Recently in Tax Category
The United States Court of Appeals for the Ninth Circuit affirmed the conviction of an individual concluding and affirming the conclusion that documents the individual presented to the Internal Revenue Service were unlawful fictitious financial instruments.
In these economic times as reported and made a reality by our media, there is typically an onslaught of economic crime perpetrated by individuals desperate to escape their personal economic turmoil. Apparently, this taxpayer on two separate occasions submitted a document he titled a “sight draft” and a tax payment voucher for the amount of the draft to the IRS. A sight draft is a valid instrument used in international trade. The document looks like a check, often requires no signature and is payable upon demand or presentment, hence the “on sight”.
The sight draft fraud is common amongst tax protestors and particularly tax protestor “redemptionists”. You will like this one. Redemptionists believe that the national debt is collateralized pro rata by each individual’s birth certificate and that each person has a mirror entity, a straw man, that represents the amount of work you do. Redemptionists say there is a way to redeem your straw man and stake your claim to the debt. As it goes, all you need to do is file your birth certificate along with the sight draft and you have redeemed your straw man and, I guess, released your collateralization of the national debt. Thereafter you control your straw man and you can use the money from the sight draft to pay your mortgage or taxes. Don’t try this at home.
A Florida prison psychologist was sentenced to five years in prison for his role in an inmate personal income tax fraud scheme. In the alleged scheme, the psychologist accessed the Florida Department of Corrections database and obtained the names and other identifying information about other inmates in other prisons. The psychologist then gave that information to the inmates in his own prison and then those prisoners allegedly used that information to prepare and file false federal income tax returns claiming refunds. The total take: $902,000.00.
The IRS, in rapid response, announced a new cooperative effort to combat prison-based tax fraud:
“The prosecution of income tax refund crimes committed by prison inmates is important. …Participants in prison refund scams commit crimes against the nation’s tax systems.”
I am usually a proponent of expansion of individual rights, but maybe prisoner’s tax returns get codes and any refund claims are picked up for at least a preliminary review at the Service Center where they are processed?
John M. Hanamirian
Overstock.com, Inc. has filed a lawsuit in the New York Supreme Court challenging the New York State tax law requiring Internet retailers to collect and pay sales tax on their in-state sales. The Complaint states that Overstock is seeking a declaration that the New York law is unconstitutional.
For the most part, you need to have some sort of presence within a jurisdiction in order to be subject to tax, even if your presence is just soliciting business within a state that can be enough. The gist of the Complaint filed by Overstock is that Overstock sets up deals with affiliates throughout the country and the world, as do most website retailers, whereby Internet traffic is delivered to Overstock.com. In exchange for the delivery of that traffic, a fee is paid. The delivered customer now makes a purchase. The delivered customer could be generated from anywhere, but it just so happens he is from New York. The State of New York says Overstock.com needs to collect sales tax from that sale. Overstock says they did nothing to generate a sale from a New York customer. Specifically, “the statute imposes the burden on Overstock to collect and pay taxes even if the purchase by the New York customer is based on a referral to Overstock’s website that is indirect, or passes through various other websites with whom Overstock has no agreement or connection whatsoever.” Sounds pretty unconstitutional to me, but the problem for Overstock is that if they do not get the tax from Overstock, the ultimate seller, there is no chance whatsoever of ever collecting the tax. The problem for the State, however, is that they and other states continually draft legislation that, in an overbroad manner, attempts to fix a problem that is not capable of being fixed and so, the legislation is invariably stricken.
We shall see, but the answer seems to be that you cannot rely on historic notions of state taxation when dealing with Internet retailers. The states need to get together, apply a blended rate of tax from the rates used in each state, apply the rate to all the Internet sales of a particular retailer, collect the tax and split it equally.
John M. Hanamirian
Chalk one up for the government. Ugh. Six attorneys and financial planners were, following an 11 week trial, convicted of engaging in a 10 year conspiracy that channeled individual’s income into sham trusts. The scheme, described as one of the worst in U.S history, permitted individuals who were clients of Aegis Co., the entity for whom the now convicted attorneys and financial planners worked, to shelter hundreds of millions of dollars of income from tax. Prosecutors estimate the loss to the United States to exceed $60 million dollars.
The defendants were originally indicted in 2004 as a result of an undercover investigation that the government entitled Operation Trust Me. The government therein seized 1.5 million documents and related computer files.
Here is how it worked. From July 1994 through December 2003, the defendants at Aegis Co. allegedly promoted and sold domestic and offshore trusts that targeted wealthy self-employed professionals. Aegis Co. clients were charged between $10,000.00 and $75,000.00 for the trusts and those clients were recruited from seminars directed at individuals earning $100,000.00 or more per year.
The government alleges that once the trusts and trust management services were sold, Aegis Co. defendants diverted the profits from their clients’ businesses to sham trusts, either bogus charitable trusts or bank accounts in tax havens such as Belize and Antigua. Allegedly, Aegis Co. defendants then prepared false tax returns for those clients.
It gets better. When it all started to go bad, meaning the IRS began investigating or auditing, Aegis Co. defendants then allegedly set up a D.C. based company named Parker & Associates to represent Aegis Co. clients during an audit. The government naturally was not amused and charged those Aegis Co. employees with obstruction.
The IRS was rightfully annoyed by this entire scheme. The Chief of the IRS Criminal Investigation Division in the Chicago area where this case was brought and prosecuted said: “Today’s verdict sends a message: taxpayers should be wary of anyone claiming to be an expert on how to hide income from the IRS.” He is right.
John M. Hanamirian
About once every few months, I am asked about what is involved in "turning someone in to the
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The law provides for two types of awards. If the taxes, penalties, interest and other amounts in dispute exceed $2 million, and a few other qualifications are met, the
The IRS also has an award program for other whistleblowers - generally those who do not meet the dollar thresholds of $2 million in dispute or cases involving individual taxpayers with gross income of less that $200,000. The awards through this program are less, with a maximum award of 15 percent up to $10 million. In addition, the awards are discretionary and the informant cannot dispute the outcome of the claim in the United States Tax Court.
If you decide to submit information and seek an award for doing so, use
John M. Hanamirian
The United States Attorney for the Southern District of New York announced today the indictment of James Treacy, former CEO of Monster Worldwide, Inc.("Monster") on charges of securities fraud and conspiracy in connection with an emploee stock option backdating scheme. Also indicted was Anthony Bonica, Monster's former controller.
According to the indcitment, Treacy conspired with other former Monster senior executives to "systematically backdate stock option grants to Monster employees...in an effort to provide profitable options to employees without recording the required compensation expenses."
Here is how it works: The corporate officers in this case backdated stock options given to certain employees to reflect their issuance at a point prior to the actual issuance date. The backdated options reflected a price equal to the then fair market value of the stock. Because there was no difference between the stock option issuance price and fair marklet value, Monster didn't have to reflect any such difference as compensation to the employee to whom the option was granted. That fraud allows them to eliminate the expense of having given the option to the employee which makes their profit and loss statement look better; more income less expenses. Everyone's happy. The employee gets his stock, the company has no concomittent expense recording obligation. Oh, unless, of course, you abide the law and every governing accounting principle in existence.
John M. Hanamirian
What happens when hourly employees are assigned Blackberrys or IPhones by their employer and compelled to respond to emails and text messages after the 8 hour shift? The marketing of such devices offers the plus side that such technology brings the office home or anywhere the employees happen to be. A number of legal scholars are hinting that such after-hours communicating is overtime work.
Everyone has heard or even uttered the complaint that the new technology puts them on call 24/7. No doubt attorneys and other hourly service providers are beginning to bill their clients for out of office time spent responding to emails. Logic would suggest that employees who find their employers are essentially getting their precious time for free may have a claim under wage and hour laws for the time spent out of the work place working. And employers may need to restrict the use of such devices for work related activity unless they are willing to pay for their employees’ time.
It’s a brave new world.
A former Internal Revenue Service agent has been sentenced to one year in prison, supervised release for one year and a $10,000.00 fine for carrying out a scheme to obstruct the IRS by fraudulently using net operating losses (typically generated from the operation of a business) to offset his personal income tax liability and for attempting to sell those same losses to other individuals or, what I often call, trafficking in losses. The defendant, Mr. Harry Wilner of
Apparently, Wilner was a "team leader or coordinator" in the Large and Mid-Size Business Division of the
John M. Hanamirian
As you may recall,Mr. Snipes was acquitted of the felony charges against him and this recommendation for 3 years in jail and a five million dollar fine is for the three misdemeanor failure to file income tax return charges for which he was convicted. The three years seems a bit harsh. It's not like he is Martha Stewart or some other dangerous criminal.
John M. Hanamirian
Yes, the Department of Justice announced the creation of a national "tax defier" or TAXDEF (it's the government, there has to be an acronym) inititative the purpose of which is "to reaffirm and reinvigorate the Tax Division's committment to investigate, pursue and prosecute those who take concrete action to defy and deny the fundamental validity of the tax laws". Apparently, the term "tax protestor" is now out of favor due to the potential it had for representing some "noble effort" says Assistant Attorney General Nathan J. Hochman. Hochman further stated:
"These folks link themselves to so-called patriotism, but at the end of the day, all it is about for them is their greedy self-interest." This TAXDEF initiative should send an unequivocal message to honest taxpayers that, to the extent any of their neighbors on their right or on their left engage in tax defier conduct, their neighbors will go to bed knowing that tomorrow may be the day when their crime will be prosecuted to the fullest".
I don't even know where to begin. Okay, first the TAXDEF or Defier Intitiative is obviously a response to Mr Snipes' acquitttal of the felony offenses for which he was charged. Second, I quoted Hochman because if I hadn't, some would have said something was lost in the translation. I actually checked the announcement date to see if it was April 1, but it was April 8.
Let's make this deal. How about next time you lose a case where a major motion picture actor admits his crimes in a 500 page written statement and there is a website that details how the crimes were committed, we don't thereafter spend tens of millions of dollars on nonsensical deterrence efforts. Next time, just spend the money to prosecute the case. Then, just then, my neighbors might sleep.
John M. Hanamirian
