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Tax Times Newsletter - June 2007

- Jay Schlichting

We help real people with real tax issues - successfully.

TOP NEWS

• Law Firm Pays $39.4m Penalty for Tax Shelter
       The big fines just keep on comin’ as the Internal Revenue Service cracks down on abusive tax shelters. This time, a U.S. law firm shells out millions. - $39.4 million.
       That’s how much the law firm of Sidley Austin, the successor firm of the merger in 2001 between Sidley & Austin and Brown & Wood, will pay in penalties for promoting abusive tax shelters and failing to comply with tax shelter registration requirements.
       “Sidley Austin has paid a significant penalty for its role in promoting abusive tax shelters,” IRS Acting Commissioner Kevin M. Brown said in a statement. “The firm has also taken concrete steps to prevent a recurrence of this behavior in the future, which they have agreed to maintain going forward. We appreciate their actions and their cooperation in our ongoing investigations.”
       The firm issued opinions in connection with potentially abusive tax shelters to more than 700 high-net-worth individuals and corporations. Some of the packages marketed to these individuals included listed transactions such as BOSS (Bond & Option Sale Strategy), variants of the so-called “Son of BOSS” shelter that went by names of COBRA (Currency Options Bring Reward Alternatives), BLIPS (Bond Linked Issue Premium Structure) and COINS (Currency Option Investment Strategy), and others that went by the names of FLIP (Foreign Leveraged Investment Program), OPIS (Offshore Portfolio Investment Strategy) and POPS (Partnership Option Portfolio Securities).
       The firm also issued tax opinions in connection with certain potentially abusive non-listed transactions involving distressed assets, bond and equity strips and lease strips.
       The multimillion-dollar fine against Sidley Austin isn’t the first victory for the IRS and federal law enforcement agents in a war against tax shelters.
       Earlier this year, federal authorities effectively shut down the law firm Jenkens & Gilchrist for criminal tax violations arising from J&G’s tax shelter activities.
       As part of a non-prosecution agreement, J&G admitted it developed and marketed fraudulent tax shelters and issued fraudulent opinion letters, resulting in a tax loss to the United States of millions.
  “While it is unfortunate that the 56-year-old national firm of Jenkens & Gilchrist is terminating its legal practice, this should be a lesson to all tax professionals that they must not aid or abet tax evasion by clients or promote potentially abusive or illegal tax shelters, or ignore their responsibilities to register or disclose tax shelters,” IRS Commissioner Mark W. Everson said in a statement at the time. “Pursuing abusive tax shelters is a top priority for the IRS.”
       The IRS estimated that 1,400 investors took advice from J&G tax attorneys and could owe interest and penalties.
       It’s unclear how many people took advice from Sidley Austin. But it’s evident that the IRS is cracking down vigorously on tax cheats, particularly those who use abusive tax shelters.  If you’re one of the tax cheats, time is running out.
• FORMER ARIZ. RESIDENT GETS 1 YEAR FOR INCOME TAX EVASION
       Robert N. Shearburn, Sr., 66, of Washougal, Washington, and formerly of Glendale, Ariz., was sentenced to 12 months in prison after he pleaded guilty to making and subscribing to a materially false tax return.
  Shearburn admitted he had signed and filed a tax return for the year 2000 that he knew contained false information. Shearburn said he filed the U.S. Individual Income Tax Return that falsely reported his adjusted gross income was $58,806, his taxable income was $28,616 and his tax due and owing was $2,000.
       Shearburn admitted that when he filed the 2000 tax return, he knew his income and tax due and owing far exceeded the amounts he declared. In fact, for tax years 1999 to 2001, Shearburn said his under-reported gross income was approximately $830,000, with a tax due and owing of $232,400. Shearburn stated he received the majority of the under-reported income during tax year 2000. Shearburn was ordered as part of his sentence to make restitution to the Internal Revenue Service for unpaid taxes in the amount of $232,400.
       On April 16, 2007, Shearburn’s son, Robert L. Shearburn, Jr., 44, of Phoenix, was sentenced to six months home confinement after pleading to Failure to File a Tax Return.
• ANDERSON’S ARK CLIENT CONVICTED
       Scott F. Creasia, 40, of Tucson, was sentenced to 10 months in prison and ordered to serve one year of supervised release and pay $331,932 in restitution. Following a week-long trial, Creasia was convicted on charges of filing false federal income tax returns.
       According to the evidence, Creasia became associated with Lynden Bridges, a member of Anderson’s Ark and Associates, in 1998 and used sham partnerships to conceal the amount of taxes he owed for 1998 and 1999 and to obtain a fraudulent refund of over $150,000 for taxes paid for 1996 and 1997.
  Creasia concealed much of the income he earned from his plumbing business by placing the business in the name of a sham limited liability company, Plumb Plumbing. Creasia claimed Sawtooth, a Nevada trust, owned 75 percent of Plumb and he only owned 25 percent.
• CALIF. BUSINESSMAN CHARGED WITH EVASION
       Ijaz Ghani, 36, and Mohammad Ahad Parvez, 41, of Woodland, Calif., pleaded guilty to federal income tax evasion charges. The owners of A & A Tires in Sacramento, Parvez and Ghani were 50 percent partners and brought in $1.5 million revenue. They reported less than half that amount of income in tax filings.
• OHIO ATTORNEY CHARGED WITH TAX EVASION
  Attorney John H. Large of Niles, Ohio, was charged with four counts of willful failure to file federal income tax returns. The information charges that Large received $425,645 from his law practice. However, Large failed to file income tax returns on the money. If convicted, Large’s sentence will be determined by the court under the Federal Sentencing Guidelines, which depend upon a number of factors unique to each case.
• Exec Gets 18 Months for Tax Evasion
       The U.S. District Court in Portland, Ore., sentenced a former Oregon chemical company executive to 18 months in prison and ordered him pay a $50,000 criminal fine following his conviction on two counts of filing false U.S. federal income tax returns.
       The executive was also ordered to pay restitution for all taxes due, which will be determined by the Internal Revenue Service.
       Trevor Smith, the former vice president of sales for Raisio Western North America, was convicted of filing false U.S. federal income tax returns for tax years 1999 and 2000.
       While employed at Raisio, Smith received approximately $350,000 in kickback payments he did not report as income.
• Mellon Bank Employee Lied to Investigators
       Lynn Kling, a resident of Terra Alta, W.V., pleaded guilty to a charge of making false statements related to a tax investigation.
       In connection with the guilty plea, Assistant United States Attorney Margaret E. Picking advised the court that the 59-year-old Kling lied to agents of the Treasury Inspector General for Tax Administration on July 16, 2001. TIGTA agents were investigating the loss of thousands of tax returns, checks and vouchers from Mellon Bank’s IRS Lockbox processing facility in Pittsburgh in April 2001.
       Kling told agents she had no knowledge of the missing items, when, in fact, she had been told that the tax returns, checks, and vouchers had been hidden and later destroyed in an effort to make it appear that Mellon had met a processing deadline of midnight on April 29, 2001.
       Kling faces up to five years in prison, a fine of up to $250,000, or both.
• Calif. Woman Got ‘Dead’ Refunds
       A Southern California woman was charged in a federal criminal complaint that alleges she stole the identities of hundreds of deceased people and used their personal information to file fraudulent federal tax returns that sought more than $1 million in refunds.
       Uzeegoa Makeba Sayles, 39, of Hawthorne, Calif., allegedly filed more than 200 fraudulent tax returns with the Internal Revenue Service.
       According to the affidavit in support of the complaint, during a six-year period Sayles fraudulently sought $1,070,308 in refunds, which resulted in the United States government actually paying $603,971.66.
• Former Lawman, Politician Pleads Guilty to Fraud
       A former Far Hills, N.J., councilman who served as the town council’s police commissioner pleaded guilty to conspiring to launder approximately $700,000 in what he believed to be the proceeds of loan sharking and illegal gambling as part of a scheme to defraud the IRS of more than $200,000 he owed in personal income taxes.
       Thomas A. Greenwald, 53, admitted that he was introduced to two individuals allegedly involved in loan sharking and illegal gambling activities. Greenwald later learned they were undercover FBI agents.
       After meeting the undercover FBI agents, Greenwald informed a friend who introduced the two men that he wished to launder $700,000 to create expenses related to an oil tank business he had sold in late 2004 so that he could falsely reduce the amount he owed in personal income taxes for calendar year 2004.
       The money laundering count carries a maximum penalty of 20 years in prison, while the conspiracy to defraud the IRS count carries a maximum penalty of 5 years. He faces a fine of up to $250,000 for both counts.

THE ANSWER SPOT

• I'm married. Should I file a joint or separate tax return?
  It's not always easy to choose the right filing status.  Give us a call, and we'll help you make the right decision.

ASK THE EXPERTS

• For reasons that aren’t worth describing here, I’m in trouble. Whereas I once made six figures, I now make a roughly average income. Worst still, I owe a lot of money in back taxes – taxes owed for when I was making good money. In all, I owe about $127,000, according to an accountant. I don’t have that kind of money! What can I do?
       Unfortunately, yours is an all too common situation. American taxpayers who fall on hard times often have difficulty paying their back taxes.
       It happens. But it doesn’t mean the end of your life, and it certainly doesn’t mean financial ruin.
       The first thing you should do is consult a qualified tax professional. Oftentimes, the amount owed to the IRS is inflated due to a variety of reasons, and there is no reason to offer to pay the IRS any more than you owe, right? A qualified tax professional will analyze your tax returns and determine exactly how much you owe.
       Once that figure is determined, you have a number of options. The two I’d recommend you consider are the Offer in Compromise and the Installment Agreement.
       The IRS developed the Offer in Compromise after realizing that kinder, gentler enforcement can often be more effective than a beat-down-doors approach. In this program, you and your tax professional meet with the IRS and offer to pay an amount that will essentially eliminate your tax debt. Oftentimes, this program results in taxpayers paying off their debts with pennies on the dollar! The Installment Agreement is a powerful, though quite different, program. With this, you can break up your tax debt in small chunks, paying it off over years the same way you do a car or a home.
       Call me today. I handle IRS problems every day. I'm an IRS Problem Solver. For a free, no-risk consultation, call my office at 1-877-590-2500.

Tax Times Newsletter is an online Publication by
The Schlichting Group
Specialists in IRS Representation and Tax Preparation