Taxable Talk

I spent the last couple of days relaxing (along with printing tax returns). Unsurprisingly there's some fraud to report on in just those last few days.

First, I have to look at a Bozo tax preparer. From nearby Rialto, California comes the story of Matthew Carl Berry. Mr. Berry was a partner in a tax preparation business. He definitely wanted his clients to get lots of deductions. In fact, if you used his services you didn't need to own a house to get the mortgage interest deduction. There's only one problem with that, and it's called tax fraud. The IRS audited about 4,500 returns and found an average tax loss of $3,150 per return. That's $14,175,000.

But that wasn't all. Mr. Berry and other members of his firm created false documents for audits and he didn't pay taxes on the income they received out of this scheme. Other members of his family have already been barred from preparing tax returns, too. He and his family are also facing a civil lawsuit from the IRS. Mr. Berry will almost certainly be spending some time at ClubFed.

Suppose you are audited by the IRS, and you lose, and are ordered to pay an additional $238,800 in taxes. Would you (a) pay the bill, (b) file an appeal and, if necessary, take the case to Tax Court, or (c) ignore the notices sent by the IRS to pay the bill and stop filing tax returns? Since I'm writing this it's clear which course Edward Barrier of Wildwood, Missouri took.

Back in 1995 Mr. Barrier was audited for 1987 through 1994. He lost, and the bills started coming. He got his revenge by ignoring those and not filing any more tax returns. He also decided to begin "structuring" his financial transactions. He apparently structured around $700,000 of transactions.

Unfortunately for Mr. Barrier eventually the IRS caught up to him. He had done business in cash, lived with his mother, and not owned assets in his own name. He did have a good job from 2002 - 2005—He was a project manager in high-end real estate in the St. Louis area. He had income of $2.4 million, but didn't pay the nearly $800,000 in taxes he owed.

Last week he pleaded guilty to one count of felony tax evasion in St. Louis. Mr. Barrier will be sentenced July 3rd and is looking at a maximum of five years at ClubFed, a fine of $250,000 and restitution. His bill is at $1.03 million...and that's before interest.

As I usually state, it's a lot easier in the long-run to pay the taxes you owe than to commit Bozo acts.

The IRS loves Bozo tax celebrities. They get a chance to show you and I that Bozo celebrities must pay their taxes. And if they go to court and win, it's guaranteed that there will be plenty of publicity. So without further ado, here's Bozo Tax Tip #2, a repeat from last year.

For a tax blogger, people like Richard Hatch are wonderful. Hatch, for those who don't remember, was the winner of the first Survivor and won $1 million. About 300 million individuals worldwide saw Hatch take down the $1 million.

Hatch received a Form 1099-MISC for his winnings. In the United States, winnings from contests are taxable. Hatch claims that CBS and/or the producers of Survivor promised him that they would pay his taxes. (Both CBS and the producers of Survivor deny this charge.)

Here's what I wrote back in January 2006 when Hatch was convicted:

Mr. Hatch has cemented a place in the Bozo Tax Criminals Hall of Fame (a website I'll create one day). Let's look at his stupid not so good actions.

1. Hatch goes to accountant #1, find out that he owes over $300,000 in taxes. He goes to accountant #2, and the tax bill is around $240,000. (At his level of income, some differences in taxes owed is normal.) He then asks accountant #2 what his return would be if he didn't declare the $1 million in Survivor winnings. Accountant #2 makes Hatch sign a statement that he won't file that return (it showed Hatch getting a $4300 refund). He filed that return.

2. The IRS amazingly discovers his tax evasion. (With perhaps 300 million witnesses, even the most inept attorney could prove he won $1 million.) He's offered a plea bargain: pay your taxes, and we'll let you off fairly easily on the jail time. He accepts the plea initially, then changes his mind.

3. The case goes to trial. Hatch claims that CBS should have withheld taxes. His attorney might want to ask any seasoned accountant about what you should do if taxes aren't withheld but should have been. (Answer: you pay the taxes.)

4. Hatch's attorney can't find the OJ Simpson jury. (Hat tip: Roth Tax Updates)

5. Hatch is found guilty. Roth Tax Updates speculates that his sentence will be around 3 years in jail. Oh, he'll also have to pay those taxes, and interest and penalties. The maximum possible sentence is 13 years in prison and a fine of $600,000.

Hatch is now serving his prison sentence of 51 months. He recently appealed his conviction, though chances of it being overturned seem slim.

2008 Update: And they were slim. Last February, Hatch's appeal was denied. As you might expect, 300 million witnesses can't be wrong.

Tomorrow, I'll be posting my number one Bozo Tax Tip for 2008. I guarantee that if you follow that tip you will be certifiably Bozo.

I can't believe this. As I reported in December, local billionaire Igor Olenicoff pleaded guilty to $52 million of tax fraud last December. In his plea agreement it appeared he would get a few months at ClubFed.

As Joe Kristan comments, "Yeah, that $3,500 fine and probation will really teach the guy worth $1,600,000,000 a lesson he won't soon forget." That's what Mr. Olenicoff has gotten according to this Forbes report.

I read that and have nothing to add.

Mr. Olenicoff be sentenced on April 14th in nearby Santa Ana.

Links: TaxProf Blog, Roth Tax Updates