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Tax Times Newsletter - February 2009

- Jay Schlichting

We help real people with real tax issues - successfully.

TOP NEWS

• FY2008 Tax Enforcement Numbers Show Vigilance
     Though slightly down from 2007, tax enforcement number in 2008 were among the highest in a decade.  The large number of tax evasion and audit cases you’re hearing about today isn’t a symptom of yellow journalism.
     In fact, the fiscal-year 2008 tax enforcement numbers released by the Internal Revenue Service are among the highest in a decade.
     In fiscal-year 2008, the IRS collected $56.4 billion through collection, examination and document-matching efforts. That figure is a slight decrease from 2007’s $59.2 billion but a dramatic increase from 1999, when the government had $32.9 billion in enforcement collections.
     But the most dramatic figure in the recent numbers comes in the staffing column. Even as the IRS collected nearly twice as much last year as it did in 1999, the agency accomplished this with fewer enforcement staff members — 20,722 in 2008, compared to 22,543 in 2007 — suggesting the government is becoming more efficient even as it becomes more aggressive.
     Last year, the IRS stepped up its investigations of offshore accounts used to hide income and evade taxes. The agency has begun to examine these accounts — and the taxpayers who use them — using the same tools criminal investigators use in looking at those headline-grabbing cases you see in the newspapers.
     In fact, these days, IRS agents are doing more than just following the money. They’re building sources.
  • “Using informants is another part of our toolkit,” IRS Commissioner Douglas Shulman said during a December tax conference.
  • “Since the inception of the Whistleblower Office in 2007, the IRS has received hundreds of tips on financial institutions and individuals with foreign accounts and international compliance issues. Some of these have become big money cases.
  • “Dozens of these tips involve the names of individuals with offshore accounts; others involve the names and practices of financial institutions in those countries that typically have strict bank secrecy laws.
  • “And keep in mind the value here is far greater than just the names of specific individuals,” Schulman continued. “With work, these tips provide the information the IRS needs to pursue John Doe summonses – our next important tool.
  • “The IRS generally uses the John Doe summons authority to identify individuals, groups or classes of US taxpayers whose member identities are unknown, who are involved in specific areas of tax noncompliance and who cannot be identified through other means.”

     For taxpayers, the implications of these recently released numbers and Commissioner Schulman’s statements are obvious: The IRS is doing everything and anything it can in its considerable power to investigate and curb tax evasion, from simple audits to examinations of complex, multinational tax shelter programs.
     This situation isn’t likely to change. With the economy down and tax revenues decreased, Uncle Sam’s tax-collecting agency is going to take every step it can to collect what’s due. Be warned.
   

• Ohio Man Loses Bet With IRS
     An Ohio gambler will spend the next 18 months in prison after pleading guilty to tax evasion charges.  Paul E. Sabatino, of Streetboro, Ohio, who pleaded guilty to the charge, was also ordered to perform 150 hours of community service and continue treatment for gambling addiction.
     From 2002 to 2005, Sabatino embezzled approximately $1.7 million from a client of the CPA firm where he worked as an accountant. During that period, Sabatino incurred gambling losses exceeding the amount of the embezzlement and he used most of the embezzled funds to pay his gambling debts. Sabatino attempted to evade taxes of approximately $510,079 owing for those years by concealing the embezzlement income and laundering the money.
     During the years 2002 to 2004, Sabatino deposited approximately $1.2 million of the embezzled funds into a bank account he maintained in the name of a nonexistent landscaping business. He reported only $228,200 of those funds on his tax returns, by showing them as Schedule C business receipts of the purported landscaping business. Later, Sabatino began laundering the embezzled funds with the help of a friend.
   
• Church Sound Man Evaded Income Taxes
     A Tennessee man, in pleading guilty to tax charges, told the court he owes the federal government more than $300,000.  Charles Grecco, 44, of Franklin, Tenn., was sentenced to serve 6 months in prison after pleading guilty to two counts of failure to pay taxes to the United States.
     According to the government, Grecco failed to pay more than $67,000 in federal income taxes for years 2001 and 2002. During the plea hearing, Grecco admitted that, while operating the business Sterling Group Audio, he did not make estimated tax payments as required by law. Grecco’s business consisted primarily of installing complex sound systems in church auditoriums across the United States.
     The investigation revealed Grecco lived a lavish lifestyle during the time that he failed to pay his tax liabilities. His personal expenditures during that time included Lasik eye surgery, elective plastic surgery, generous church donations, dance lessons, home-school tuition, several luxury vehicles, two expensive homes and a vacant lot.
     Grecco admitted that as of May 17, 2007, he owed more than $300,000 in taxes, penalties and interest for tax years 2000 to 2005.
   
• Texas Woman Did Not Report Nearly $500,000
     A Texas woman faces up to three years in prison after pleading guilty to tax charges.  Donna J. Nelson, of Sulphur Springs, Texas, pleaded guilty to false income tax reporting. According to information presented in court, Nelson admitted to understating her 2006 income by $136,100 on her Form 1040 U.S. Income Tax return. Other court documents also showed she had similarly underreported earnings for tax years 2003 through 2007, totaling $479,781.36. This resulted in an overall tax loss of $135,171.24.
   
• Tax Shelter Dealer Faces 5 Years
     A financial services consultant based in Memphis pleaded guilty in New York to conspiracy to defraud the IRS in connection with tax shelters marketed by the accounting firm Ernst & Young.
     According to the information filed in Manhattan federal court and statements made during the guilty plea, 46-year-old Charles Bolton, from 1998 to 2002, was involved with an E&Y group, known initially as “VIPER” for “Value Ideas Produce Extraordinary Results,” and later as “SISG” for “Strategic Individual Solutions Group,” that designed, marketed and implemented high-fee tax strategies, including tax shelters that purported to eliminate, reduce or defer taxes on significant income or gains. The shelters purported to allow wealthy individuals to pay a percentage of their income in fees to E&Y, Bolton’s companies, and other participants in the transactions, rather than paying taxes to the IRS.
     The two shelters the Bolton companies implemented, known as Contingent Deferred Swap and CDS Add-On, involved financial trades that were implemented and overseen by the Bolton companies and other entities. Bolton himself made millions of dollars from his involvement in the shelter transactions and ownership of the related companies.  Bolton faces up to five years in prison and will be sentenced in April.
   
• FOUR N.C. WOMEN SENTENCED IN TAX FRAUD CASE
     In Wilmington, N.C., four women were sentenced for their involvement in a tax fraud scheme.  Pamela D. Evans, 33, received 15 months in prison; Bertha Battle, 28, received 15 months in prison; Tasha Battle, 28, received 180 days of home confinement with electronic monitoring; and Gwendolyn P. Evans, 49, received one month in prison and up to 150 days of home confinement with electronic monitoring.
     All four pleaded guilty to conspiring to defraud the government and filing false claims.  From January 2004 to April 2004, according to the indictment, the four defendants, while employees of Independent Tax Service in Rocky Mount, N.C., made claims for refunds from the IS by filing or causing others to file false 2003 federal income tax returns.
     The four women inflated wages and/or withholdings and listed false dependants and/or false dependant information to qualify clients for the earned income credit in IRS Forms 1040 and 1040A individual tax returns. They also allegedly sold fraudulent dependent information to some clients so they would qualify for a larger refund and claimed education credits for clients who were not entitled.
   
• ORE. MAN PLEADS GUILTY TO TAX EVASION
     Mark Arthur Henriksen, 56, of Monmouth, Ore., pleaded guilty to one count of income tax evasion for the year 2001.  In 2001 and 2002, Henriksen was a principal of Applied Technical Systems, a business in Lake Oswego that installs commercial data networks. In response to a prior IRS levy against him, Henriksen used a friend to act on his behalf as a nominee shareholder of the company in order to circumvent that levy. Henriksen evaded the assessment of his income taxes by instructing employees to make his bonus checks payable not to him, but instead to shell companies he had created.  Henriksen faces up to five years in prison and a fine of up to $100,000.
   
• ARCHITECT GUILTY OF TAX EVASION
     Architect Jeffrey Alan Carrithers, of Portland, Ore., pleaded guilty to one count of income tax evasion for the year 2000.  According to the plea, Carrithers received substantial taxable income in 2000 and owed a substantial amount of tax. He willfully attempted to evade taxes, however, by concealing his true taxable income from the IRS and by failing to pay the tax due and owing.
   
• TENN. BUSINESSMAN GETS 8 MONTHS FOR EVASION
     Thoeun Chan, 52, of Germantown, Tenn., was sentenced to eight months in prison and ordered to pay $207,142.30 in restitution following his guilty plea for tax evasion. Chan, owner of Handiworks Jewelry and Winchester Pawn and Jewelry in Memphis, admitted he failed to report about $274,875 in income for 2001 and about $277,277 in income for 2002. These false returns resulted in a tax loss of approximately $207,142.30.
  
  
• ASK THE EXPERTS:

  Question:  I owe back taxes to the IRS. But how do I know if this Offer in Compromise will work for me? Am I eligible?
  Answer: I can’t say for certain whether you are eligible until I have an opportunity to meet with you in person and analyze your records. But certainly, if you owe back taxes to the IRS and you are unable to pay the debt, you may be eligible for this program.
     First, I think it’s important to understand what the Offer in Compromise is and why it exists: For years, the IRS chased tax debtors and tried aggressive, so-called “door-beating” measures to collect the debts. Ironically, what they discovered is that, in some cases, a kinder, gentler approach is more effective. Enter the Offer in Compromise. For those with tax debt who are no longer in a financial situation that would allow them to pay down the debt, the Offer in Compromise allows for a one-time settlement that will wipe out IRS debt once and for all. Often, the settlement amount comes to pennies on the dollar.
     Why does the IRS offer this? Because collecting some money with minimal effort is much better for the government than collecting little, if anything, with extreme efforts. It’s really that simple.
     Now, for you as a taxpayer with debt, you should first consult with a qualified tax professional. He or she will analyze your previous returns and current situation to determine if you qualify for the Offer in Compromise program. If you do, you and your tax professional will meet with the IRS and negotiate a final settlement amount once and for all.
     That’s it. Of course, as I mentioned, only certain people qualify for this program. While the IRS isn’t seeking to bankrupt anyone, the tax-collecting arm of the government won’t look kindly on people holding enormously valuable assets.
        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