Taxable Talk

I've reported on the shenanigans committed by Renaissance, the Tax People, before. Today, former IRS District Director Jesse Cota pleaded guilty to defrauding the U.S. out of $1.3 million while he was with Renaissance. He also admitted to earning more than $300,000 from this scheme.

Renaissance was a multi-level marketing firm promoting tax savings products. There's nothing illegal about multi-level marketing firms, nor tax savings products. The problems come when you promote, "...[A] program designed to sell illegal tax deductions through false and misleading representations." Cota assured potential clients that the scheme was legal (and as a former IRS District Director, he knew (or should have known) it wasn't).

Cota is the seventh individual to plead guilty to Renaissance-related charges.

Hat Tip: Roth Tax Updates

Crime doesn't pay, especially when you get caught. As I mentioned yesterday, I've got another full slate for you tonight.

We'll start with some garden variety fraud in Georgia. Stephen Taylor operated 20/20 Payroll Solutions, and he made sure that your tax deposits went...mostly to his personal expenses. That's bad. When clients began to get dunning notices from the IRS and state tax agencies, he showed them false confirmation receipts. That's worse. Then he started using payroll tax monies from one client to pay other client's taxes—sort of a Ponzi scheme. In the end, it fell apart, and Taylor pleaded guilty last week to one count of fraud after diverting about $4 million in deposits. He's looking at a lengthy stay at ClubFed.

Trusts have a surgeon in Carthage, Missouri in trouble. He purchased trusts from Aegis Co., of Palos Hills, Illinois, in an attempt to avoid $1.6 million in income tax. The government alleges that the trusts are shams. Not only has the surgeon, Brian Ellefson, been arrested, the founders of Aegis are also awaiting trial. Remember our standard warning: if it sounds too good to be true, it probably is.

David Stewart of Bowling Green, Kentucky, had a rags to riches story. Unfortunately, it will now be featuring a trip to ClubFed after Stewart pleaded guilty to four counts of tax evasion. Stewart admitted to not paying about $169,000 in income tax while not filing returns from 1999 through 2002. Along with some time at ClubFed, he faces a fine of up to $1 million.

Heading now to South Florida, the owner of a tax preparation service is accused of setting up sham corporations in Panama and Nevada to get extra deductions for his clients. Robert Payne of Miramar is charged with conspiracy and preparing false tax returns. If the allegations are true, he's looking at a stint at ClubFed.

Finally, from Buffalo (and I'll be nearby Buffalo for a day next week) comes the story of another bozo tax preparer. Corwin Johnson used to manage the EZ Income Tax Service. However, he pleaded guilty to tax fraud and bank fraud. He admitted to falsifying W-2 forms, identity theft, and submitting false tax refund claims. He could spend up to 30 years at ClubFed.

And I only posted a few of the stories from the last week....

I've recovered from Tax Day, and am back at work. While I've been gone, there's been a lot of fraud. That's typical for this time of year, as the government loves letting people know that tax fraud is bad. Indeed, I probably have enough material for two uber-posts.

Let's start off with the mob. Yes, that mob. It seems the government found that an alleged soldier in the Gambino family, Salvatore Scala, had attempted to extort money from the VIP Club in New York City. The VIP Club is an "adult entertainment" facility, but that doesn't change that extortion is illegal. So is tax evasion, and Scala was found guilty of two counts of extortion and four of evasion. He was sentenced to six years at ClubFed. His co-defendant, Thomas Sassano, was convicted on two extortion charges.

Heading south to North Carolina, we find a tax preparer who appeared to almost guarantee a refund. Indeed, 99% of his clients got one! Lloyd Batsfield accomplished this feat by having most of his 10,000 returns from 2002-2005 have education credits claimed. The trouble was, most of the clients didn't deserve the credits. Oops, and that became a big oops when the government knocked on his door. He pleaded guilty to filing $6 million in false claims for tax refunds. He also owes over $100,000 in back taxes to the IRS. He's looking at an extended stay at ClubFed.

A yoga instructor in New York found out that whether or not you receive a W-2 or 1099 doesn't change whether income is taxable. He pleaded guilty to evading $90,000 in taxes. That's a lot of yoga instruction.

Staying in New York, pop star Marc Anthony was in the news for the wrong reasons. Three of his companies forgot to pay New York state income tax, and they pleaded guilty to the charge. The total tax owed was $3 million. Anthony escaped prosecution under a plea bargain but he's going to have to pay $2.5 million in back taxes, penalties, and interest.

Remember the Ozbays? I've reported on this clan who didn't believe in taxes before, most recently when Birol Ozbay was sentenced to 10 years and must forfeit $6.8 million. Yalcin Ozbay got an identical sentence of 10 years and $6.8 million. The story notes that just about every federal and New York law enforcement agency was involved. Given that they tried to violate every tax law they could, I'm surprised that this story didn't get more play right before tax day.

Finally (for this uber-post), a story that's closer to home. A Riverside (California) owner of a halfway house allegedly really liked the telephone tax refund. He's been charged with claiming $600,000 in telephone tax refunds. Peaches Mercer Turner, according to this story, has been charged with tax fraud, identity theft, wire fraud, and obstructing an IRS investigation. Apparently Turner allegedly used some of his halfway house patrons to file the telephone tax refund claims. One such individual, Alejandro Berdin, requested a $33,000 refund. Given that he was unemployed and in a halfway house, it seems improbable that he made $1 million worth of long-distance phone calls. If convicted, Berdin (who was also charged) and Turner may make the short-distance trip to ClubFed's Victorville facility....

Well, I've just scratched the surface of the deceit, fraud, and other items that have come across my desk in the last couple of weeks. I'll have another uber-post tomorrow, as there's plenty more tax crime.

Another week, some more bites out of crime in the tax world. We'll hit both coasts today, and even have some pot tax news.

First, a man in Racine, Wisconsin apparently liked my Bozo Tax Tip #8. Yep, he allegedly sent off a bundle of phony returns to the IRS, and like Mr. Graham, he got caught. Samuel Burnette has been indicted on charges of filing more than 30 false tax returns. Mr. Burnette has pleaded not guilty to the charges.

Locally, a Newport Beach business owner pleaded guilty to evading about $356,000 in taxes. Robert Hanna owns Newport Tux and Uniform, a business servicing hotels and casinos both here in Southern California and in Las Vegas. He admitted to using bartering to hide income and taxes (by the way, I'll be writing about bartering in Bozo Tax Tip #7 tomorrow), and paying personal expenses from his business account. He faces five years at ClubFed and a $100,000 fine plus restitution.

Medical marijuana has been in the news throughout the country. It's legal status is still somewhat hazy as federal law enforcement agencies are still fighting state laws that make such sales "legal." That's one issue. Another is for California medical marijuana clubs. You better collect the sales tax, or the Board of Equalization will be calling. Yes, the BOE put out a notice reminding cannabis clubs to collect the sales tax or face interest and penalties.

Moving now to the East Coast, a Stamford, Connecticut attorney will probably not be the keynote speaker for any more Columbus Day parades. Joseph Richichi, a high profile attorney, will be sentenced in October after pleading guilty to one charge of tax evasion. Mr. Richichi failed to tell his tax preparer about $2.8 million in income he received, and he hid $1.8 million more. He's made restitution already, but he does face a term at ClubFed and a $100,000 fine.

Moving up the East Coast, the spotlight shifts to picturesque Cape Cod, where a concrete company's business may have sprung a leak. The father and son owners are accused of hiding income, structuring transactions through purchasing travelers checks, and understating their gross receipts. Robert and Steven Belanger face terms at ClubFed and possible fines if the allegations are proved in court.

A pretty busy week for the criminal element in the tax world. Remember my motto: If it sounds too good to be true, it probably is.

Many taxpayers use chains such as H&R Block or Jackson Hewitt to prepare their returns. One Jackson Hewitt franchisee is in trouble having been accused of multiple charges of tax fraud.

The IRS alleges that 125 Jackson Hewitt stores in four states (Illinois, Michigan, North Carolina and Georgia), owned in full or in part by Farrukh Sohail, engaged in systematic tax fraud. The franchised stores allegedly created phony deductions, artificial earned income credits, fake W-2's, and false fuel credit claims. The IRS is asking for these stores to be closed.

According to the lawsuits filed on behalf of the IRS, a sample showed that 31% of the returns prepared in the impacted stores had major problems. The IRS also alleges that managers in the impacted stores received kickbacks for filing false returns.

Needless to say, you should always review your tax return whether you use a professional or you do it yourself. You are responsible for what's on it.

I don't like to see any portion of the tax preparation industry getting a black eye. This case reminds me of the Western Tax Service case of a few years ago. That one was local; this appears to be centered in Chicago. If these charges are proved correct, I'd expect criminal indictments in the future.

News Story: AP via the Naperville Sun

A lot has been posted this weekend in the annals of tax crime. We'll venture from New York to the Gulf Coast to see if the government took a bite out of [tax] crime.

Another of the Ozbay clan has been sentenced. On Wednesday, Birol Ozbay of Schenectady, New York, found that he would receive 121 months (10 years) in prison and must forfeit $6.8 million. That's basically the same sentence that Ziya Ozbay received in mid-March. The Ozbays didn't pay their taxes, they structured their transactions, and they didn't remit withholding tax that was withheld from employees to the government. They scored the rare trifecta of three different kinds of tax fraud. Two more Ozbays await sentencing: Yalcin Ozbay (who was found guilty at trial) and Mustafa Ozbay (who pleaded guilty during the trial).

Meanwhile, a doctor in Louisiana allegedly kept two sets of books. It's a wonderful way to save on taxes...until you get caught. Garland Miller of Zwolle, Louisiana, was indicted on two counts of income tax evasion. Mr. Miller is also under indictment for theft in state court; he allegedly bilked "tens of thousands of dollars" from a local hospital. Mr. Miller faces up to ten years at ClubFed and up to $500,000 in fines if convicted in federal court for tax evasion.

A woman in Mississippi allegedly found an interesting way to profit from a corporate merger. Instead of closing the old bank accounts (as she was told to do), she allegedly kept them open, and transferred funds into them. She then allegedly moved them to her personal account. Donna Hardy has been charged with twelve counts of bank fraud and five counts of tax evasion. Oh yes, she didn't report the tax on the stolen money....

Three interesting ways to try to turn an illegal buck. The trouble is that not only can you get in trouble turning the illegal buck, you have to pay tax on it.