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Tax Times Newsletter - November 2008

- Jay Schlichting

We help real people with real tax issues - successfully.

TOP NEWS

• Two-Thirds of Companies Agree to Settle with IRS
       The Internal Revenue Service’s aggressive tax compliance and enforcement initiatives continue.
       The U.S. tax-collecting agency announced it has received settlement agreements from more than two-thirds of American corporations suspected of participating in arrangements that pushed away income tax obligations for many years.
       These arrangements, known Lease-In/Lease-Out (LILO) and Sale-in/Sale-Out (SILO) transactions, are complicated dealings in which a large corporation leases or purchases substantial assets, such as foreign rail systems or sewer systems, and then leases those assets back to the original owner. This arrangement can delay recognition of income, becoming a sort of tax shelter.
       The IRS, trying to put the kibosh on these transactions, notified U.S. corporations it believed were using them and offered these companies an opportunity to settle with the government.
       In all, two-thirds of notified companies complied, representing 80 percent of the total number of LILO and SILO leases and 80 percent of the dollars in dispute.
       “This broad response from some of the nation’s largest corporations reflects the success of the IRS campaign against aggressive tax shelters,” said IRS Commissioner Doug Shulman in a statement.
       “Corporations that have chosen to settle have done the right thing by putting this behind them. For those who failed to take us up on this offer, we will vigorously pursue their cases.”
       The government has gone to court and challenged successfully LILO and SILO transactions as having no purpose other than to create tax benefits. Prior to the settlement initiatives, hundreds of these transactions had yet to be fully examined or adjudicated fully.
       The large percentage of eligible corporations electing to participate in the settlement offer substantially lessens the examination inventory.
       The LILO/SILO settlement initiative is the latest in a series of efforts to detect, deter and resolve individual and corporate tax shelters. Over the past eight years, the IRS has vigorously attacked tax shelters through examination, litigation and administrative guidance.
       “In the end, all American taxpayers benefit because this strong response to a settlement offer frees up IRS staff to actively pursue other compliance priorities,” Shulman said.
       The IRS is uncompromisingly pursing tax shelters not only among the nation’s largest corporations but also among private citizens.
       In recent months, the IRS requested taxpayers notify the agency of all foreign bank accounts held. In fact, the IRS took action against 100 U.S. taxpayers with accounts in the tiny nation of Liechtenstein.
       In move after move, the IRS has made one thing clear: Whether you’re a large company or a private citizen, tax evasion will be punished.
   
• GEORGIAN NATIONAL PLEADS GUILTY TO TAX EVASION CHARGE
       Vitali Popkov, a 31-year-old Georgian national living in Morrow, Ohio, pleaded guilty to one count of committing income tax evasion and one count of aiding and abetting marriage fraud.
       Popkov admitted that he operated Mirage Cleaning Services of Cincinnati from September 2003 to December 2007. His company contracted with area businesses and hotels to provide cleaning services.
       From January 2004 to December 2007, Popkov paid wages totaling $2.7 million to his employees but knowingly failed to withhold federal income taxes on wages paid and failed to pay the company’s share of the taxes.
       As a result, Popkov evaded $423,635 in federal employment taxes.  He faces a punishment of up to five years in prison, a fine of up to $100,000 and payment of taxes, interest and penalties on the amount of unpaid taxes.
       What’s more, Popkov admitted that he helped an associate arrange a sham marriage with a U.S. citizen in Louisville, Ky.
       For the marriage fraud charge, Popkov faces up to five years in prison and a fine of up to $250,000, as well as possible deportation.
   
• SOFTWARE DESIGNER GETS 21 MONTHS ON TAX CHARGES
       Fayez Damra, aka Alex Damra, was sentenced to 21 months custody and three years supervised release. He was also fined $50,000 and ordered to pay $274,389 in restitution to the IRS.
       Damra, 43, who resides in Henderson, Nev., was convicted by a jury of conspiring to defraud the United States in connection with an alleged conspiracy in which Fayez distributed funds from his computer software design corporation, known as Applied Innovation Management, to members of the Damra family, then deducting those funds as AIM expenses. Fayez was also convicted of attempting to evade and defeat approximately $184,788 in corporate income tax due from AIM for its 1999 tax year.
   
• PROPERTY INVESTOR RECEIVES 6 MONTHS
       Robert A. Huff was sentenced to six months in prison, to be followed by one year of supervised release, for failing to file a 2001 tax return. Huff in 2001 and 2002 was self-employed in various real estate business activities in the greater Cleveland, Ohio, area. In his written plea agreement, Huff acknowledged that he had gross receipts of approximately $283,142 in 2001 and $405,064 in 2002 and that he willfully failed to file tax returns, or pay any taxes, on the income.
   
• R.I. MAN FACES FIVE YEARS FOR TAX CHARGE
       Jon Wilk, 48, of Wakefield, R.I., pleaded guilty to income tax evasion, admitting he failed to report about $648,000 in income from his masonry company. Wilk tried to conceal his income by converting business checks to cash, getting paid personally, and depositing customer checks into his girlfriend’s bank account. In addition, in 2004, Wilk asked clients to make checks out to him personally rather than to the business. He faces up to five years in prison.
   
• FedEx Pilot Pleads Guilty to One Count in Tax Evasion Case - A FedEx pilot, charged with six counts of income tax evasion, pleaded guilty to one of those counts.
       According to the indictment, Michael D. Mason, 51, of Cordova, Tenn., failed to file income tax returns for calendar years 2000 to 2004. Additionally, the indictment alleges that Mason failed to pay the IRS income tax due and owing and concealed or attempted to conceal his true and correct income from the IRS. Mason pleaded guilty to income tax evasion for calendar year 2003, a year in which he received approximately $240,359 in taxable income. As part of his plea agreement, Mason agreed that the tax loss to the United States for tax years 2000 to 2004 was $229,064.48, and he agreed to make restitution to the IRS.
       Once Mason became aware of the IRS investigation of him, he formed sham entities to be used as nominees. In fact, he employed an attorney to prepare legal documents making it appear as if Mason’s residence was mortgaged to one of Mason’s sham nominee entities in an attempting to prevent IRS from collection efforts against his home.
   
• Va. Man Faces Prison Again for Tax Charge - A Virginia man may be headed back to prison for tax evasion.
       Richard C. Menner, 48, of Glen Allen, Va., was convicted on five counts of filing a false federal tax return and one count (Continued on Page 2)
  (Continued from Page 1: Va. Man Faces Prison Again for Tax Charge)
  of obstruction of justice following a three-day jury trial.
       Menner was previously convicted in federal court in 1998 on five counts of failing to file his individual income tax returns for tax years 1991 through 1995 after evidence was introduced at trial showing that he had received income from various individuals and building contractors during the prosecution years.
       After Menner was released from prison, evidence showed he obstructed the IRS’s attempts to assess and collect the taxes owed for tax years 1991 to 1995 by repeatedly submitting documents to the IRS that set forth frivolous legal arguments claiming that he had not earned any income during those years and that he owed no tax.
   
• Bar Owner Faces Five Years for Tax Charge - A Tennessee bar owner pleaded guilty to tax evasion and faces up to five years in prison and a $100,000 fine.
       According to prosecutors, John H. Rawlings, 70, of New Johnsonville, Tenn., filed a false and fraudulent income tax return for the calendar year 2002. The return claimed Rawlings had no taxable income and owed no taxes during that year when, in fact, he knew that he had approximately $92,358.21 of taxable income from owning the bar. In all, he owed approximately $35,413.44 in income taxes.
       Rawlings admitted he kept journals and records in which he recorded the income to the bar and the expenses. However, Rawlings omitted income he received from cover charges while including the expenses for payments he made to the bands that played at the bar. He provided these records to his bookkeeper for the purpose of preparing his income tax returns.
   
• School Board Member Pleads Guilty to Tax Evasion Charge
       Former Parsippany-Troy Hills (N.J.) Board of Education member John J. Montefusco Jr. was sentenced to three years of probation for willfully filing a false tax return, admitting that he failed to report approximately $159,000 in income on his 2003 federal tax return.
       Montefusco pleaded guilty to one count of a three-count criminal information charging him with willfully subscribing to a false tax return.
       At his plea hearing, Montefusco admitted that in or about 2003, he failed to report approximately $97,576 in taxable capital gains that he received from the purchase and immediate sale, or “flipping,” of two townhouses in Morris Plains. Montefusco also stated that in 2003, he received approximately $43,950 in upgrades, options and extras that were added to his primary residence.
       Montefusco also stated that in 2003, he was a partner at a company that provided him travel and entertainment expense payments and that these monies were to be used for legitimate business-related activities. Montefusco, however, admitted that he used these monies for personal purposes and that he falsely characterized them as legitimate business expenses on his 2003 tax return. As a result of these false characterizations, Montefusco failed to report approximately $18,075 of additional income received on his 2003 tax return.
   
• ASK THE EXPERTS:

  Question:  What’s the saying? When your friend loses his job, it’s a recession. When you lose yours, it’s a depression. Well, it’s a depression — and it’s worse because I owe a substantial amount in taxes. I feel hopeless. What can I do?
  
  Answer: First of all, you aren’t alone. In fact — and this is tragic — as the economy worsens, there may be many more people in positions just like yours.
       It’s important to remember right now that you are not in fact hopeless or helpless. You have options, and now is a time when you should explore what option will be best for you moving forward.
       Since you say you are unemployed and owe a lot in taxes, one of your best options may be the Offer in Compromise. This IRS program is designed for taxpayers who, for whatever reason, have found themselves in a situation in which they absolutely cannot pay their tax debt. Obviously, losing a job in a bad economic climate could be such a situation.
       The first thing you should do is consult a qualified tax professional. He or she will analyze your return, ensuring that you are not obligating yourself to pay the IRS even a penny more than you truly owe. Once your true debt figure has been established, you and your qualified tax professional will meet with an IRS agent and negotiate a final settlement amount. This often amounts to pennies on the dollar.
       Unbelievable, you might be saying. Not really. After chasing taxpayers without much success, the IRS discovered a kinder, gentler approach, such as the Offer in Compromise, can be more effective in collecting taxes than a steel fist.
       While I think the Offer in Compromise is the first option you should explore, given your situation, it’s not your only option. Another is the Installment Agreement. Let’s talk about your options.
       I solve IRS problems like yours every day. I’m an IRS Problem Solver. For a free, no-risk consultation, please call our office.

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