Taxable Talk

Another light week on the tax fraud front. But while it lacks depth, some of the cases are definitely amusing.

Three women in Maryland allegedly had a Bozo idea on how to make some money. Let's get some inmates at the local prisons to give us their social security numbers, and then we'll file phony returns on their behalf. What can go wrong?

Well, I can think of several felonies that the three committed. Unfortunately for our Bozo preparers the Postal Inspection Service, the IRS, and the FBI were not as amused by the scheme as I was. And since the Bozo preparers allegedly filed 101 claims totaling $365,599.41, the three are looking at lengthy terms at ClubFed if convicted on charges of mail fraud, conspiracy to defraud the US, and identity theft charges. You can read the press release on the indictment here.

Unfortunately, the three ladies in Maryland aren't the only Bozos in the tax profession. Trumbauersville, Pennsylvania is a tiny town—less than 1,000 people reside in the borough. The town got some notoriety this week, though.

Eugene DiNatale, a councilman, runs an accounting business in nearby Rockledge. Mr. DinNatale and an associate, Chakawarn Sirirathasuk, found the old fashioned way to allegedly deprive the government of tax revenues. They allegedly collected employment taxes on behalf of their clients and kept the money rather than remitting it to the IRS. This is a scheme that almost never works, and one where the IRS and the Department of Justice go after every time it occurs. And the amount of the alleged money they kept wasn't small: $4.9 million. Just for good measure the pair is also accused of overstating clients' business expense deductions. Mr. DiNatale is looking at a very long term at ClubFed if convicted.

The final story comes from Saginaw, Michigan. Two brothers and a bank manager are accused of structuring transactions and tax evasion. The brothers filed tax returns from 2001 through 2005 showing incomes under $55,000 a year according to this news story but somehow managed to make "extravagant" purchases. And when their homes were raided in January 2006 the IRS found over $1.3 million. The bank manager is accused of aiding and abetting structuring. The brothers face multiple structuring and tax evasion charges. All are looking at relocating to ClubFed if found guilty.

My suggestion to everyone is if you think you've found a foolproof scheme to cheat Uncle Sam think again. Most schemes have been tried before and failed.

I really am an Enrolled Agent. In fact, hanging on the wall behind me is my Certificate of Enrollment (and my license is in my wallet).

Do you believe that anyone would impersonate a Certified Public Accountant? And would then choose to specialize in serving law enforcement?

Given that I'm writing about it, you should know the answer. From Arvada, Colorado (suburban Denver) comes the story of Denise Smith. Ms. Smith was indicted by a Jefferson County grand jury of 50 counts for allegedly impersonating an accountant. She's also alleged to have incorrectly increased the deductions for her clients, cheating the IRS and Colorado out of tax revenue.

Her scheme unraveled when a client received an audit notice which apparently led to the investigation. Besides the obvious moral of the story (choose a reputable tax preparer) the Bozo moral is that if you're going to impersonate an accountant, choose clients who don't have the power to arrest you.

There's something about adult entertainment enterprises that somehow attracts tax troubles. Could it be the plentiful cash and the slightly sleazy nature of some of the business operators? If it's good enough for a New York Governor....

In any case, Riccardo Di Giuseppe, of Vaughan, Ontario, Canada operated two such facilities: Bunnies and Fantasia. His operations were quite profitable. Of course, it helps when you keep $3,492,415 (Canadian) instead of forwarding it to the Canada Revenue Agency. Back in 1998 Canadian law enforcement raided his clubs in an operation called "Northern Greed." I don't know if it was greed or profit, but among the other casualties of the operation were 60 strippers who were found guilty of 115 prostitution-related offenses. They also took over 400 boxes of evidence in the raids which led to the prosecution of Mr. Di Giuseppe.

Mr. Di Giuseppe once owned a 60-foot yacht. After being convicted of tax evasion, and having his appeals denied, Mr. Di Giuseppe received his sentence: six years and a $2 million fine. Mr. Di Giuseppe is going to appeal his sentence but his sailing days are over for the foreseeable future.

Coverage: The Star and Exchange Morning Post

The Bozo side of my profession has had a busy week. Yeah, it's tax season, but we have some pretty bad tax preparers highlighted here.

First, we go to Queens, New York. Tommasina (a/k/a Tammy) Paolino operated Titan Enterprises in the Ridgewood area of Queens. She's been accused of first-degree grand larceny, first-degree identity theft, first-degree offering a false instrument for filing, first-degree falsifying business records, second-degree possession of a forged instrument and related tax charges. And that allegedly cost the State of New York $4 million in bogus refunds.

Next, we head to Kingsport, Tennessee. Donna Rees (aka Donna K. Blessing and Donna Blessing Bortz) operates B&B Tax Service. She apparently has had a good year, and the IRS thinks they know the reason. According to her indictment, Ms. Rees, "directed and encouraged persons for whom she had prepared tax returns to create false, fictitious and fraudulent documents and records to be used in civil audits." When the IRS showed up at her office to ask her questions about 22 allegedly phony returns, she's alleged to have cooked up phony documents on the spot. She's alleged to have used fake business deductions and phony farming losses to get her clients bigger refunds. And that's not Ms. Rees' only troubles with the law; she's already facing a federal bank fraud indictment.

So if your tax preparer volunteers to create phony deductions, just remember it's an offer you can refuse. And if you know your tax preparer as "Tom" but he signs his name as "Dick" or "Harry," you may want to inquire a bit....

Section 1031 Exchanges are a tool to defer taxes. Properly done, using a reputable qualified intermediary, they're a very useful tool in tax planning. Of course, some intermediaries aren't as reputable as others.

Edward Okun owned 1031 Tax Group LLP, a qualified intermediary. His firm entered bankruptcy some time ago, and in February a bankruptcy court judge denied Mr. Okun's motion to cancel an agreement he made to sell some of his possessions. Soon he may not have any possessions after being indicted this week.

Mr. Okun is accused of telling clients that their money would be use for §1031 exchanges and then misappropriating $132 million, "to support his lavish lifestyle, pay operating expenses for his various companies, invest in commercial real estate, and purchase additional qualified intermediary companies to obtain access to additional client funds."

He also faces charges of violating the currency transaction reporting requirements by telling employees to put $15,000 on his yacht so he could allegedly deposit it in the Bahamas and of committing perjury. The indictment is asking for all of his remaining assets to be forfeited. He's also looking at 30 years at ClubFed and substantial fines if he's found guilty on all counts.

His attorney states, "Ed is confident he will be proven innocent in a court of law." Mr. Okun has waived extradition and will soon be in Richmond, Virginia where he will await trial.

If you're interested in pursuing a 1031 exchange, make sure you use a reputable qualified intermediary. Get references, and check them.

Bringing up children is tough. A Bozo tax preparer allegedly had a way to make it slightly easier. She supposedly created phony children to use as tax deductions. Hey, at least they didn't yell about getting their rooms clean!

Paulina Mohn worked at an H&R Block outlet inside a Wal-Mart in Brooklyn Park, Minnesota from January 2006 through March 2007. She likely had quite a few satisfied clients. Her methods, though, were allegedly from the Bozo school of tax preparers. She was indicted on 22 counts of aggravated identity theft and making false claims on tax forms.

What did she do? She's alleged to have used fake W-2 forms that had false information, along with allegedly inventing children (and giving them social security numbers out of thin air). Now, the IRS' computer system isn't perfect, but they do a good job of matching W-2 income and checking social security numbers.

And we're not talking a small amount of fraud. Ms. Mohn is alleged to have caused $749,000 of false federal and state tax refund claims. If she's found guilty on all charges, she's looking at a lengthy stay at ClubFed.

Lots and lots of fraudsters have been at work recently. Here are some of the lowlights:

Charles Jones, the accused former Louisiana State Senator, pleaded not guilty to three federal tax charges. I wrote about his case earlier this year when the news first broke. His trial is not expected to begin until late summer at the earliest.

Butler County (Ohio) Auditor Kay Rogers pleaded guilty to one count of filing a false tax return and one count of conspiracy to commit mail and bank fraud. Rogers' charges stem from two unrelated issues. First, she prepared tax returns from 2001 to 2006 and didn't report the $56,000 of income on her own tax return. And she's been ensnared in a scandal involving fiber-optic cable contracts in Butler County. She's looking at about five years at ClubFed.

If you want a sure-fire way to get federal authorities upset with you, here it is. Just collect federal payroll taxes and keep them rather than remitting them to the IRS. You can get bonus points if you use phony payroll companies with foreign addresses. That's what Gary Trebert, an attorney who ran nursing homes in the Midwest, did. He pleaded guilty to conspiracy to defraud the IRS and the Department of Health and Human Services. The total skimmed was $34 million, so we're not talking peanuts here. AP is reporting that the government will recommend Mr. Trebert serve eight years at ClubFed.

Earlier this year I reported on the case of Sabi Atteyih. Mr. Atteyih had reported zero income to the IRS but had told the truth while obtaining a loan. He'll do a year and a day at ClubFed and have to make restitution of $47,000 to the IRS.

We've had lots of fraud cases of individuals diverting business funds to pay personal expenses. From Baltimore comes yet another. Stilianos Mavroulis and his son, Kyriakos Mavroulis, are accused of diverting $1.9 million from their mortgage business to pay personal expenses. The government alleges that they coded these personal expenses as "other expenses" on their business tax returns. That's over $500,000 in taxes, and that's felony charges of tax fraud. Their accountant, Joseph Poole, also faces charges. They're looking at several years at ClubFed if convicted.

Lloyd Batsfield belonged to the Bozo wing of tax preparers. Just about every one of his clients got a refund. And almost every one of his clients took education credits. A coincidence? Not hardly. It was tax fraud big time, with the loss to the government of $6 million. To compound matters, Mr. Batsfield also stiffed the IRS for $171,000 on his own taxes. He pleaded guilty last year. He was sentenced last week to six years at ClubFed.

Finally, yet another story about Renaissance, the Tax People. Michael Craig Cooper, the founder, was convicted on 72 counts including mail fraud, wire fraud, money laundering, money laundering conspiracy, and engaging in illegal monetary transactions. While Mr. Cooper can say he was acquitted on 74 counts he has plenty to worry him. He's looking at a very long sentence at ClubFed. To compound matters, he also faces a forfeiture hearing on $75 million of assets that a co-conspirator, Todd Strand, admitted were proceeds from the scam. Remember our advice: if it sounds too good to be true, it probably is.

I wrote earlier about the tax scandal in Germany. Well, that scandal that began in Germany over hidden funds in Liechtenstein has spread. Countries now investigating Liechtenstein-related accounts include France, England, Australia, Italy, Canada, Sweden, New Zealand, Greece and Spain. And one more: the United States.

Yes, the Internal Revenue Service is investigating about 100 individuals who had accounts in Liechtenstein.

Meanwhile, Liechtenstein authorities are threatening to prosecute the Germans who bought the list for $7.3 million. I'm guessing there's a German (or two) who won't have the principality on their vacation plans for the near future.

There is one truism that comes out of this. Linda Stiff, the acting IRS Commissioner, told UPI, "It should be clear from recent events that there is no safe hiding place for the proceeds of tax avoidance and evasion."