Taxable Talk

Suppose you're in court testifying in a civil case. You're asked what your income is. You tell the truth (of course, you're under oath) that you make $200,000. No problem, right?

Unless your tax return says you made $14,885. And the IRS discovers your testimony. Even I could probably get a conviction for tax fraud (and I'm not an attorney). And, to make matters worse, you're a "juicy" target, a former politician.

So it goes for the former mayor of Azusa, a Los Angeles suburb. Stephen Alexander was convicted on Friday of tax fraud and faces up to three years in federal prison when he's sentenced in June. The story appears in the Los Angeles Times (one-time registration required).

The headline says it all.

From the Chicago Tribune, this story (one-time registration required) details the sordid details, which include:

- The strip clubs owner, Michael G. Wellek, had $12 million in cash (in bags) seized in 2003 from his clubs;

- The government says Wellek owes $11 million in taxes, penalties and interest (to be resolved in Tax Court later this year); and,

- Wellek's attorney has the line of the day, "its unfortunate if these gentlemen are in the circumstances of not having reported it on their income-tax return." Well, that's what tax fraud is: not reporting income you earned on your return.

There's a couple of cliches I can think of to describe Tony Serra, who pled guilty to tax fraud, again. First, history repeats itself. And second, if at first you don't succeed, try, try again.

Of course, Mr. Serra, who describes the government's action as "political" has not paid taxes since 1991. I'd describe the action as late in coming.

Hat tip: Roth & Company Tax Updates

Forbes Magazine's cover story is on tax fraud—specifically, the Son of Boss shelter-scheme. I'll post a link to the article when it hits the web (in about two weeks). Until then, a good rule of thumb: if it sounds too good to be true, it probably is.

Sometimes you just can't win. Indeed, for local attorney Albert M. Graham, he was faced with a dilemma. His bookkeeper embezzled money from him. And that bookkeeper was the one who aided in your keeping of income away from the prying eyes of the IRS. What do you do?

Mr. Graham called the police. The net result was nasty for all concerned: the bookkeeper was arrested, fired, and Mr. Graham recovered much of the money; Mr. Graham sued his accountant because he didn't detect the embezzlement; and the IRS went after Mr. Graham because he didn't report all of income. The Tax Court ruled that Mr. Graham is liable for fraud penalties for understating his tax liability.

Hat tip: Roth & Company's Tax Updates.