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Tax Times Newsletter -  December 2009

- Jay Schlichting

We help real people with real tax issues - successfully.

TOP NEWS

• Switzerland Notifies First 500 Suspected Tax Cheats
       The process has begun as the IRS finally dismantles what was once considered the safest tax haven for America’s wealthiest individuals.   It’s begun.  Authorities in Switzerland have notified the first 500 Swiss bank clients whose names they are set to turn over to the United States government for suspected tax evasion.
       Those 500 people will have met strict criteria established by Swiss authorities, which include holding over 1 million Swiss francs at any time between 2001 and 2008, the use of false documents or other fraudulent actions, and accounts that earned an average of 100,000 francs a year for the last three years.
       Under Swiss law, the taxpayers who are notified will have 30 days to appeal to Switzerland’s administrative court.  In the world of tax evasion and tax compliance, this is unprecedented — arguably the biggest tax story of the decade.
       For centuries, Switzerland built a reputation of neutrality that extended to its banking system, creating an independent enclave of banks immune from outside pressure. It was, by all accounts, the world’s greatest tax haven — a place for millionaires and despots alike to safely stash their fortunes.
       But all that has changed, thanks to a whistleblower and the U.S. Attorney’s Office, which won an agreement from the Swiss government to release the names and account information of U.S. taxpayers suspected of hiding money in the luxurious Alps.
       Those 500 people who received the first notices from Zurich have every reason to be scared. Amnesty is over for these taxpayers, and the IRS has made it clear that punishment will be harsh.  In fact, following announcement of the deal to obtain banking information from Switzerland, IRS Commissioner Doug Shulman said in a prepared statement: “Once the Swiss government turns over names, all bets are off.”
       But truth be told, only the most elite of American capitalists could afford the option of hiding money behind once-impenetrable Swiss banking veil.  But just because you don’t have an account in Zurich doesn’t mean you shouldn’t find this news important.
       In fact, if you’re in any way cheating on your taxes, you should be terribly concerned.  Here’s the simple reason why: For more than a half-century, a Swiss bank account was seen, even by IRS agents, as a walled castle. But in crashing through the gate, the IRS has proven that no tax-evasion scheme is immune from being toppled and, most important, from being prosecuted.
       Just ask the tens of thousands of Americans who were using a Caribbean bank account linked to a U.S. credit card to evade taxes. Now that the IRS has their information thanks to a separate deal with the credit card companies, they have every reason to be sorry.
       For the average person cheating on their taxes, the news from Switzerland should sound like a warning bell.  If they can get these guys, you better believe they can get you.
  
• Singer, TV Star Owes $1 Million to IRS
       Former Backstreet Boy Aaron Carter owes the IRS more than $1 million in unpaid taxes, according to tax lien filed in Los Angeles.  The former House of Carters star and Dancing with the Stars contestant has unpaid taxes that date back to 2003. For that year alone, Carter owes the government $965,284. He also owes $45,350 from income earned in 2006.  Carter, who was eliminated from the ninth season of Dancing with the Stars, has not been charged with a crime.
  
• Neb. Men Could Receive 10 Years
       Two men from Lincoln, Neb., were indicted by a federal grand jury on tax fraud charges that could put them behind bars for 10 years.  Christian Quevedo, 27, and Carlos Carpio, 27, both of Lincoln, were indicted for conspiracy to defraud the United States by filing false claims for income tax refunds totaling $121,936.00 for the 2005 and 2006 tax years.
       According to the indictment, the claims for tax refunds were based on false income tax returns filed by individuals recruited by Quevedo and Carpio. The returns misrepresented the true identity of the employers of the individuals on whose behalf the tax returns were filed and also inflated income and federal income tax withholding amounts of the individuals.
       The false returns were based on false Forms W-2s created by the defendants that contained fabricated names of employers, income and federal withholding amounts. According to the indictment, Quevedo and Carpio caused the inflated income tax refunds to be paid by the IRS to them. They kept most of the money and paid a small portion to the individuals on whose behalf the fraudulent income tax returns were filed.  In addition to prison time, each man could receive fines of up to $250,000.
  
• Fla. Man Receives 30 Months for Tax Evasion
       After pleading guilty to charges of federal income tax evasion, Carl Libertino, 42, of Sebastian, Fla., was sentenced 30 months in prison, to be followed by three years of supervised release. In addition, Libertino was ordered to pay the government $202,160 in restitution.
       According to court records, Libertino did not file personal income tax returns for 2004, 2005, 2006 and 2007. During these years, Libertino received substantial income, which he had not declared, including $443,160 in 2006. His income came, in large part, from people who believed they were investing their money through Libertino. In addition, to conceal his income and evade taxes, Libertino operated mostly in cash, withdrawing amounts small enough to evade federal currency transaction reporting requirements. Libertino also purchased large ticket items in cash, including, for example, purchasing a new car using a $20,000 cashier’s check and $7,620 in cash.
  
• Businessman Guilty in Evasion Scheme
       Businessman James T. Espinola, 61, of Pelham, N.H., pleaded guilty to tax evasion and assisting in the filing of false tax returns.  The charges are related to Suburban Middlesex Insulation (SMI) owners Darrell Maclean and Charles Smith, who were charged separately. SMI used laborers supplied by temporary employment agencies to perform asbestos-abatement work in industrial and public buildings in the cities, such as New Bedford, Fall River and Brockton.
       From 2001 to 2005, Maclean and Smith engaged in a scheme to evade income tax payments by having Espinola cash checks for them and by declaring those checks as business expenses. Each week, either Maclean or Smith would hand Espinola a second, larger check ranging in amount from $5,000 to $15,000. Espinola deposited the checks into his bank account, withdrew the funds in cash and then delivered the cash, minus a cut for himself, to Maclean and Smith at their office. For the years 2001 to 2005, Maclean and Smith failed to report their shares of the cash from Espinola on their tax returns as taxable income.
       For the tax years 2001 to 2005, Maclean and Smith deprived the United States Treasury of approximately $981,880 and $538,571 in tax payments, respectively. For his part, Espinola concealed approximately $372,410 of additional tax revenue by falsely understating his income for the same years to his tax preparer, knowing that the tax preparer would rely on his statements in preparing his income tax returns.
  
• ALASKA COUPLE FACES FIVE YEARS FOR EVASION
       James L. Jensen and Robin L. Jensen of Cordova, Alaska, were indicted in Anchorage on charges of evasion of tax payments, filing false income tax returns, and failure to file tax returns.
       According to the 12-count indictment, James Jensen is a commercial fisherman, and James and Robin Jensen owned a cabin-rental business called Bear’s Den Cabins. According to the charges, James Jensen attempted to evade paying his taxes for years 1994, 1995, 1996 and 1997 – which, by 2001, exceeded $200,000 – by sending the U.S. Secretary of the Treasury a fictitious financial instrument called a “Bill of Exchange.”
       The indictment also alleges that he created a number of nominee entities, including a trust and two corporations — “Eyak River Ministries” and the “Rhema Foundation” — in an attempt to hide income and assets.
       Other counts allege that for tax years 1998, 1999 and 2000, the Jensens filed income tax returns with false deductions and expenses that resulted in payment of no taxes. Finally, the indictment alleges that for tax years 2004, 2005, 2006 and 2007, they failed to file income tax returns.  They face up to five years in prison and a fine of up to $250,000.
  
• ALA. BUSINESSMAN GETS 30 MONTHS FOR INCOME TAX EVASION
       Timothy Smith, of Cullman, Ala., was sentenced to 30 months in prison for tax evasion. As part of the plea agreement, Smith agreed to a binding sentence of 30 months in prison and agreed to pay $170,380 in restitution to the IRS, including a lump sum payment of $50,000, which was paid prior to sentencing.
       In April 2009, Smith, who is the owner of College Tire in Hanceville, Ala., pleaded guilty to one count of tax evasion. According to the indictment, plea agreement and other court records, Smith diverted customer receipts from his tire business into two personal bank accounts. Smith also used, or directed others to use, cash and cashiers’ checks to make substantial principal payments on the mortgage for his vacation home in North Carolina and his vacation home in Pensacola, Fla.
       In total, Smith diverted more than $430,000 from his tire business to his personal bank accounts and his mortgages. Smith also purchased real estate in North Carolina near his vacation home with $68,100 in cash.
       According to court records, Smith concealed the funds that were diverted to his personal accounts and his mortgages from his bookkeeper, who prepared both Smith’s business tax returns as well as Smith’s joint personal returns.
  
• CT. MAN DODGED TAXES FOR 10 YEARS
       Vincent Mavilia, 66, of Warren, Ct., pleaded guilty to tax evasion. According to court records, Mavilia has owned and operated a number of bars and adult entertainment businesses. However, from 1992 to 2003, Mavilia took steps to conceal from the IRS his ownership of the businesses, and the income he received, by placing them in the name of his adult daughter. He faces up to five years in prison and a fine of up to $718,582.
  
• ASK THE EXPERTS:

  Question: After the first of the year, I want to resolve my financial problems, including my tax debt. I’ve read about and seen you discuss both the Offer in Compromise and the Installment Agreement. Which one is right for me?

  Answer:  First of all, what you’re planning to do is great. I can’t think of a better way to start the New Year than to find a way to resolve your financial problems and, most important, settle your tax debt.
       Unfortunately, due to the limited information I have on your case, I can’t tell you whether to choose the Offer in Compromise or the Installment Agreement. Each one is set up for unique situations. Instead, I’ll give you some advice and tell you a little about each program.
       Before you do anything else, you need to consult a qualified tax professional. He or she will analyze your previous returns, determine the exact amount you owe the IRS, and chart a course that will work best for you. It’s critical that you first meet with a qualified tax professional, as it’s possible your situation might not be quite as dire as you think it is.  Once you and your qualified tax professional have determined what you owe, it’s time to meet with the IRS.
       You should first consider the Offer in Compromise. This program is designed for taxpayers who owe a substantial amount but for whatever reason cannot pay down their debt. If you qualify, you will be able to reduce your tax debt significantly by using the Offer in Compromise program. However, if you do not qualify for this program, I recommend you consider the Installment Agreement. This program allows you to pay down the tax debt over a period of time, in a manner similar to how you might pay down your car loan.
       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