Taxable Talk

There are all sorts of awards given, but the award I give is special. To be considered for the Tax Offender of the Year award, you must do more than cheat on your taxes. It has to be special; it really needs to be a Bozo-like action or actions.

In 2005 Sharon Lee Caulder won the inaugural award. Quoting from my post, "Sharon Lee Caulder, formerly of Oakland and now from New Orleans, our voodoo priestess who wrote a book and was convicted of tax evasion. She did not include the $1.7 million she earned between 1998 and 2002 (mainly from sales of her book, Mark of Voodoo, on her tax returns". As I wrote when she was convicted, "Voodoo is more profitable than I realized, especially if your net income after taxes is the same as your net income before taxes (until Uncle Sam catches you)."

Now, on to 2007. There have been lots of tax fraudsters this year. But one stands out. No, it's not Wesley Snipes. Mr. Snipes hasn't been convicted yet, so technically he's not an offender. (He certainly has a good shot at the 2008 award, though.)

The story begins back in 2000. A Camarillo, California company is sued for patent infringement and settles the case for "tens of millions of dollars." Now, if you owned that business what would you do? Would you look for new income producing lines of business? Would you develop workarounds so that you wouldn't be infinging on the patents? Or would you decide to commit tax fraud just to get back at the federal judge who allowed the miscarriage of justice (in your view) to happen?

If you're thinking that no one could have such a bad motive to commit tax fraud you'd be wrong. This actually happened.

As I detailed earlier this year, Gene Haas did exactly that. The former CEO and owner of Haas Automation, Inc. created a phony Nevada company and enlisted the help of his then CFO to commit tax fraud. Here's what I wrote:

So, enlisting the help of his then CFO, John Phillips, the business created a phony company in Nevada called "Supermill," and then paid the phony company from phony invoices. Then Mr. Haas and Mr. Phillips got in a business dispute, Mr. Haas sued Mr. Phillips for $27 million (apparently related to the phony transactions), and Mr. Phillips went to the FBI and told them of the scheme. (Mr. Phillips was not indicted.) It's not a good idea when you commit tax fraud to get a co-conspirator angry enough to go to the FBI.

The DOJ, in a press release announcing Haas' indictment, claimed that the tax fraud was upwards of $20 million. Now, with a $5 million fine added in, penalties, and interest, the total judgment is somewhere around $70 million. And Mr. Haas will be receiving two years at ClubFed.

If you find yourself losing a court case, I strongly recommend that you do not follow Mr. Haas' path, and decide that committing tax fraud is a way of getting back at the judge. Kenneth Barish, an attorney for Mr. Haas, in describing the plea deal, noted, "[u]nder the circumstances, it was a good result." When paying $70 million and getting two years at ClubFed is a good result, you wonder what a bad result would be.

As for Gene Haas, he was formally sentenced in November to two years at ClubFed, payment of the taxes, penalties, and interest (totaling about $70 million), and a fine of $5 million. Added to the $30 million or so he paid for the patent infringement case, that's a whopping $105 million plus two years at ClubFed. Yes, Mr. Haas threw away two years of his life and $75 million.

That's a wrap for 2007. While I'd love to not have anyone commit such a bozo tax crime as Mr. Haas did, I fully expect to see at least one similar story in the coming year. I have complete confidence in Americans to commit bozo tax crimes.

When we last saw Michael Domecq, former president and co-owner of Domecq Importers, he had just pleaded guilty to tax fraud and knew he would spend 10 years at ClubFed. However, he had to prepare 17 years of revised, accurate tax returns to determine what he owed the Treasury.

Well, the returns have been filed and the numbers have been added up, and the total is $4.5 million in restitution (tax, penalties, and interest). That's a lot of bottles of liquor.

The moral is the same as what we said back in July: "It would have been much simpler to just pay the tax in the first place...but somehow that thought never enters the mind of the tax evader."

Back in the 1960s Harry Kemelman began writing books about Rabbi David Small, including several bestsellers such as Friday the Rabbi Slept Late and Saturday the Rabbi Went Hungry. They're cozy mysteries, and are worth your perusal.

However, that's not what I'm writing about this evening. Naftali Tzi Weisz, head of an Orthodox Jewish group (he is "The Grand Rabbi of Spinka"), was indicted on charges of conspiracy to defraud the IRS, mail fraud, money laundering, and operating an illegal money remitting business. Weisz and other associates are accused of soliciting charitable contributions to Spinka charitable groups totaling in the millions by promising donors that they could take the tax deduction and that the charity allegedly would refund 95% of the donation. And that scheme is, if proved, definitely not kosher.

Weisz and his alleged co-conspirators are looking at several years at ClubFed if convicted on all counts.

CBS Story, San Jose Mercury Story

Christopher Kelly, a former adviser to Illinois Governor Rod Blagojevich, has been indicted on federal charges of tax fraud. Mr. Kelly is accused of understating more than $1.3 million on his business and personal income tax returns. If found guilty on all counts Mr. Kelly would be looking at a significant stay at ClubFed. Three other individuals were indicted: Abdelhamid Chaib, P. Nicholas Hurtgen, and Ali Ata. Mr. Chaib and Mr. Ata are accused of fraudulently trying to obtain a $2.6 million loan to buy a chain of pizzerias; Mr. Hurtgen is accused of trying to obtain kickbacks from hospital expansion projects.

But Mr. Kelly is the big target named as part of "Operation Board Games" today. He used to be Governor Blagojevich's main adviser on gambling issues (Illinois has several casinos). So what did Mr. Kelly allegedly do? The indictment alleges that he placed wagers worth millions with both bookies in Chicago and at Las Vegas casinos and then paid the debts off with corporate funds from his roofing business as business expenses. Governor Blagojevich, according to the Chicago Tribune, selected Mr. Kelly to be his gambling adviser "...because Kelly is an avid gambler and high-roller and he often travels to Las Vegas on weekends."

While Governor Blagojevich has not been accused of any wrongdoing this is the second major indictment of one of his advisers. Earlier, Antoin "Tony" Rezko was indicted on charges of attempting to extort businesses that were involved with the Illinois Health Facilities Planning Board and the Illinois Teachers' Retirement System board. His trial will be in February.

No trial date has been set yet for the individuals indicted today.

News Stories: AP and Chicago Tribune

Billionaire pays IRS $52 million in back taxes screams the headline in this morning's Orange County Register. Igor Olenicoff, a member of the Forbes 400 (the 400 wealthiest Americans) and owner of Olen Properties, used offshore bank accounts to hide income and assets from the IRS and other creditors; he accepted a plea agreement and will likely serve a few months at ClubFed. Forbes estimates that Mr. Olenicoff is worth $1.7 Billion.

Mr. Olenicoff's story was at first a version of the true American dream. He came to the United States as a Russian refugee at age 15; his family had almost no assets. He built Olen Properties into a huge force in commercial and apartment properties; the company owns over 60 commercial properties in Orange County and over 11,000 apartments and many residential communities primarily in Las Vegas and Florida.

However, his plea agreement notes that he moved $346 million to overseas accounts from 1998 to 2004. (He will repatriate all those funds as part of his plea agreement.) Mr. Olenicoff had told Forbes that "...was actually owned by offshore companies in which he had no interest."

Mr. Olenicoff pleaded guilty to one county of filing a false tax return. While he could receive up to three years at ClubFed based on his plea agreement he will likely spend just a short stay there.

However, Mr. Olenicoff's tax troubles may continue. As Forbes notes, California is next in line. During his plea hearing, Mr. Olenicoff stated that he was a resident of California in 2002. The Franchise Tax Board will likely soon be knocking on Mr. Olenicoff's door.

News Stories: Forbes, Orange County Register

Joe Kristan has a post describing the efforts of Frank Black of North Carolina. As Joe notes,

"- When he wrote checks to his college-age daughter, he deducted the amounts as 'supplies' and equipment purchases.

- He told the Tax Court that his six and eight-year old children worked 1,000 hours per year in his business."

Those are just two of the examples that led to over $70,000 of civil fraud penalties. You can read more here. As Joe said, "Don't do that stuff."

There's a sure-fire method to get the IRS upset with you. Just withhold trust fund taxes from your employees (FICA and income tax) and don't send them to the IRS. I can almost guarantee you that bad things will happen to you.

And if at the same time you don't file your annual FUTA (federal unemployment tax) returns and your personal income tax returns, the IRS may want to send you to ClubFed.

Just to make sure you get some attention you can also be accused of defrauding some of your customers. And as long as you're going this route, you might as well allegedly defraud your investors.

That's what Marengo, Illinois contractor John M. Volpentesta is accused of. He faces 23 counts of mail fraud, wire fraud, and tax fraud. He allegedly defrauded customers investors out of over $1 million and didn't remit federal trust fund taxes of $164,999. And, yes, it's alleged that he didn't file the FUTA tax returns from 2003 - 2005 and that he and his wife didn't file three years of personal tax returns. If found guilty, Mr. Volpentesta is looking at a lengthy stay at ClubFed.

Trial will probably be next summer in Rockford, Illinois.

Wesley Snipes' defense attorneys will ask next Tuesday to delay Mr. Snipes' trial until April. The trial is currently scheduled to begin in January in Ocala, Florida. The defense attorneys, according to Ocala.com, received 1.6 million pages of material from their discovery motions and need additional time to go over the material.

This request seems a lot more reasonable than their request to move the trial to New York City because a fair jury is impossible to come by in central Florida.

Earlier this year I wrote about Richard Hudec, Jr. Mr. Hudec had been accused of tax evasion and concealing material information. He pleaded guilty to those charges on Friday. While he faces up to ten years at ClubFed it's likely he'll receive about 3 years. First, though, he must testify against a co-defendant under his plea deal. Sentencing is scheduled for next February.