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Tax Times Newsletter -  July 2010

- Jay Schlichting

We help real people with real tax issues - successfully.

TOP NEWS

• A Tax Evasion Chapter Ends As IRS Gets Tough
       After the deal almost fell apart, the Swiss parliament and Swiss bank UBS agree to provide data to the IRS, finally collapsing the world’s most famous tax shelter.  With an historic deal on the brink of collapse, the Swiss parliament has approved the release of banking data to the Internal Revenue Service.
       The deal, brokered in the wake of a Department of Justice investigation of Swiss banking giant UBS, pierces the Swiss banking veil and destroys a tax shelter so famous it has become a common pop-culture reference.  Now, UBS is in position to release the details of 4,450 account holders suspected of evading U.S. income taxes.
       For UBS, the decision to release the data came with significant arm-twisting from the U.S. government. In February 2009, UBS agreed to pay the U.S. government $780 million in order to put an end to criminal charges alleging the bank helped U.S. clients evade taxes.  For U.S. taxpayers engaged in tax evasion, the agreement with UBS and the Swiss government should come as startling news.
       What was once considered an impenetrable veil — a tax shelter so strong it had survived two World Wars and an international banking crisis — is no more.  The IRS will soon obtain data and information on U.S. taxpayers who have evaded taxes for years, even decades.
       While it’s true that Swiss banks tended to be the tax shelter of choice for the wealthiest of U.S. taxpayers, the UBS deal is just as important to those evading taxes through other means.  In short, the U.S. government’s success in piercing the Swiss banking veil should prove finally that no tax shelter is safe.
       Indeed, previous actions from the IRS support that conclusion.  Before the Swiss agreement, the U.S. government brokered a deal with the major credit card companies to provide information on clients who were linking their credit cards to offshore bank accounts, primarily in the Caribbean. At the time, a common tax-avoidance scheme was to funnel money into a Caribbean account, then use it to pay credit card bills full of purchases made in the United States.
       The tax evaders who employed this scheme either came forward during the amnesty period or were prosecuted, just as the UBS account holders likely will be.  With a record deficit and a slow economic recovery, the federal government has made tax collection and enforcement a top priority. This year, the U.S. Congress approved a record $5.5 billion enforcement budget for the IRS.
       That means the IRS will have even more agents this year to audit taxpayers and investigate tax cheats — part of a three-year trend of putting more revenue officers on the streets.  So let’s summarize:
  • The IRS stopped the use of credit cards linked to offshore accounts.
  • The U.S. Department of Justice pierced the Swiss banking veil.
  • Is there any reason to believe a lesser tax cheat will have better luck?
     
• Ore. Couple Convicted in Shelter Scheme
       A married couple in Portland, Ore., was convicted of nine counts of criminal tax violations spanning 10 years for their sale and promotion of abusive tax shelters.
       Micaela Renee Dutson, 48, and Tony Dutson, 53, were convicted of conspiring to defraud the IRS, obstructing the IRS, causing clients to use bogus financial instruments in an attempt to pay their taxes, failing to file tax returns, and aiding and advising a client to file a false tax return. In all, according to the government, the Dutsons helped to defraud the IRS of approximately $7 million.
       Micaela Dutson was a lawyer, and the couple used her law office in Tigard, Ore., to promote and sell abusive tax trusts for several years before moving to Arizona in 2003. The couple made more than $1 million dollars from the scheme and paid no income tax. The Dutsons also filed approximately 30 bogus tax returns, attempting to claim fraudulent refunds from the IRS totaling more than $185 million.
   
• Ind. Man Gets 3.5 Years in Tax Case
       Thomas Shakespeare, 63, of Avon, Ind., was sentenced to 42 months in prison after pleading guilty to embezzling $583,270 from his employer and multiple counts of tax evasion.  From March 2002 to November 2008, Shakespeare, while working as controller for Advantage Marketing Inc., made fraudulent entries to the business’ payroll systems over this six-and-a-half-year period. These fraudulent entries allowed him to receive higher paychecks on 147 occasions, totaling more than $583,000.
       Shakespeare was also convicted of five counts of income tax evasion for the tax years 2003 to 2007. He failed to file income tax returns and failed to pay taxes on the embezzled funds as well as his normal salary.
       Shakespeare was also sentenced to serve two years of supervised release following his prison term and ordered him to pay $583,270 in restitution to Advantage Marketing. In addition, Shakespeare will forfeit his home, two cars and more than $40,000 in his retirement account. The amount of forfeited property is estimated to be worth approximately $200,000.
   
• La. Man Claimed Only $5 in Income, Faces Prison
       Reginald Caillouet Jr., 61, of Houma, La., was charged in a one-count bill of information with tax evasion.  According to court records, in April 2006, Caillouet attempted to evade paying approximately $43,487 in income tax by filing a false 2004 tax return that stated he did not have any tax due. Caillouet said his income for 2004 was only $5, when in fact, as Caillouet well knew, his taxable income was at least $117,928.
       If convicted, the Louisiana man faces up to five years in prison and a fine of up to $100,000 as well as two years of supervised release following any prison term.
   
• Tax Protestor Pleads Guilty
       A Huntington Beach, Calif., man who sold videotapes and books that promoted his strategy to use corporations to conceal personal income has pleaded guilty to using his corporations to hide income from federal tax authorities.
       Dana Ray Reynolds pleaded guilty to two counts of subscribing to false tax returns for the years 2002 and 2003 and admitted that he failed to report more than $300,000 in income to the IRS in each of the years.
       Reynolds, who promoted his tax-avoidance strategy through companies such as Repackaging America and Incorporating You used these companies to pay personal and family expenses. Reynolds also used the corporations to conceal assets, such as automobiles, recreational vehicles and at least one vacation home. Reynolds did not report the money taken from the corporations as income, causing tax losses of more than $80,000 to the IRS.
       “To market his concealment and avoidance strategies, Mr. Reynolds highlighted his own elaborate lifestyle made possible by following the plans he developed. Now, Mr. Reynolds faces federal prison for having subscribed to false tax returns and his own misguided marketing,” said Leslie P. DeMarco, Special Agent in Charge of IRS Criminal Investigation’s Los Angeles Field Office, in a statement. Reynolds faces up to six years in prison.
   
• BUSINESSMAN WHO USED DAUGHTER TO CONCEAL INCOME SENTENCED TO PRISON
       Vincent Mavilia, 67, of Warren, Conn., was sentenced to 18 months in prison, to be followed by three years of supervised release, for evading federal income taxes for more than a decade. Mavilia was also ordered to pay a $5,000 fine.
       According to court documents and statements made in court, 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 Internal Revenue Service his ownership of the businesses as well as the income he received by placing them in the name of his adult daughter.
       Mavilia further attempted to conceal his income from his businesses by using bank accounts in his daughter’s name to deposit funds and make payments of his personal expenses.
       Mavilia also purchased and owned real property in Branford, Brookfield and Danbury, but placed the properties in the names of other individuals in order to keep them far from the reach of the IRS.  In addition to his sentence and fine, Mavilia was ordered to pay $359,291.15 in back taxes, penalties and interest.
   
• GA. MAN SENT TO FEDERAL PRISON, UNDERREPORTED INCOME BY MORE THAN $1 MILLION
       Robert L. Braddy Jr., 39, of College Park, Ga., was sentenced to two years and six months in prison for income tax evasion. He was also ordered to pay $306,906 in restitution.  Braddy was immediately remanded to the custody of the U.S. Marshals Service at the conclusion of the sentencing hearing.
       According to court records, when Braddy filed his 2003, 2004 and 2005 federal income tax returns, he willfully attempted to evade a large part of the income tax he owed the United States by filing a false and fraudulent U.S. Individual Income Tax Return (Form 1040).
       For each of the returns he filed, he knew that his total income and the tax due and owing substantially exceeded the amounts he reported. Braddy underreported his income by more than $1.1 million and underpaid his income taxes by $306,906
       “This defendant hid $1 million in income and cheated his fellow citizens who pay their fair share of taxes. Now he is going to prison,” said United States Attorney Sally Quillian Yates in a statement.  Braddy is not eligible for parole.
   
• CONN. LAWYER RECEIVES PROBATION IN TAX CASE
       David Thomas, 56, Killingworth, Conn., was sentenced to three years of probation for failing to pay taxes on more than $120,000 in income. According to court records, Thomas was retained by the Cedar Island Improvement Association to provide legal assistance. Thomas received $120,977.22 from the association that he then failed to report. Thomas must pay approximately $80,744 in back taxes, penalties and interest.
   
• ASK THE EXPERTS:

  Question:  I’ve read some of what you’ve said about the Offer in Compromise program. To be honest, I find it hard to believe. There are so many scams out there. I owe a good deal of money in back taxes, and I don’t know how I’ll pay it off. But why would the IRS agree to accept less than I owe?

  Answer:  Your skepticism is healthy. Indeed, there are a lot of scams out there today — many of them preying on people in tax trouble — and so you are wise to take a skeptical approach at first.
       But I — and every other qualified tax professional out there — can assure you that the Offer in Compromise is not a scam. To understand why the IRS might be willing to accept less than you owe as part of a compromise offer, it’s important to understand the IRS’s position and mentality: Prior to use of the Offer in Compromise, the IRS often took a tough-as-nails approach with indebted taxpayers — knocking on doors, chasing taxpayers across the country, trying everything to collect what was owed.
       During this period, the IRS began to realize that a gentler approach could actually be more effective. The irony is that the Offer in Compromise in many ways allows the IRS to collect more tax revenue than the more aggressive tactics netted. That’s exactly why the tax-collecting agency might be willing to accept less than you owe as part of a compromise offer.
       Now, if you’re interested in filing an Offer in Compromise, the first thing you should do is consult a qualified tax professional. He or she will analyze your previous returns, establish the exact amount of your tax debt, and chart a course of action. Of course, you need to make sure you qualify for the Offer in Compromise program, and this is where you’re qualified tax professional can help. However, if you do not qualify, you may have other good options, such as the 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..

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Specialists in IRS Representation and Tax Preparation