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Tax Times Newsletter - October 2007

- Jay Schlichting

We help real people with real tax issues - successfully.

TOP NEWS

• 13,000 Taxpayers to Get Audit Letter This Month
       As part of a program to study how American taxpayers are cheating the government, the IRS will randomly selected 13,000 taxpayers to audit this month. You might be one of the unlucky ones.
       In October, 13,000 randomly selected taxpayers will receive a letter from the IRS. Its purpose: to inform them they are being audited.
       The random audits are part of the Internal Revenue Service's plans to launch a new National Research Program (NRP) to study the tax compliance of individual taxpayers.
       The latest NRP study will be the first in an ongoing series of annual individual studies using an innovative multi-year rolling methodology. The study will start in October 2007 and examine about 13,000 randomly selected tax year 2006 individual returns. Similar sample sizes will be used in subsequent tax years.
       An advantage of using this method, which combines results over rolling three-year periods, is the IRS will be able to make annual updates to compliance estimates and develop more efficient workload plans on an annual basis, after the initial three annual studies. Previous studies started from scratch, drew tax returns from a single tax year and involved examinations of more than 45,000 taxpayers.
       “The new program will be a big step forward for tax research,” said Acting IRS Commissioner Kevin M. Brown. “Our approach will reduce burden on taxpayers, improve our audit selection techniques and give us more timely information to help reduce the tax gap.”
       The tax gap is the difference between what taxpayers should have paid and what they actually paid on a timely basis. Based in part on the prior NRP reporting compliance study of individual income tax returns, IRS officials estimate that the net tax gap for tax year 2001 was $290 billion.
       Using research from the prior NRP study, the IRS updated its audit selection system. Updated statistics enable the IRS to audit more efficiently and improve the detection of underreported income and overstated deductions and credits. The data also enables the IRS to audit fewer taxpayers with accurate tax returns, which lessens the burden on compliant taxpayers.
       The research on individuals needs updating because as time passes, patterns of noncompliance change. The sample for the latest individual NRP is constructed to ensure that it contains sub-samples of individuals at different income levels as well as those engaged in farm and sole proprietor business activities.
       In addition to the NRP for individuals, the IRS is in the final stages of a compliance research project examining reporting compliance of S corporations. This research encompasses approximately 5,000 returns filed for tax years 2003 and 2004. Since the income and expense items for S corporations flow through to individual shareholders, this study will also help refine the tax gap estimates for individual income tax.  Why should you care about all this? Because, if you’re cheating, the IRS is determined to figure out how.
• Leading Calif. Company Pleads Guilty to Evasion
       The owner of Oxnard, Calif.-based Haas Automation pleaded guilty this afternoon to a federal conspiracy charge related to a scheme in which tens of million of dollars in bogus expenses were put on the company’s books during a two-year period in an attempt to avoid the payment of more than $34 million in federal income taxes.
       Gene Francis Haas, 54, of Camarillo, pleaded guilty to the felony charge, agreeing to serve a 24-month jail sentence.  As part of the plea agreement filed last Friday, Haas agreed to pay $34.2 million in back taxes for the years 2000 and 2001, as well as a $5 million fine. With statutory penalties and interest on the back taxes, Haas owes more than $70 million to the government.
       “Tax evasion is not a victimless crime,” stated Debra D. King, Special Agent in Charge of IRS Criminal Investigation in Los Angeles. “Honest, hardworking Americans pay the price when others choose to evade their tax obligations.” 
• So. Fla. Real Estate Mogul Evaded Taxes
       A Miami businessman has been charged with four counts of tax evasion.  The federal indictment alleges that Jorge Alberto Valdes has not filed an income tax return since 1992 and has earned substantial income from the sale of real estate upon which he has not paid income tax for the years 2001, 2002, 2003 and 2004. According to the charges, Valdes formed a company called Valjor Investment Group II and listed his parents’ residential address as its principal place of business. Valdes is alleged to have used Valjor to receive income from the sale of real estate.
       More specifically, as stated in court during the defendant’s initial appearance, Valdes earned $6.4 million during the years 2001 to 2004 and failed to pay tax of $1.5 million, not counting interest and penalties for those four years.
• Kansan Responds to IRS with Tax Protestor Material
       When IRS agents contacted Gregory E. Pflum, 38, St. Marys, Kan., he responded by giving them materials supplied by lawyers and tax advisers who were part of a tax protester movement. Pflum challenged the tax system and told IRS officials he did not intend to pay income taxes.
       Now, Pflum has pleaded guilty to one count of attempting to evade income taxes by failing to file a tax return.  Pflum’s father, David G. Pflum, was found guilty of tax evasion in 2004 and sentenced to 30 months in federal prison. 
  Pflum faces up to 5 years in federal prison and a fine up to $100,000.
• Alaskan Dentist Nabbed for Evasionn
       A dentist in Kenai, Alaska, has been indicted for using an elaborate offshore trust scheme to evade more than half a million dollars in income taxes.  According to the indictment, Glenn E. Lockwood, a practicing dentist who owned the Kenai Dental Clinic, attempted to evade more than $575,000 in federal income taxes for calendar years 2000 to 2003. The indictment alleges that Lockwood created a corporation called Glenn E. Lockwood DDS, PC, in order to facilitate his tax evasion. It further alleges that Lockwood entered into an improper offshore executive leasing and deferred compensation scheme in order to fraudulently reduce his taxable income and channel his income into offshore investments.
       Lockwood contracted his professional services to Executive Recruitment and Leasing Services (ERLS), an Irish entity, which leased his services to Domestic Executive Leasing Services (DELS), a Nevada company, which then leased his services back to Lockwood’s corporation, the indictment alleges.
       The indictment also alleges Lockwood created a sham trust to hold his personal assets and concealed his true income by depositing income from his business into the trust and deducting those payments as insurance expenses on his corporate income tax returns.  If convicted, Lockwood faces up five years in prison and a fine of up to $250,000, or both for each offense.
• Alabama Women Plead Guilty to Tax Fraud
       Two women from Montgomery, Ala., face significant jail time after pleading guilty to tax fraud.  Rumekia L. Sanders and Felicia Shanta Jackson, both 29, pleaded guilty to one felony count charging them with conspiring to defraud the United States.
       According to the plea agreement and information, in early 2005, Sanders and Jackson were employed by a tax preparation business in Montgomery. Following the instructions of the owner of the business, they caused approximately 22 federal income tax returns to be filed with the IRS that falsely claimed refunds that substantially exceeded the actual refund, if any, to which the taxpayer was entitled.
       In particular, the returns inflated the taxpayers’ income in order to render the taxpayers eligible for earned income tax credit (or to entitle the taxpayer to a larger earned income tax credit). The business owner paid the defendants approximately $400 to $450 for each return they prepared and filed.
       When they are sentenced later this year, Jackson and Sanders each face up to five years in prison, an order of restitution, and a fine of up to $250,000 or, if greater, twice the loss to the IRS.
• Arizona Man Receives 1 Year for Bad Return
       Robert N. Shearburn Sr., 66, of Washougal, Wash., and formerly of Glendale, Ariz., was sentenced to 12 months in prison after pleading guilty to filing a false tax return.
       Shearburn admitted he had signed and filed a tax return for the year 2000 that he knew contained materially false information. Shearburn stated that 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 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 $232,4000.
• GA. Woman Gets Jail for False Returns
       Marla Nicole Wells, 38, of Union City, Ga., was sentenced to two years and six months on charges of conspiring to defraud the United States. Beginning in January 2002 and continuing to August 2004, Wells conspired with others to file tax returns for about 59 individuals, claiming refunds to which they were not entitled. The total losses amounted to $222,597. She also filed other returns claiming a total of $60,504.
• Conn. Woman Jailed for False Tax Returns
  Snezana Berbic, 39, of Wethersfield, Conn., was sentenced to 12 months and one day of in prison, to be followed by three years of supervised release, after Bernic pleaded guilty to one count of making a false statement on a federal individual income tax return and one count of assisting another person in the preparation of a false federal individual income tax return.
   

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ASK THE EXPERTS

Question: What’s the difference between an Installment Agreement and an Offer in Compromise?
Answer: Good question. Both are very different programs for very different circumstances. But first, let’s talk about the general. 
     If you’re considering either the Offer in Compromise program or the Installment Agreement, you clearly are in over your head in tax debt. It’s a tough place to be, for sure. For that reason, the first thing you should do is consult a qualified tax professional. He or she will analyze your previous return to the penny to make sure you aren’t offering to pay the IRS anymore than you owe. Oftentimes, this process alone will significantly lower your tax debt.
     Once you know exactly how much you owe, you’ll need to ask yourself a question: “Is this debt something I can pay off over time or is the amount so considerable that no matter how much time I have I will not be able to pay it off?”
     If you believe you can settle the debt over time, you should consider the Installment Agreement. With this program, the IRS allows you to pay your debt in small installments that allow you to chip away at your tax arrears without leaving you so broke you can’t enjoy life. You can think of it like a car payment — a significant but manageable monthly bill that you must account for and which, in the end, will satisfy for your debt.
     On the other hand, if you know you can’t pay off your debt over time — and you will have to prove this to the IRS — the Offer in Compromise could be for you. This allows you to make a settlement offer to the IRS which will eliminate your tax debt once and for all. Believe it or not, this settlement amounts to pennies on the dollar compared to your tax debt.
     We deal with problems like yours every day. We are IRS Problem Solvers. For a free, no-risk consultation, please call our office at 1-877-590-2500.

We Would Like To Hear From YOU!!

     Whether you’d like to avoid the IRS, contact the IRS, settle with the IRS or just want to refer a friend, relative or client, we would love to hear from you.  We would be happy to provide you or that special person you refer a no-obligation confidential consultation to explain every option available to solve IRS problems.

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