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Tax Times Newsletter - March 2009

- Jay Schlichting

We help real people with real tax issues - successfully.

TOP NEWS

• IRS Finally Pierces the Swiss Banking Veil -  In a blow to tax cheats, Switzerland’s largest bank agrees to divulge the names of those suspect of using offshore accounts to evade U.S. taxes
       In the world of tax cheats, the news doesn’t get much bigger.  UBS, the largest bank in Switzerland, agreed to provide to the U.S. government with the names of those it suspects of using its accounts to evade paying taxes in the United States. The unprecedented move comes after UBS agreed to pay $780 million to settle an investigation of its activities.
       Federal prosecutors suspected UBS helped American clients evade as much as $300 million a year in taxes from 2002 to 2007.
       How many names of wealthy American tax cheats UBS will provide in this newest measure is unclear. However, according to a lawsuit the Department of Justice filed against UBS in Miami, as many as 52,000 U.S. customers hid their UBS accounts from the government in violation of tax laws.
       According to a UBS document filed with that Miami lawsuit, as of the mid-2000s, those secret accounts held about $14.8 billion in assets.
       “At a time when millions of Americans are losing their jobs, their homes and their health care, it is appalling that more than 50,000 of the wealthiest among us have actively sought to evade their civic and legal duty to pay taxes,” said John A. DiCicco, Acting Assistant Attorney General for the Justice Department’s Tax Division, in a statement at the time of the lawsuit’s filing.
       “It is time for those who are trying to hide from the IRS to rethink their actions. The Department of Justice is committed to do all that it can to aid the IRS in locating those who would seek to hide behind secret accounts and in holding them accountable under the federal tax laws.”
       For those using offshore accounts to evade taxes, this should be among the final warnings that they are not safe. Even the wealthiest of tax cheats, the ones using the Swiss banks whose records many considered impenetrable by the U.S. government, are now at risk of total exposure and prosecution by the IRS and the Department of Justice.
       While the news is certainly surprising, it isn’t shocking.
  For several years, the IRS has been moving more and more aggressively toward tax cheats who use offshore accounts to hide their assets. Many tax cheats once used offshore accounts linked to credit cards that then were employed to purchase goods and services in the United States — seemingly a way of keeping money off the IRS’s books.
       That, of course, stopped working once the IRS forced MasterCard to turn over records of those customers whose cards were linked to offshore accounts.
       At this point, now that the largest Swiss bank is cooperating with the federal government, there are no safe havens for tax cheats. It’s time to turn yourself in.
       “Taxpayers should talk to a tax professional and come forward under our voluntary disclosure process,” said IRS Commissioner Doug Shulman. “Having the IRS find you could mean a much heavier price than coming forward on your own.”
   
• Pro Golfer Faces Tax Charges
       Professional golfer Jim Thorpe faces four counts of failure to file an income tax return and three counts of failing to pay income taxes.
       According to prosecutors, in addition to being a golfer on the PGA Champions Tour, Thorpe earned income by playing in PGA events and from various endorsements. He also was the sole officer and director of a Florida corporation known as JLT Inc.
       Thorpe, 59, of Heathrow, Fla., allegedly failed to file on a timely basis his personal income tax returns for the years 2002, 2003, and 2004; failed to file on a timely basis the corporate income tax return for JLT Inc. for the year 2003; and failed to pay his personal income taxes for the years 2002, 2003, and 2004. The total unpaid income tax for the three years is about $1.6 million, the government alleges.
       Thorpe faces up to seven years in prison, a $3.2 million fine and seven years of supervised release.
   
• Fla. Doctor Tries, Fails to Evade IRS
       A doctor in the Orlando, Fla., area pleaded guilty to one count of failure to file an income tax return.
       According to the plea agreement, Nelson V. Vazquez, 48, of Deltona, Fla., intentionally did not file income tax returns from 2002 to 2004. The total amount of unpaid taxes for those three years was $54,140.
       Vazquez, a medical doctor licensed to practice in Florida, worked as a temporary physician for other physicians and for medical placement companies from 1991 to 2005. He requested that his employers issue his compensation checks to an employee-leasing company. The employee leasing company then received Vazquez’s compensation checks, deducted its fees, and paid Vazquez as a “leased worker.” The employee leasing company, however, did not file Form 1099s or Form W-2s reporting Vazquez’s income. This allowed Vazquez to hide his income from the IRS. Vazquez last filed income taxes for the 1995 tax year.
       During the IRS audit process, Vazquez sent letters to an IRS Revenue Agent disputing the agent’s examination authority and argued against the constitutionality of the federal income tax system.
       The doctor faces up to one year in prison and a fine of $108,280.
   
• Chicago Businessman Deals with Tax Charge
       The president of a Chicago government relations and economic development firm was charged with filing a false federal corporate income tax return for allegedly underreporting his firm’s taxable income.
       Illinois Development Services Corporation president Anthony B. Bruno, 56, was charged in a single-count criminal information alleging he filed a federal corporate income tax return for Gray & Associates for calendar year 2001 which stated that Gray & Associates’ taxable income was negative $101,239, knowing that the firm’s taxable income was in excess of that amount.
       If convicted, Bruno faces up to three years in prison and a $250,000 fine.
   
• In L.A., ‘Son of Boss’ Defeated
       In a 52-page ruling, a federal judge in Los Angeles invalidated a popular abusive tax shelter scheme used by prominent real estate investors James Thomas and Edward Fox of Las Angeles.
       Thomas, a former IRS attorney, and Fox owned real estate in the Las Angeles area, including interests in the Library Tower and the Wells Fargo Center. In 2001, they sought out an abusive tax shelter known as “Son of Boss.” Thomas and Fox purchased a financial option they claimed would have protected them against a decline in real estate values.
       Judge John F. Walter, however, determined the option was simply designed to fabricate tax basis in certain partnerships. The court rejected Thomas’s attempt to claim an increase in tax basis of $100 million despite paying only $1.5 million for the transaction at issue. Similarly, the court rejected Fox’s attempt to claim a $45 million increase in tax basis despite paying only $675,000. According to the court, Thomas and Fox “obviously recognized” the tax benefits to this fabricated basis.
       Most of the more than 2,000 taxpayers who used the “Son of Boss” scheme settled their cases with the IRS, paying the full tax and part of the penalties owed, and the IRS announced in 2005 that it had collected nearly $4 billion as a result of those settlements. The government warned taxpayers who did not settle that it would pursue those cases in court and seek the maximum penalty allowed.
   
• COUPLE SENTENCED FOR PONZI SCHEME, INCOME TAX EVASION
       Shirley G. Graybill, 72, of North Haven, Conn., was sentenced to two years of probation — the first four months of which she must spend in home confinement — after pleading guilty to one count of making and subscribing to a false 2002 tax return.
       According to court records, the Triple Diamond Foundation was an entity created by Graybill and her husband, Dale L. Graybill, purportedly to fund cancer research — but which did not have tax-exempt status from the IRS. The Graybills controlled the Triple Diamond Foundation and its bank account. During the 2002 tax year, the Graybills transferred about $350,000 from the Triple Diamond Foundation account, used those funds as income, and failed to pay about $93,293 in federal taxes.
       On October 13, 2003, Graybill filed a tax return with the IRS in which she failed to claim her actual taxable income, which was approximately $316,519.79.
       The Graybills also must pay $93,293 to the Internal Revenue Service. In addition, Dale Graybill was sentenced to 48 months in prison following his conviction on one count of mail fraud stemming from his operation of a multimillion-dollar Ponzi scheme in which he solicited investments for fictitious investment programs.
   
• COLO. COUPLE CHARGED WITH TAX EVASION
       Cheryl McMillan, 56, and Marion McMillan, 61, of Monument, Colo., were charged with tax evasion. The government alleges the husband and wife filed false and fraudulent tax returns that substantially underreported income for the tax years 2003 and 2004.
       Cheryl McMillan faces two counts of tax evasion, while her husband Marion faces one count of tax evasion. They both face up to five years in prison and a $100,000 fine for each count.
       “Tax scofflaws may wind up behind federal bars,” said United States Attorney Troy Eid in a statement.
   
• MICH. MAN GETS 22 MONTHS FOR TAX ISSUE
       Richard Blanchard, 52, of Warren, Mich., was sentenced to 22 months in prison and ordered to pay $195,000 in restitution to the IRS.
       In August 2007, a federal jury convicted Blanchard on 18 counts of failure to account for and pay over employee withholding taxes.
       From 1997 to 2003, Blanchard operated R. Blanchard Construction Company, which provided excavation and snow removal services. He withheld $195,000 in taxes but failed to pay the money to the IRS.
   
• ALA. WOMAN GETS 12 MONTHS FOR FALSE INCOME TAX FILINGS
       Sharon Brown-Acklin, 36, of Hamilton, Ala., was sentenced to 12 months and one day in prison for 27 counts of preparing false tax returns. In addition, Brown-Acklin will serve one year of supervised release and was ordered to pay $79,832 in restitution to the IRS. Brown-Acklin’s use of false information, including filing status and inflated deductions, resulted in $252,123 of improperly claimed deductions and exemptions.
  
  
• ASK THE EXPERTS:

  Question:  Given what you’ve said before, I don’t think I qualify for an Offer in Compromise. But that doesn’t mean I’m not in tax debt that’s keeping me awake at night. What can I do?
  Answer:  You’re right — partially. Not everyone qualifies for the Offer in Compromise program, but you’re making a huge mistake by assuming from the outset that you don’t qualify.
       If you’re lying awake at night as a result of tax debt, the first thing you need to do is see a qualified tax professional. He or she will analyze your previous returns and current financial situation with a fine-tooth comb. If you do indeed qualify for an Offer in Compromise, you could reduce your tax debt by pennies on the dollar.
       But, for the sake of your question, let’s assume you do not qualify for the Offer in Compromise program. That doesn’t mean you don’t have options. The best among those options for you is likely the Installment Agreement.
       The Installment Agreement works as its name implies: Let’s say you owe a substantial amount in tax debt but cannot pay off that debt with a single check. The IRS, despite its reputation for being tough on taxpayers, understands this situation, and for that reason, the tax-collecting agency offers the Installment Agreement. You can enter into an agreement that will allow you to pay down your debt in monthly installments — just like a car loan, for example — in a manner that will eliminate your debt in the long run without significantly compromising your life. For example, if you’re putting a kid through college, there’s no reason you can’t continue to do that and enter into an Installment Agreement.
       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