Taxable Talk

I've reported on occasion on Robert Beale. Mr. Beale was tried on tax evasion charges, but attempted to arrest the judge.

That last tactic—attempting to intimidate the judge—didn't work out. He received 11 years at ClubFed when he was sentenced last month. It got worse earlier this week when he was convicted of conspiracy to impede an officer and obstruction of justice.

Joe Kristan has more.

There's a scandal in New York involving the Governor's Chief of Staff. Charles O'Byrne is Chief of Staff to New York Governor David Paterson. He makes a good salary ($178,500 a year). He also owes $200,000 in back taxes—he didn't file tax returns from 2001 through 2005 (from the news story it appears the unpaid taxes are New York state income taxes).

Mr. O'Byrne blames bouts of clinical depression for the failure to file tax returns. Republicans in the state senate are trying to make hay on this, and are starting an investigation. Governor Paterson (who succeeded to office after the Eliot Spitzer scandal) promises to soon disclose Mr. O'Byrne's tax records.

In any case, if you are an elected government official, or if you are a high staff member of such an official, make sure you pay your taxes. You can be that if you don't the opposition—be it Republicans or Democrats—will use this against you politically.

I counted over thirty interesting tax evasion stories from the last few days. There's no way I'm going to put them all in a post so here are the highlights.

First, let's head to Gallatin County, Montana. Ruth Amande knew that having children would give her a tax deduction. So she decided to have twins—Victor and Victoria, "born" on December 28, 1995. She applied for social security numbers for her twins in 1997. There was only one problem...well, two problems: neither child really existed. Unlike the disk jockey in Wyoming who successfully deducted his dog Ms. Amande will be making restitution.

The upcoming trial of attorney James Perdigao is big news in New Orleans. Mr. Perdiago has been accused of stealing $30 million from his old law firm, allegedly sending $20 million of that to Switzerland, and has been facing 59 counts including fraud, tax evasion, and money laundering. Make that 60 counts: Mr. Perdiago has had a charge of computer hacking added. He is alleged to have used his girlfriend's computer to hack into his old law firm's computer network.

Meanwhile, in nearby Vicksburg, Mississippi Marshall Sanders will face tax evasion charges in November. Mr. Sanders is accused of not filing tax returns since 1994 while earning $3.4 million in 2001, 2002, and 2003. He faces three tax evasion charges (one for each of those years) for allegedly using a trust account to hide his personal income.

From the Bozo tax preparation wing we find Raymond Ekpedeme of Laurel, Maryland. Mr. Ekpedeme operated Erikson Tax Service though it could be called Western Tax Service East. He followed the same plan as Western—phony deductions, false credits, and inflated numbers. He had lots of satisfied clients. Unfortunately for Mr. Ekpedeme the undercover IRS investigator wasn't pleased when he got a $1300 refund he didn't deserve. Mr. Ekpedeme pleaded guilty to tax evasion charges and will be sentenced next February; his clients can expect "Dear Valued Taxpayer" letters soon.

Louis Xifaras had an interesting method of attracting business to his former company, Innovative Network Solutions. He used kickbacks to workers at Southern New England Telephone/SBC (now AT&T). He deducted those payments on his corporate tax return as "salary." Unfortunately, kickbacks aren't deductible under federal tax law. And more unfortunately for Mr. Xifaras was that the federal government began investigating the fraud. He pleaded guilty and will have to make restitution, serve a year and a day at ClubFed, and pay a $50,000 fine. The tax owed is only $222,000, but there's now an additional $167,000 in penalties and $164,000 in interest.

Finally, the Hawker 4000 looks like a great business jet though it carries a pricetag of $21 million. But I do know where you may be able to get one for less than retail. The very first Hawker 4000 was delivered to Gary Hall in June. He runs Sunflower Supply Company in Galena, Kansas, a tobacco wholesaler. Mr. Hall and seven associates are accused of avoiding $25 million in cigarette taxes to Oklahoma and several Indian tribes. If Mr. Hall is acquitted (he and his associates face 43 charges) he'll get his plane back.

That's a lot of fraud for just a few days. Can we lighten up for next week?

Richard Hatch, the Survivor winner who was convicted of tax evasion, won't be leaving the Morgantown, West Virginia Federal Correctional Institution anytime soon. The US Supreme Court declined to hear his appeal today.

Mr. Hatch had charged that the trial court didn't allow him to ask certain questions on cross-examination. The Appeals Court had ruled, "Here, the district court's limitations on cross-examination in this nine-day trial were thoughtful and far from being excessive."

And that's it. There are no more immunity challenges left, no more places to appeal. Mr. Hatch will have to serve out the remaining twelve months of his sentence. In the end the 300 million witnesses were correct.

Hat Tip: How Appealing

Christina Warthen appeared to have everything. She's a graduate of Stanford Law School. She's married to the founder of Ask Jeeves (now Ask.com). She's also allegedly a tax evader who ran a high priced escort service called TouchofBrazil.net.

Back in 2004 IRS agents raided her apartment and other locations seized over $61,000. That was just some of the funds that she allegedly earned from her business; the IRS alleges she cleared over $133,000 but didn't file a tax return. Whether her business was an escort service or an older profession isn't relevant—all income, legal or illegal, is generally taxable.

Mrs. Warthen will be arraigned later this week; she faces one count of tax evasion. So if you have an escort business try to remember to file your tax returns. If you don't you may find yourself escorted to ClubFed.

Apparently this blog has a wider circulation than I thought. Today I received an email from Tom Teale, the Assistant Director, Criminal Investigations of the Minnesota Department of Revenue (the state tax agency in Minnesota). While I generally focus (when I report on tax evaders) on IRS/Department of Justice prosecutions and California I'm happy to highlight the lowlights from other states.

And I do wish to point out that many states are suffering revenue shortfalls. If you file your federal tax return and skip your state tax return your state will find out. Every state but Nevada has an information sharing agreement with the IRS. Given that state income tax payments are generally deductible on your federal tax returns and are usually for far smaller amounts than your federal income tax doesn't it make sense to ensure your compliance with state law?

In any case, Mr. Teale highlighted four cases in Minnesota. I've already covered Robert Beale, the tax evader who attempted to arrest the judge. He received eleven years of nonconsensual incarceration.

There were two cases I wasn't aware of. In one, an attorney, John Hatling of Fergus, Falls, claimed that he could deduct his own wages using the "claim of right" deduction. If you've never heard of the deduction you're not alone. It's yet another tax protester argument and it doesn't hold water. Mr. Hatling will plead guilty to one felony count and will be sentenced in state court next Friday.

In the other case, a judge didn't file his Minnesota income tax returns. Donald Venne of Anoka County faces four gross misdemeanor charges. While the total unpaid tax is relatively small (about $3,200) a judge, of all people, should understand about compliance with the law. His attorney said that the problem was caused by a "traumatic family event that occurred over a period of years."

Again, remember that you do need to pay your state income taxes. And my thanks to Mr. Teale for bringing these cases to my attention.

There are some things that just must be seen in person at least once. I think that one of those is the Indianapolis 500. It's called the greatest spectacle in auto racing for good measure. If you get the chance head to Indy over Memorial Day and catch the race.

If you went in 2001 or 2002 you would have watched Brazilian-born Helio Castroneves win back to back races. Mr. Castroneves is a Brazilian but has been residing in the United States since 1997. That means he must pay US income taxes. Mr. Castroneves apparently didn't like that idea.

While most of us don't like it but pay he allegedly decided on a different course of action. Mr. Castroneves received $6 million in pay. Of that, $5 million allegedly moved through a Panamanian shell company to evade US taxes. At least, that's what the government alleges in a seven-count indictment against Mr. Castroneves, his sister Katiucia, and his attorney, Alan Miller. There's one count of conspiracy and six counts of tax evasion.

Among the other items contained in the indictment are allegations that Mr. Castroneves lied to his tax attorney and accountant, that Mr. Miller and Mr. Castroneves lied to another law firm, and that the trio allegedly prepared false tax returns. If found guilty they'll be watching a few Indy 500s at ClubFed and he'll miss participating on Dancing with the Stars (which he won last year).