Work for the IRS and Have a Conduct Issue? No Problem! Here’s Your Bonus!

In 2012 it was discovered in an audit that over 2,800 employees with conduct problems received bonuses, so in 2016-2017 the Treasury Inspector General for Tax Administration conducted another audit, and found the problem is still ongoing.

Although the IRS screening stopped over 1,000 employees with tax problems from getting bonuses, another 1,962 employees with discipline problems, including 26 who were found cheating on their taxes, received bonuses totaling over $1.7 million. Three of the employees who received a combined bonus of over $7,000 were found to have over $65,000 in outstanding tax balances.

Among those who received bonuses, two employees who sexually assaulted colleagues received nearly $1,500 in combined bonuses, and another 2 employees receiving bonuses were found to be illegally snooping on taxpayer’s returns.

A spokesman for the IRS said, “The examples are unacceptable but that it’s taken steps to get a handle on things since the last audit.  This continues to be a priority for us, and we will continue to make improvements going forward.”

How April 15th Became Tax Day

April 15th, otherwise known as Tax Day didn’t come into effect until 1955, where it has remains to this day.

With the Revenue Act of 1861 to help fund the civil war, the first income tax was introduced.  It was subsequently repealed, re-adopted and ultimately declared unconstitutional.

In 1895, the Supreme Court heard Pollock v. Farmers’ Loan & Trust Co. who challenged the Wilson-Gorman Tariff Act which taxed incomes over $4,000 at the rate of 2%.  The court ruled that the Act’s taxes were “direct” taxes which according to the Constitution, should be appropriated by the state.

In 1913, the 16th Amendment was added to the Constitution which gave the legal authority to Congress to tax all incomes. The filing deadline at that time was March 1st; changed to March 15th in 1918 and in 1955, changed to April 15th.

The IRS Smells Something Rotten with Produce Business Owner

Thomas Paine of Johnson Creek, WI, and former corporate officer of Tree Ripe Citrus Company, pled guilty in U.S. District Court to charges of tax evasion.

Paine was responsible for the financial and tax aspects of the business but did not file corporate tax returns from 2010-2012.  He concealed the business’ income by structuring cash deposits of less than $10,000 to avoid the bank’s reporting requirements.  The loss to the IRS is estimated to be between $250,000 and $550,000.

Paine faces a maximum sentence of five years in prison, supervised release, restitution and monetary penalties.

“Poker Princess” Leaves More Than Her Cards On The Table

Most young people in their 20’s who go to Hollywood are looking for fame and fortune.  After growing up as a competitive skier in Colorado, Molly Bloom just wanted some sun.  What she found instead was the shadowy world of high-stakes poker and a path that would lead to her arrest by the FBI and the IRS demanding thousands in unpaid taxes.

Many people are already familiar with Bloom who wrote a memoir about her experience as the “Poker Princess,” and her book, “Molly’s Game,” was later adapted into a movie of the same name, starring Jessica Chastain.

For those who don’t know, in 2001, Bloom took a job as a cocktail waitress in LA’s Viper Room, where she helped run poker games.  Players included actors like Tobey Maguire, Leonardo DiCaprio, and Ben Affleck.  She discovered she had a talent for running the games, and in a single year, Bloom made over $4 million in tops.

In the beginning Bloom kept her operation legal by paying taxes on her income, but things became shady in 2009 when Bloom relocated and started her own underground games in New York.  To help players keep playing Bloom began extending credit.  But after getting stiffed $250,000, Bloom began taking a percentage of the pot, which is illegal.  The IRS of course, doesn’t care how one earns their money.  Legal or not, you have to pay taxes on that money.

In 2011, the government came knocking – or, more accurately, 17 FBI agents armed with automatic weapons crashed through her door.

The government seized all of Bloom’s money, and the IRS demanded she cough up nearly $1,000,000 she owed in back taxes.  Bloom’s mother had to sell her home in order to get her daughter out of jail and pay the legal fees.  Charged with a federal crime, Bloom could have spent years in federal prison.  However, though she pled guilty, the judge determined she was just a minor player in the gambling ring.  In 2014, Bloom was sentenced to one year of probation, 200 hours of community service, and a fine of $1,000.

Although Bloom got a Hollywood ending, she’s aware of how lucky she is.  Gifted with a second chance, Bloom is negotiating with the IRS to figure out a payment plan for her restitution and has launched a service to help women succeed in their own business ventures.

Building a “Villa” Isn’t Considered a Business Expense by the IRS

Joseph Nocito, of Sewickley, PA was indicted by a federal grand jury in February 2018 on charges of conspiring to defraud the US and filing fraudulent income tax returns.

It’s alleged that Nocito, the CEO and President of Automated Health Systems Inc. (AHS), fraudulently claimed millions of dollars of personal expenses as corporate business expenses, such as construction of his 39,000 sq. ft. house which he named “Villa Noci”, payments on a Jaguar, Maserati and Rolls Royce, a personal butler and cook, and country club memberships. Nocito did not report the income he diverted on his personal tax returns.

Furthermore, the indictment alleges that Nocito hid millions of dollars in taxable income from AHS by diverting the funds to other companies he owned, and  falsely claimed these funds on his corporate returns as management, administrative and consulting expenses to reduce his tax liability.

If convicted, he faces a maximum sentence of five years in prison for the conspiracy charge, three years for each count of filing a fraudulent return, monetary penalties, restitution and supervised release.

Your IRS Questions Answered Here…

Question: I’m currently separated from my spouse, who owns his own business, and we are in the process of getting a divorce.  I have always filed jointly with my spouse and now the IRS is sending me notices stating I owe $35,000.  I have no idea how they are coming up with this amount as my spouse said he was paying the IRS.

Answer:  You may be able to avoid this liability entirely under the IRS’s Innocent Spouse Relief rules.  Under federal law if an income tax return is signed by both husband and wife, both spouses are 100% responsible for the taxes owed.  However, the law permits special consideration where a spouse cannot be held responsible for mistakes that are attributable to the other spouse.

If you meet the following criteria you may be able to apply for innocent spouse relief:  Your spouse didn’t report all their income; and you were not aware of it and no reason to know about it when you signed the tax return; and it would be unfair to hold you liable for the taxes owed due to your spouse’s error. If you feel you were deceived by your spouse or tricked into signing a return you thought was correct this will help your case too.  There are many other ways you may be eligible for relief under the IRS’s innocent spouse rules and we can help sort this out and determine the proper path for resolution.

A Bit of Humor at Tax Time

A little boy wanted $100 badly and prayed for two weeks but nothing happened. Then he decided to write a letter to the Lord requesting the $100. When the postal authorities received the letter addressed to the Lord, USA, they decided to send it to President Clinton. The President was so impressed, touched, and amused that he instructed his secretary to send the little boy a $5.00 bill, as this would appear to be a lot of money to a little boy. The little boy was delighted with the $5.00, and sat down to write a thank-you note to the Lord. It said: Dear Lord, Thank you very much for sending me the money. However, I noticed that for some reason you had to send it through Washington, DC and as usual, those jerks deducted $95.

Owner of Pizza Restaurant Slices his Income on his Tax Returns

The owner of Tony’s Pizza House in Protem, MO, Tony E. Cowden, was sentenced to serve 18 months in federal prison with no possibility of parole after pleading guilty to five counts of tax evasion.

Cowden had listed his business and property for sale in 2015 and undercover agents, posing as potential buyers met with Cowden.  During the meeting, Cowden could not substantiate the sales price of $599,000 with the income on record, but told the agents that, “it saves me a lot of taxes.” He admitted to them that he pocketed all of the money from the sale of Keno-Lotto tickets and the cash received from his restaurant’s arcade games.  He also offered his customers discounts on their meals if the bill was paid in cash.

The loss to the IRS was $91,037 and the state loss on income and sales tax $47,490 which he must pay in restitution plus $29,581 to the Social Security Administration for disability payments he was not entitled to receive.

Bookmaker Gambles That the IRS Won’t Discover Illegal Income

Two men from Wichita, KS, Danny Chapman and Daven Flax pleaded guilty to federal charges of income tax evasion and operating an illegal gambling business.

Chapman was a sports bookmaker who failed to report earnings of $345,000 made from illegal gambling.  Customers of Chapman would place bets through an online gambling site based in Costa Rica.

Chapman attempted to hide his income by purchasing money orders and cashier’s checks in the name of family members, and by purchasing cars in cash under other’s names.

Daven Flax was in charge of the invitation only poker games where his duties were to pay the dealers, caterers and waitresses where the games were held in various commercial locations in Wichita.  Flax also failed to disclose his illegal income which amounted to $65,000 in federal taxes owed.

Both defendants face up to five years in prison and monetary fines.

Taxpayer Beware! Yet Another New Scam!

This year’s tax scam has been traced to infected tax preparer’s computers, where fake returns are sent to the IRS claiming refunds.  The information provided on the false returns has the accurate information of the taxpayer, including dependent data and bank account information.

The scammers then pose as IRS agents and contact the taxpayer to inform them of the fake refund and ask them to turn over the checks or direct deposit funds to a debt collection firm owned by the scammers.

What is unclear and has not been answered by the IRS is how the fake refunds started showing up in taxpayer’s bank accounts as soon as January 30th when the IRS did not start accepting returns until January 29th.  This is leading some tax preparers to question whether the scammers have been getting help from dishonest IRS workers.  The IRS has denied the allegations.

If you receive a refund that you did not expect, the IRS says to write VOID on the check and return it to a regional IRS office or in the case of a direct deposit call the toll-free number (800) 829-1040 for instructions and close the bank account.