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Tax Times Newsletter - December 2008

- Jay Schlichting

We help real people with real tax issues - successfully.

TOP NEWS

• The End of the Tax Year Is Near - Have you been naughty or nice? Uncle Sam wants to know — and he’s doing a lot to find out.
       For U.S. taxpayers cheating here and there — or maybe just about everywhere — on their taxes, this news should send a chill up the spine.
       Federal prosecutors in Miami have indicted not Joe Six-Pack for tax evasion — but Joe Six-Pack’s boss’ boss’ boss.
       Raoul Weil, a senior executive of a large Swiss bank with offices worldwide, including the United States, has been charged with conspiring with other executives, managers, private bankers and clients of the banking firm to defraud the United States.
       According to the criminal indictment, from 2002 to 2007, Weil oversaw the Swiss bank’s cross-border private banking business that provided services to about 20,000 U.S. clients who reportedly concealed $20 billion in assets from the IRS.
       Weil — who allegedly referred to this business as “toxic waste” — mandated that Swiss bankers grow the cross-border business despite knowing this would cause bankers to violate U.S. law.
       In announcing the indictment, IRS Commissioner Doug Shulman said in a statement: “The IRS is aggressively pursuing anyone who helps wealthy individuals hide their assets offshore and dodge the tax system. As the global commerce and capital flows continue to increase, we have stepped up our efforts on international tax evasion.”
       Government officials often can be faulted for blowing hot air.  But Schulman isn’t.  In fact, 2008 has been something of a banner year for the IRS. Investigations and collections are up. Tax enforcement revenue reached $59.2 billion.
       The IRS has also settled disputes with such U.S. titans as drug maker Merck, the Hollywood Foreign Press Association, the once-powerful law firm J&G and Sidley Austin, a law firm that paid $39.4 million in penalties for promoting abusive tax shelters.
       Then there are the celebrities.  Richard Hatch, who won the first season of CBS’s hit show Survivor, is now in prison for failing to report $1 million in prize money.  Actor Wesley Snipes didn’t report to the IRS two contracts he received worth more than $10 million. He was convicted of three misdemeanor counts of failing to file a tax return.
       Other well-known targets of IRS investigation in 2008 include singer Marc Anthony and Joe Francis, the producer of the Girls Gone Wild videos.  And then there are the thousands of Average Joes nationwide who have been audited or charged with tax evasion this year.
       At every level, the IRS has become increasingly aggressive in pursuing tax cheats. The tax-collecting agency is not only going after those U.S. taxpayers who try to avoid taxes, but also their alleged enablers — people such as Raoul Weil.
       Since 2008 is quickly drawing to a close, now might be a good time to ask yourself this:  Are you willing to have the IRS in your life in 2009 the way it was for so many other folks in 2008?
   
• FORMER CASINO OWNER GETS 15 MONTHS FOR TAX EVASION
       The former owner of Lucky Chances Casino in Colma, Calif., was sentenced to 15 months in prison and ordered to pay $973,841 in income taxes.  Rene Medina had previously pleaded guilty to tax evasion.
       According to the plea agreement, Medina admitted that from July 1999 to June 2007, he was the sole shareholder of Lucky Chances, a casino/card club.
       Lucky Chances filed U.S. Income Tax Returns for a Subchapter S Corporation (Form 1120S) with the IRS for the tax years 1999, 2000 and 2001. In filing as a Subchapter S Corporation, Lucky Chances’ income should have been reported on Medina’s personal income tax returns.
       Medina also admitted that he evaded payment of his federal income taxes by causing Lucky Chances to make payments for personal expenses and fictitious business expenses in the amount of more than $1 million.
       These payments were expensed by Lucky Chances on its books, records and tax returns as ordinary and necessary business expenses. The personal expenses included furniture and redecorating services for his personal residence in Atherton, Calif.
   
• COLO. MAN GETS 12 MONTHS FOR PREPARING FALSE RETURNS
       Kennedy Oduro, 32, of Denver, Colo., was sentenced to 12 months and one day in prison and 12 months of supervised release for aiding in the preparation of false tax returns. He was also ordered to pay $21,000 in restitution to the IRS.
       Oduro was charged with willfully aiding and assisting in the preparation of false federal income tax returns for the years 2003 and 2004.  He pleaded guilty to willfully aiding and assisting the preparation of false federal income tax return.
       “Don’t even think about not paying your taxes,” U.S. Attorney Troy Eid said in a prepared statement.
   
• BUSINESSMAN PLEADS GUILTY TO EVASION
       Stephen R. Savage, 51, of Milford, Mass., pleaded guilty to three counts of income tax evasion. Prosecutors told the court government evidence showed Savage was the owner of a construction business when he subscribed to several services to hide his income and expenses from the IRS. Savage filed a false federal tax return for calendar year 2002 and failed to file tax returns for 2004 and 2005. He faces up to 5 years in prison and a fine of up to $250,000 on each of the three counts.
   
• PROPRIETORS OF CHINESE RESTAURANT RECEIVE PROBATION FOR TAX EVASION CHARGES
       Californians Zhong Lin, 39; Man Chau Cheng, 37; and Zhong’s sister, Yan Lin Fong, 36, were each sentenced to one year probation for conspiracy to defraud the United States. Zhong was also ordered to pay $140,367 in income taxes owed from tax years 1995 to 2002. The three operated the restaurant Chinatown Buffet in Louisville, Ky.
   
• Brazilian Racing Star Faces U.S. Tax Evasion Trial
       Brazilian race-car driver and “Dancing with the Stars” winner Helio Castroneves faces a tax-evasion trial in March 2009 in a Miami federal courtroom.  Castroneves, 33, a two-time winner of the Indianapolis 500, pleaded not guilty in October and is free on $10 million bail.
       Federal prosecutors charged the driver-turned-dancer with one count of conspiracy and six counts of tax evasion, alleging he failed to report $5.5 million in income from 1999 to 2004. Castroneves, with the help of his sister and lawyer, allegedly set up a corporation in Panama to aid in the tax-evasion scheme.
       Meanwhile, Castroneves has asked for the trial to be delayed. Penske Racing, in an affidavit filed with the court, said it “will be forced, in all likelihood, to change drivers” if the trial begins in March.  If convicted, Castroneves faces up to five years in prison for each count. 
   
• Angry Taxpayer Attacks IRS Officials
       One Alabama man thought a good defense against the IRS was a good offense.  In the end, it could cost him dearly.  Ernest Milton Barnett, 49, of Birmingham, Ala., has been indicted for assaulting a federal employee with a deadly weapon and damaging government property.
       The indictment alleges Barnett assaulted employees of the IRS and Small Business Administration by ramming his vehicle twice into the side of a government building that houses both agencies.  If convicted, he faces up to 20 years in prison and a fine of up to $250,000.
   
• Self-Proclaimed Priest Sentenced to 54 Months
       Self-proclaimed priest Earl R. Wolfe was sentenced to 54 months in prison on charges of tax fraud and was ordered to pay $224,869 in restitution. In September, Wolfe was found guilty by a Fort Lauderdale jury of conspiring to defraud the United States and filing false tax returns.
       According to court records, from 1999 to 2004, Wolfe reported $600 of income on tax returns he filed with the IRS. However, evidence at trial proved he earned more than $750,000 as an unlicensed architect. Wolfe attempted to conceal his income by cashing more than $600,000 at a local check-cashing store and using nominee entities. Evidence presented at trial also proved that Wolfe had not paid any income tax since 1989.
       In addition to concealing his income, Wolfe attempted to hide his assets from the IRS. In October 2003, falsely claiming to be a priest, Wolfe created the Office of the Presiding Overseer of the Domicile Creators Service Ministry, which purported to be a tax-exempt religious entity. Wolfe then transferred ownership of his personal residence and two Harley-Davidson motorcycles to the so-called ministry.
   
• IRS Agent Indicted on Tax Charges, Obstruction
       A revenue agent with the Internal Revenue Service has been arrested in connection with a scheme to defraud the government by claiming he suffered a loss when he sold his real estate when, in fact, he realized a substantial profit.
       Jim H. Liu, 42, of Diamond Bar, Calif., is an IRS revenue agent who conducts audits of taxpayers. He was arrested at Los Angeles International Airport. Liu was indicted by a federal grand jury on three counts — one count of submitting a false tax return and two counts of obstructing the IRS investigation of his tax return.
       The indictment charges that Liu filed a false tax return that improperly claimed a loss on a sale of a property in Pomona. Liu actually sold the property for a substantial gain and should have paid taxes on that substantial gain, the indictment alleges.
       The indictment also alleges that during the IRS audit of Liu’s tax return, he provided false documents and made false statements to the IRS in an attempt to obstruct the audit. Liu allegedly mailed and faxed documents to the IRS that falsely stated he bought the property for $231,250 when he knew that he had actually purchased it for $185,000.  If convicted, Liu faces up to 13 years in prison.
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• ASK THE EXPERTS:

  Question:  Like a lot of people these days, I have tax troubles. I hear you talk a lot about the Offer in Compromise and the Installment Agreement. How do I know which one is best for me and why?
  Answer: The truth is, it’s impossible to answer that question without going over in detail your current financial situation. For that reason, the first thing you should do is consult a qualified tax professional.  That said, it may help you to know details about these two programs:
       The Offer in Compromise is, in a sense, the product of a lesson learned for the IRS. After years and years of beating down doors, IRS officials realized that a kinder, gentler approach can be as effective, if not more effective, than a clenched fist.
       The program is designed specifically for taxpayers who, for whatever reason, amassed a substantial tax debt but now lack the financial resources to settle that debt, even over time. Under this circumstance, the IRS will consider the Offer in Compromise — essentially a negotiated settlement offer that will eliminate your tax debt once and for all. Oftentimes, the Offer in Compromise amounts to pennies on the dollar of the original debt amount.
       An alternative program is the Installment Agreement. This is a lot like it sounds. For taxpayers who cannot pay their debt now but could over time (unlike those who may qualify for the Offer in Compromise), the Installment Agreement allows taxpayers to settle their tax debts by making regular monthly payments.
       The benefit of this program is that taxpayers can pay down their debt without having to compromise too much on their lifestyle. Think of it, from a personal budgeting aspect, as an extra car payment.
       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