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Tax Times Newsletter - September 2009

- Jay Schlichting

We help real people with real tax issues - successfully.

TOP NEWS

• No Surprise: U.S. Wins Records Battle With Swiss
       The end is near for U.S. taxpayers who are using the world’s most famous tax haven to shield assets and avoid paying Uncle Sam his due. In one of the latest — and among the highest stakes — battles for the U.S. government in its war on tax cheats, the Internal Revenue Service won an agreement that will give it an unprecedented amount of information on account holders at Swiss bank UBS.
       Under the agreement, the IRS will submit a treaty request to the Swiss government describing the accounts for which it is requesting information. The Swiss government will then direct UBS to initiate procedures to turn over information on as many as 4,500 accounts to the IRS.
       The IRS will receive information on accounts of various amounts and types, including bank-only accounts, custody accounts in which securities or other investment assets were held and offshore company nominee accounts through which an individual indirectly held beneficial ownership in the accounts.
       The agreement is a huge blow to the Swiss economy, which has long depended on its financial services industries and bank secrecy laws.  For the U.S. government, the agreement creates one of the hottest tip sheets in the tax-compliance game.
       “We’re finding out about financial institutions that facilitated tax evasion and we’re going to pursue them,” IRS Commissioner Michael Schulman said in an interview with Bloomberg Television. “We’re finding out about other intermediaries, like law firms and others who promoted tax evasion.”
       Information provided to the IRS from the Swiss will be examined for all potential civil and criminal tax violations. The IRS will assess any additional tax, interest and a number of applicable penalties. This includes the penalty for the willful failure to file a report of Foreign Bank and Financial Accounts (FBAR). This penalty can be up to 50 percent of the value of the account for each year an FBAR was not filed.
       The U.S. agreement with the Swiss government follows an admission by UBS that it aided Americans in evading taxes. In fact, two UBS bankers and four U.S. clients were prosecuted after UBS banker-turned- whistleblower Bradley Birkenfeld, 44, helped investigators probe $20 billion in taxpayer assets hidden overseas.
       In many ways, the U.S-Swiss agreement to disclose information on UBS accountholders is a symbolic victory, since the Swiss banking veil was largely considered impenetrable. The IRS has demonstrated that isn’t true, and in doing so, the tax-collecting agency shows that no tax haven in the world is completely safe.
       In fact, U.S. tax cheats are finding fewer and fewer places to hide. Recently, the IRS won agreements with U.S. credit card companies that disclosed to the government card members whose accounts were linked to overseas bank accounts — a formerly common tax evasion tactic.
       For average taxpayers — most of whom probably have no idea how to obtain a Swiss bank account — the news should still bring a warning. Whatever tax avoidance or evasion scheme you’re considering, you may want to rethink picking a fight with the heavyweight IRS.
   
• Baltimore Man Nabbed in Tax Refund Scheme
       A Baltimore man was charged in connection with an international tax-fraud conspiracy that sought to obtain more than $35 million in federal and state income tax refunds using the identities of 3,300 federal prisoners.
       Ten men, including the leader of the conspiracy, Marvin Berkowitz, 62, of Jerusalem, Israel, were indicted by a federal grand jury in Chicago after Berkowitz and the others were arrested in Israel and other locations throughout the United States.
       Joel S. Lowenstein, 63, of Baltimore, has agreed to plead guilty to conspiracy to commit mail fraud and will appear at a future date in Harrisburg, Penn., for his arraignment.  If convicted, Lowenstein faces up to five years in prison and fines up to $250,000.
   
• R.I. Man Did Not Pay $2.1 Million
       A Rhode Island man pleaded guilty to tax evasion and bankruptcy fraud after admitting he failed to pay $2.1 million in employment taxes for his two construction companies from March 2005 to July 2006.
       Steven Allard, 47, of Scituate, R.I., also admitted that in October and November 2005, he made false statements in a personal bankruptcy petition and during the bankruptcy creditor’s hearing, in that he failed to disclose his ownership of real property in Warwick, R.I.
       Instead of paying the employment taxes, Allard used funds from his companies for the benefit of himself and his wife and by diverting funds from the companies to Eaglewood Realty for the purchase of luxury automobiles. He faces up to five years in prison and a fine of up to $100,000.
   
• N.J. Man Faces Five Years After Guilty Plea
       The owner of a Barnegat, N.J., construction company pleaded guilty to a charge of tax evasion for failing to report income of approximately $242,764.  At his plea hearing, Daniel Carlo, 45, stated that he owns and operates a construction company under the name of “Cartar” from his residence in Barnegat. Carlo admitted that in April 2006, he prepared, signed and filed with the IRS a 2005 individual tax return which stated that his taxable income for calendar year 2005 was $0.
       Carlo admitted that he failed to report taxable income of about $242,764, upon which an additional tax of approximately $78,792 was due to the IRS.  Carlo also admitted that in an effort to hide a substantial part of the unreported income, he deposited client receipts into bank accounts in the name of his wife and daughter. He faces up to five years in prison and a fine of up to $250,000.
   
• Las Vegas Attorney Owes $4 Million
       A Las Vegas personal injury attorney who was convicted last year of tax evasion and owes almost $4 million to the IRS was sentenced to five years in federal prison.  Edmund C. Botha, 47, was also ordered to serve three years of supervised release and to pay $685,505 in restitution to the IRS as a condition of supervised release.
       “The length, breadth, and complexity of this scheme and the gravity of the offense warranted a severe penalty,” said Greg Brower, U.S. Attorney for the District of Nevada. “Despite earning more than $7 million between 1996 and 2006, Mr. Botha paid just over $230,000 in taxes and went to great lengths to hide his assets from the IRS.”
       According to the court records and evidence presented at trial, Botha evaded the taxes by purchasing luxury vehicles in his ex-girlfriend’s name; transacting all of his business in cash and cashier’s checks; and entering into a sham child-support agreement requiring him to pay about $20,000 per month for two children. Testimony at trial showed that Botha conducted over $2 million in cash transactions from 1998 to 2003 and paid his rent, utilities, payroll, and other business expenses with cash or cashier’s checks. Evidence further showed that Botha purchased more than 10 vehicles worth more than $400,000 over a six-year period in his ex-girlfriend’s name, while at the same time having only a 15-year-old car with over 100,000 miles on it in his name.
   
• AKRON MAN RECEIVES 8 MONTHS FOR INCOME TAX CHARGES
       Daniel L. French, of Akron, Ohio, was sentenced to eight months in prison, to be followed by three years of supervised release, for attempting to evade personal income taxes for the year 2003.  French pleaded guilty to the charge in a written plea in which he also acknowledged he attempted to evade his 2002 taxes and filed false 2002 and 2003 S Corporation returns for a corporation he previously owned and operated under the name D.L. French Co. Inc.
       According to the plea agreement, French filed false S Corporation returns (Form 1120S) for the years 2002 and 2003, whose deductions for purported corporate payments for “shop supplies and parts” and “subcontract labor” were in fact disbursements for his personal benefit.
       Among these disbursements were checks deposited into a nominee bank account French controlled. As a result of the overstatement of costs, the corporate returns also understated the corporation’s income, which was reportable on French’s personal returns as distributive income. French attempted to evade his personal income taxes for 2002 and 2003 by filing false tax returns on which he understated his income and tax liabilities by reporting his falsely understated business income.
   
• CONN. MAN GETS FIVE MONTHS PRISON FOR FAILING TO PAY TAXES
       William DeLorenze, 54, of Westbrook, Conn., was sentenced to five months in prison, to be followed by one year of supervised release, after pleading guilty to one count of filing a false federal income tax return for calendar year 2002.
       According to court records, DeLorenze sold a house in 2002 and did not report a taxable capital gain of $71,831 on his 2002 return. The investigation also revealed that, from 1999 to 2003, DeLorenze failed to report approximately $74,000 in rental income on properties he owned.
   
• SALON OWNERS RECEIVE 18 MONTHS FOR EVASION
       Judith and Norman Artzt, of Boca Raton, Fla., were sentenced to 18 months in prison, to be followed by two years of supervised release, after pleading guilty to conspiring to defraud the IRS. In addition, they were ordered to pay restitution in the amount of $243,379.50.
       Judith and Norman Artzt operated a Boca Raton hair salon called “Norman’s of New York.” The salon employed approximately 40 hairdressers, and the Artzts regularly made cash payments to employees that were not reported, causing a liability of $372,713.66 in payroll taxes for the years 2000 to 2004.
   
• TEXAS WOMAN GETS ONE YEAR FOR TAX CRIMES
       Donna J. Nelson, 47, of Sulphur Springs, Texas, has been sentenced one year and a day in prison for tax crimes. According to information presented in court, Nelson admitted to filing a false federal tax return for tax years 2002 to 2006. During that time, she underreported her adjusted gross annual income by a total of $479,781.36, representing additional taxes owed of $135,171.24.
   
• ASK THE EXPERTS:

  Question: Give it to me straight and easy. If I owe money to the IRS that I cannot find a way to pay back, how do I go about qualifying for and negotiating with the IRS in an Offer in Compromise?

  Answer:  No matter what, your first step at this point should be to consult a qualified tax professional. He or she will not only analyze your previous tax returns, but after doing so,will be able to tell you whether the Offer in Compromise program will work for you.
       First, it might help to understand fully what the Offer in Compromise program is. Simply, after years of chasing deadbeat taxpayers with mixed results, the IRS realized that a kinder, gentler enforcement approach can be more effective than an iron-fisted one. Enter the Offer in Compromise program, which allows taxpayers who are absolutely unable to satisfy their debts to negotiate a settlement amount with the IRS. Oftentimes, believe it or not, that settlement is a lot less than you owe.
       Now, assuming you do qualify for an Offer in Compromise, your qualified tax professional will closely analyze your previous returns to come up with the exact amount you owe the IRS. After all, why go to the negotiating table starting with an amount even a penny more than you owe? Once that’s complete, you and your tax professional will sit down with an IRS agent and come to an agreement on what you need to pay to settle this tax debt once and for all.
       Really, it’s that simple. Keep in mind, too, that should you not qualify for the Offer in Compromise program, you have other options as well — including the Installment Agreement — and you should discuss these alternatives with your tax professional.
       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