Owner of Tax King has to Trade his Crown for Handcuffs

Corry Pearson, who operated Tax King in West Palm Beach, FL was found guilty of eight counts of aggravated identity theft, four counts of money laundering, 16 counts of wire fraud and one count of conspiracy to commit wire fraud in what prosecutors say is a $6.1 million tax fraud scheme.

Pearson, who was a former pizza deliveryman with no accounting experience, opened Tax King with two employees, Stephane Anor and Irene Wilson, who both previously pleaded guilty to the charges.

Using Pearson’s business and home tax prep software, the three filed over 1,600 tax returns on behalf of people whose identity was stolen, including prison inmates, during the years 2012-2014.  At that time, the quick-refund program with the IRS was in effect and Internal Revenue Service agents would automatically send refunds without verifying people’s identities.  The IRS paid out $1.3M in refunds.

Pearson could face up to a maximum of 20-40 years in prison.

2017 Business Tax Reform Provisions

On December 20, 2017, Congress passed its comprehensive tax reform bill, the Tax Cuts and Jobs Act (“the Act” or “the Bill”), which is expected to be signed into law by President Trump in early January 2018. The Bill represents one of the most extensive modifications to the U.S. tax code in recent history, significantly modifying U.S. taxation for individuals and businesses.  Below you will find a summary of some important provisions related to the Business Tax Reform Bill.

  • Corporate tax rate. The corporate tax rate will be a flat 21% rate, as opposed to the current graduated rates, with the top rate currently at 35%.
    Dividends received deduction (“DRD”). Under current law, a corporation is allowed a DRD of 80% of the related dividend from a 20%-owned domestic corporation, and a DRD of 70% of the related divided from other corporations. The 80% and 70% rates will be reduced to 65% and 50%, respectively.
  • Alternative minimum tax. The corporate alternative minimum tax will be eliminated. The current corporate AMT rate is 20%, with an exemption amount of up to $40,000.
    Section 179 property expensing. The maximum amount of qualifying property that can be expensed under Section 179 in a given tax year will be increased to $1 million (from $500,000), and the phase-out threshold will be increased to $2.5 million (from $2 million).
  • Cost recovery of qualifying business assets. The current 50% bonus depreciation is increased to 100% for qualified assets placed in service after September 27, 2017 and before December 31, 2022. For assets placed after 2022, the amount of bonus expensing allowed will decline by 20% each year until it phases out completely for qualified property placed in service after December 31, 2026.
  • Limitations on business interest deduction. Taxpayers will be subject to a disallowance of a deduction for net interest expense in excess of 30% of the taxpayer’s net adjusted taxable income, which is calculated before net operating losses, depreciation, amortization, and depletion. A special rule applies to pass-through entities, which requires the disallowance to be determined at the entity level (i.e., at the partnership level rather than the partner level). An exemption from this limitation applies for taxpayers with average annual gross receipts for a rolling three-year tax period that do not exceed $25 million.
  • Net operating loss. Net operating losses arising after tax years beginning after December 31, 2017 will be carried forward indefinitely, as opposed to the current carryforward period of 20 years, but may only offset 80% of taxable income. Further, the current two-year carryback period will be repealed.
  • Like-kind exchanges. Effective for transfers after December 31, 2017, the rule allowing the deferral of gain on like-kind exchanges is modified to allow for like-kind exchanges only with respect to real property that is not held primarily for sale. That is, deferral would no longer be allowed for exchanges of intangible property, or tangible personal property such as artwork.
  • Cash method of accounting. Under current law, C corporations and partnerships with a C corporation partner may use the cash method of accounting only if its average annual gross receipts did not exceed $5 million during the three-year period ending with the previous tax year (the “gross receipts test”). For tax years beginning after December 31, 2017, the gross receipts test is modified such that a taxpayer may use the cash method of accounting if, during the three-year period ending with the previous tax year, its average annual gross receipts do not exceed $25 million.
  • Excessive employee compensation. Under current law, a deduction for compensation paid to a “covered employee” of a publicly traded corporation is limited to $1 million per year, with exceptions for commissions and performance-based compensation. The Bill repeals these exceptions, and clarifies the definition of “covered employee” to include the principal executive officer, the principal financial officer, and the three other highest paid employees. Further, once an individual is a covered employee, he or she will remain a covered employee for all future tax years.
  • Movement to territorial tax system. The Bill movies the U.S. closer to a territorial tax system by providing a 100% DRD for foreign-source dividends received by U.S. corporations from certain foreign subsidiaries, effective for distributions made after 2017. The 100% DRD would only be available to certain domestic C corporations that are neither real estate investment trusts nor regulated investment companies. Dividends from passive foreign investment companies also would not qualify for the 100% DRD.
  • One-time repatriation. As part of the transition to a more territorial tax system, there will be a one-time repatriation tax on certain foreign subsidiaries’ previously untaxed foreign earnings and profits (“E&P”). Generally, this “repatriation toll charge” will apply to post-1986 E&P of a controlled foreign corporation, or a foreign corporation that is at least 10% owned by a U.S. corporation. Foreign tax credits for the portion of earnings subject to the toll charge would be available to offset the tax.
  • Unrelated business Taxable income (“UBTI”). Tax-exempt organizations will be required to separately calculate the net UBTI of each unrelated trade or business. Losses derived from one unrelated trade or business may no longer offset income from another unrelated trade or business. Current law allows a tax-exempt organization, in calculating UBTI, which operates multiple unrelated trades or business to aggregate income and deductions from all such trades and business.
  • Excise tax on investment income of private colleges and universities. For tax years beginning after December 31, 2017, an excise tax equal to 1.4% is imposed on net investment income of private university and colleges with at least 500 tuition-paying students (who are more than 50% located in the U.S.) and with assets, other than used for the institution’s exempt purpose, of at least $500,000 per student. Currently, private universities and colleges are not subject to excise tax on net investment income.

 

Owner of Painting Company Gets Caught Whitewashing His Income

Nicholas Boulas, of North Reading, MA was charged by a federal grand jury with attempting to obstruct the internal revenue laws, aiding and assisting in the filing of fraudulent corporate, personal and employment tax returns, tax evasion and structuring financial transactions.

It’s alleged that between 2009 and 2014, Boulas, who owned and operated Nick’s Painting Service, concealed approximately $4 million by cashing over $2.7 million in checks using multiple bank accounts.  Boulas would instruct his customers to write checks to him personally for under $10,000 to evade the bank’s reporting requirements.  In addition, it’s alleged that Boulas underreported income earned from several rental properties and paid employees “off the books” to avoid paying payroll taxes.

The charges against Boulas also include that he falsely stated to IRS special agents that he reported all of his company’s income and altering checks he received from his customers to conceal any information on the memo line.

If convicted, Boulas faces a maximum sentence of five years for tax evasion, three years for obstructing the internal revenue laws, three years for aiding and assisting in the filing of fraudulent returns and ten years in prison for structuring financial transactions.  He also faces restitution, monetary penalties and a period of supervised release.

What Was He Thinking? Psychiatrist Needs His Head Examined!

Dr. Harshad Shah, of Cypress, CA was sentenced to 51 months in prison on charges of trying to bribe an Internal Revenue Service agent who was auditing his taxes.

Although Shah claimed entrapment and tried to get the charges dismissed, the Government had multiple recordings where Shah, without any inducement from the agent, continued to pressure the agent to accept the bribe despite the revenue agent’s reminders that his conduct was illegal.

The revenue agent eventually accepted the bribe of $30,000 who determined that Shah owed $410,000 in back taxes and turned the recordings into the Justice Department.

2017 Individual Tax Reform Provisions

On December 20, 2017, Congress passed its comprehensive tax reform bill, the Tax Cuts and Jobs Act (“the Act” or “the Bill”), which is expected to be signed into law by President Trump in early January 2018. The Bill represents one of the most extensive modifications to the U.S. tax code in recent history, significantly modifying U.S. taxation for individuals and businesses.  Below you will find a summary of some important provisions related to the Individual Tax Reform Bill.

The individual tax provisions in the bill, including the pass-through deduction, sunset after December 31, 2025.

  • Modification of individual tax brackets. There will be seven tax brackets for individuals (as opposed to six currently), with the top bracket’s rate reduced from 39.6% to 37%.
  • Increase in standard deduction. The standard deduction available to taxpayers who elect not to itemize deductions will be nearly doubled. The standard deduction for married individuals filing jointly will be increased from $12,000 to $24,000, and from $6,350 to $12,000 for single filers.
  • Repeal of limitation on itemized deductions. Under current law, the total amount of most otherwise allowable itemized deductions is limited for certain high-income taxpayers. Beginning in 2018, this limitation on itemized deductions is repealed.
  • Personal exemptions repealed. Personal exemptions currently allowed for certain taxpayers and their dependents will be eliminated. For 2017, the amount deductible for each personal exemption is $4,050, but is phased out for joint filers with AGI in excess of $313,800 ($261,500 for single filers).  The amount of tax required to be withheld from wages by employers is based in part on the number of withholding exemptions claimed on an employee’s Form W-4. Beginning in 2018, personal exemptions are repealed, and the Secretary of the Treasury is to develop new rules for determining the amount of tax required to be withheld from wages.
  • Deduction for pass-through entities. In a provision intended to benefit business activity conducted through flow-through entities, the Bill allows individuals (including trusts and estates) a deduction for 20% of the individual’s “qualified business income” from flow-through entities, subject to a limitation based either on wages paid, or wages paid plus a capital element. Qualified businesses generally include any trade or business other than a “specified service business” such as a law firm, accounting firm, or other business whose primary activity is the provision of skilled services. However, the deduction may apply to service income attributable to a specified service trade or business where a taxpayer’s taxable income is less than $315,000 (joint filers), or $157,000 (other filers), subject to a phase-out. Qualified items of income include 20% of any dividends from a real estate investment trust, as well as 20% of includable dividends from qualified publicly traded partnership income, but do not include certain service related income such as payments by a partnership to a partner in exchange for services.
  • Expansion of child tax credit. The child tax credit is temporarily increased beginning in 2018 from $1,000 per qualifying child to $2,000 per qualifying child, and eligibility for the credit is expanded as the AGI threshold for phase out is increased from $110,000 to $400,000 for joint filers, and $75,000 to $200,000 for individual filers.
  • Limitations on losses. Beginning in 2018, excess business losses for individual taxpayers are disallowed for the taxable year, but may be carried forward and treated as part of the taxpayer’s net operating loss carryforward.
  • Modification of deduction for mortgage and home equity interest. Beginning in 2018, the deduction for mortgage interest will be limited to acquisition indebtedness of up to $750,000. For taxpayers who entered into a contract to purchase a home prior to December 15, 2017, the limitation is increased to $1,000,000. The deduction currently allowable for interest on home equity indebtedness will be eliminated.
  • Modification of state and local tax deductions. Generally, under the Bill, the deduction for state and local property taxes and state and local sales taxes is allowed only when paid or accrued in connection with a trade or business. For personal taxes not related to a trade or business, the deduction is limited to $10,000 for aggregate state and local property and income taxes.
  • Repeal of deduction for casualty and theft losses. The deduction currently allowed for personal casualty and theft losses is repealed, except for losses attributable to certain disasters declared by the President.
  • Modification of charitable contribution deduction. The Bill retains and expands the charitable contribution by increasing the percentage limit for charitable contributions of cash made to public charities.
  • Repeal of deduction for alimony payments. Alimony and separate maintenance payments are currently deductible by the payor spouse and includible in income by the recipient spouse. For any divorce or separation instrument executed after December 31, 2018, alimony payments will not be deductible by the payor spouse, nor includible in income by the recipient.
  • Modification of alternative minimum tax. The AMT exemption amounts are increased from $86,200 to $109,400 for joint filers and from $55,400 to $70,300 for single unmarried filers. Such exemption amounts are reduced (not below zero) to an amount equal to 25% of the amount by which AMT income exceeds $1 million for joint filers and $500,000 for all other filers, which represent increases from current threshold amounts.
  • Increase in estate and gift tax exemption. The estate and gift tax exemption is doubled to $10 million (indexed for inflation) for estates and gifts made after December 31, 2017 and before January 1, 2026.
  • Carried interest. Partnership interests received in connection with the performance of services, including carried interests must be held for three years before they can qualify for long-term capital gain treatment, effectively recharacterizing certain gains attributable to applicable partnership interests from long-term to short-term capital gain.
  • Affordable Care Act. The individual mandate penalty will be repealed.

IRS Terror Tale: Terrible Nurse Take More Than Her Patients’ Blood

It takes a special kind of person to be a nurse.  Caring for sick and aging members of our community is a noble profession, and nurses deserve more recognition than they often receive.  Recently, the IRS recognized Tangela Lawson-Brown, a 41 year old nurse from Midway, Florida.  Although the IRS didn’t acknowledge Lawson-Brown for her outstanding patient care.  Instead they brought charges against her for stealing patient’s identities, from the nursing home she worked at, and filing fraudulent returns and absconding with the refunds.

In January 2013, following the arrest of Lawson-Brown’s husband, the Tallahassee Police Department seized items from her vehicle.  Among the items, they discovered a notebook which contained personal identity information for over 150 people.  An investigation conducted by the IRS found income tax returns were filed in 2011 for 105 of the people in the book.  Of those 105 individuals, 24 were patients at a nursing home where Lawson-Brown had been employed from October 2011 to December 2012.  Many of the fraudulent returns were filed within days of a patient arriving at the nursing home.

The IRS determined Lawson-Brown had filed over $1 million in fraudulent claims.  Although the IRS was able to detect and deny many of the fraudulent returns, refunds of roughly $141,790 were disbursed.  In the trial, the government presented evidence that showed the fraudulent refunds were deposited into multiple bank accounts controlled by Lawson-Brown.  The former nurse used her ill-gotten gains to pay her mortgage, car repairs, and other personal expenses.

After a three-day trial, Lawson-Brown was convicted of wire fraud, theft of government funds, possession of unauthorized access devises, and aggravated identity theft.  Her sentencing hearing is scheduled for early January.  Lawson-Brown faces a maximum of 20 years in prison for each theft of government funds and possession of unauthorized access device counts, and a consecutive two-year sentence for aggravated identity theft.

Attempting to cheat the IRS is bad enough, but Lawson-Brown’s criminal activity becomes particularly despicable when you remember she took advantage of elderly and disabled patients who relied on her for care.

A 1099 Form Blows the Gasket for Auto Repair Shop Owner

Michael Powers, owner of Powers Auto Repair in New Cumberland, PA, pled guilty in federal court to charges of filing a false income tax return.

The IRS was tipped off to the false return when they received a 1099-K, which is filed by entities that process credit card payments on behalf of a business.

Powers would deposit the cash and checks received into his business account, but would have all of his credit card income directed to his personal account.

On his 2010 income tax return, Powers underreported his income by $238,381, which resulted in a loss to the IRS of $42,774.  In his plea agreement with the court, Powers will pay that amount as restitution along with an additional $26,198 for underreporting his income on his 2012 return.

Tax Changes for 2018

The new tax bill has been written and re-written and is over 1,100 pages long.  Your best bet is to make an appointment with your tax professional to find out what you need to do to with your finances to best prepare for the 2018 tax year.

Your IRS Questions Answered Here…

Question: I own a small business and in order to keep afloat, I did not send the IRS my employee’s withholding taxes for a few years.  How much trouble am I in?

Answer: Owing 941 payroll taxes is very different from owing personal income taxes. Not only can the IRS padlock the doors to your business, they can come after you personally, levy your bank accounts, confiscate your receivables and seize your property.  Scarier still is that it could turn into a criminal matter.  Why? Because the money has already been deducted from your employee’s payroll checks; so it’s not your money to begin with! The IRS will look at it as if you stole their money. Payroll tax delinquency is the IRS’s number one enforcement priority.

You need to get help from an experienced professional who deals with the IRS every day.  We can assess your situation and figure out the best way to protect you, and will take over all dealings with the IRS so you don’t have to.

Stolen Identity Tax Refund Scheme Will Result in Jail Time

Monique Ellis, of Antioch, TN was convicted by a federal jury of eight counts of wire fraud and aggravated identity theft for filing false tax returns.  In 2012, Ellis used stolen ID’s, including ones of prisoners at the Alabama Department of Corrections and to file tax returns with the IRS.  The fraudulent refunds were directed to a bank account of Ellis’.  The tax loss to the IRS amounted to $121,851. Ellis is schedule to be sentenced in Jan. 2018 where she could face up to 20 years for each count, in addition to restitution and monetary penalties.