It may just be a smidgen of stories but it does show that bad things happen if you choose to avoid taxes and get caught.