Just a Single Count of Tax Evasion Could Land You in Prison

Kenneth Wenberg, a medical doctor from Heppner, OR, pled guilty to one count of tax evasion as part of a plea agreement with the court.

According to court documents, Dr. Wenberg created nominee entities to hide assets and income earned as a physician with two separate health care facilities.  Dr. Wenberg opened numerous bank accounts in the names of the nominees and instructed his employers to deposit his salaries directly to the sham accounts to avoid income tax liabilities.  He also purchased real property in the false entities name and paid personal expenses from their bank accounts.

Wenberg faces a maximum of five years in prison, a fine of $250,000 and three years of supervised release.  He has also agreed to pay full restitution to the IRS of approximately $187,000.

Art Dealer Tries to Paint a Different Picture of Her Income

Mary Boone, a prominent art gallery owner in NYC, who was once called “Queen of the Art Scene” by New York magazine, was sentenced to two and a half years in prison on charges of filing false tax returns.

Boone pled guilty to the charges for filing both personal and business false returns. Prosecutors said that Boone had reported false business losses and used  over $1.6 million of business funds to pay personal expenses, including $793,003 to remodel her Manhattan apartment, beauty salon purchases of $24,380, $14,00 on Hermés products and $5,000 on items from Louis Vuitton, which she wrote off as business deductions.  She also falsely inflated the gallery expenses, and in 2011, transferred $9.5 million from one business bank account to another and reported the account transfers as tax-deductible business expenses by providing falsified check registers to her accountant.

Boone opened her first gallery in 1977, showcasing young and upcoming artists, and as her business and name grew, moved the gallery to Midtown and opened another space in Chelsea.

In 2016, Boone was sued by actor Alec Baldwin, who alleged that Boone knowingly sold him a fake Ross Bleckner painting. That case was settled out of court, with Boone paying Baldwin “a seven-figure sum.”

Your IRS Questions Answered Here…

Question:  I received a notice from the IRS because I did not have the funds to pay the taxes I owed on my 2017 income tax return.  I also was late in filing my tax return. Not only is the IRS demanding the tax I owe, but they have slapped on these huge amounts for penalties and interest.  I had extenuating circumstances that caused all of this. This isn’t fair…what can I do?

 

Answer:  Your Tax Resolution Specialist can request a removal (abatement) of penalties 2 ways:  1) “First Time” Penalty Abatement and 2) a Reasonable Cause Argument. The IRS writes off billions of dollars in penalties each and every year, but you must know how to do it correctly.

A First Time Penalty Abatement  (FTPA) can be requested if you have a “clean” compliance record, meaning you have not incurred a Failure to File or Failure to Pay penalty for the 3 years preceding the year you are requesting the first time penalty abatement on.  FTBA is generally granted in most cases, regardless of what the underlying reason is, if you are eligible.

There are 9 main “Reasonable Cause” arguments to get your penalties removed.  They are: 1) Death, Serious Illness or Unavoidable Absence 2) Fire, Casualty or Natural Disaster  3) Unable to Obtain Records (common issue with couples going through a divorce)  4)  Mistake was made by the taxpayer or tax preparer  5)  Erroneous Advice or Reliance on a tax preparer  6)  Written/Oral Advice from the IRS  7)  Ignorance of Tax Laws  8)  Reasonable Cause/Ordinary Business Care and Prudence  9)  Undue Economic Hardship.

When using a “Reasonable Cause” argument, the event that caused you to file late or prevented you from paying the tax when due must correlate to the tax years involved and supporting documentation is essential.  Your Tax Resolution Specialist will guide through which documents are needed and submit a formal request in writing.  For instance, let’s say you were going through a divorce and you ex-spouse withheld records from you needed to file a complete and accurate income tax return and you filed your return last because of this.  You could request abatement of these penalties using one of the above reasonable cause arguments, specifically #3 above.

Fun IRS Statistic

In 2017, 88% of taxpayers view cheating on their taxes as not at all acceptable. 9% said “a little here and there”, and 3% responded with “as much as possible”

 

Source: 2017 IRS Data Book

Landscaper Hedges His Bet and Loses with the IRS

Joseph Ferry III, from Port Saint Lucie, FL was indicted after his arrest on five counts each of filing false corporate and individual tax returns.

Ferry was the owner of Ferry Enterprises, Inc., which provided residential and commercial landscaping services. The indictment alleges that Ferry understated his personal income on his individual returns and the business revenue for Ferry Enterprises for the tax years 2012-2016. According to the indictment, Ferry deposited business income into his corporate bank account, but Ferry used the money to pay personal expenses, including payments on his personal mortgage and loans, purchased firearms, home renovations and jewelry.  It’s also alleged that he withdrew more than $2.9 million in cash from the corporation’s account.

If convicted, Ferry could face a maximum of three years in prison for each of the 10 counts of filing a false tax return with the IRS, as well as monetary penalties and restitution.

Tax Identity Theft Still on IRS’ List of “Dirty Dozen” Tax Scams

Although tax related identity theft has dropped somewhat in recent years, the scam still made the IRS’ 2019 ‘Dirty Dozen” Tax Scams list.

Taxpayers should remember that identity thieves constantly strive to find a scheme that works.  Once their ruse begins to fail as taxpayers become aware of their ploys, they change tactics. Taxpayers and tax professionals must remain vigilant to the various scams and schemes used for data thefts.  Business filers should be aware that cyber criminals also file fraudulent Forms 1120, U.S. Corporate Income Tax Return, using stolen business identities and they too, should be alert.

Reversing the damage caused by identity theft is often a frustrating and complex process for victims.  While identity thieves steal information from sources outside the tax system, the IRS is often the first to inform a victim that identity theft has occurred.

To avoid identity theft, always use security software with firewall and anti-virus protections on your computer.  Learn to recognize and avoid phishing emails.  Do not click on links or download attachments from unknown or suspicious emails.  Protect your personal data.  Don’t routinely carry a Social Security card, and make sure tax records are secure.  Treat personal information like cash; don’t leave it lying around.

How the Stars Avoided the 90% Tax Rate in the 1950s

In the 1950s and early 60’s, there was a 90% tax rate on taxpayers earning in the highest tax bracket of $200,000 ($1.9 million today).  In order to avoid paying almost all their income to the IRS, the rich used loopholes to reduce their tax bill. But even with loopholes, the wealthiest still ended up paying on average of 45% of their income to Uncle Sam, according to the Congressional Research Service.

At that time, corporate executives and sports figures were not among the wealthiest.  It was entertainers that were the richest.  In 1958 the CEO of U.S. Steel earned $300,000, while Frank Sinatra made close to $4 million.

The Tax Reform Act of 1986, closed many loopholes. One loophole used was a law passed by Congress in 1954, allowing for accelerated depreciation on any income-producing real estate.  The wealthy could deduct from their income tax a percentage of the value of the property each year, even as the property appreciated in value.

In what some call “the greatest loophole in U.S. history”, an act of Congress in 1926 created the oil depletion allowance.  Enacted to give incentives to drill for oil, it reduced the taxable income generated by an oil well by 27.5%.

Jimmy Stewart, Gene Autry, Don Ameche and Frank Sinatra were among the stars who purchased oil wells.  Bing Crosby and Bob Hope each paid a successful oilman (and golf partner), Monty Moncrief $40,000 for a 25% share in an oil venture in West Texas, which earned them $5 million each.  Because of the depletion allowance, $1.375 million of their profit was tax-free.

Another loophole which many took advantage of was the collapsible corporation. Hollywood stars would set up a corporation and have the producer pay their salary to the corporation, of which they would use to pay all of their expenses and take a small percentage of compensation, as the tax on corporations was only 50%.  As soon as all the money was paid out, the corporation was dissolved. Some of the stars would sell stock in their corporation to the movie company, so they could take their fee in the form of capital gains, which only had a tax rate of 25%.

Congress passed a law in the mid- 1950s aimed to close the loophole.  The law stated that if 25% of the corporation’s income came from a different industry, then it was a legitimate corporation.  So the stars just combined their oil business with their movie business into one corporation.

It will be a Concrete Jungle for Paving Company Owner

Douglas Wieland of Denver, CO, was sentenced to 12 months and one day in prison after pleading guilty to two counts of failure to pay income taxes.

Wieland was the owner of Performance Paving, a company that performed concrete and asphalt work.  According to court documents, it was shown that from April 1999 through December 2017, Wieland did not make any payments toward his income taxes, and admitted that he took steps to conceal his income and hide his assets to prevent the IRS seizing them.  Wieland opened a “warehouse bank account”, in which there are numerous account holders on a single account where the funds get commingled to maintain financial privacy.  He deposited over $1.8 million to pay his personal expenses. Wieland also admitted in court that he would cash customer’s checks whenever possible.

In addition to jail time, Wieland was ordered to pay restitution to the IRS in the amount of $166,658.

Taxpayers who can’t pay their taxes should still file on time

With the April tax filing due date just a few days away, taxpayers should remember to both file and pay any taxes they owe by the deadine. Taxpayers who do not file and pay timely will see their tax debt grow. In fact, penalties and interest can cause a taxpayer’s debt to grow by more than thirty percent in just a few months.

Here are some tips for taxpayers who owe tax, but who can’t immediately pay their tax bill. Taxpayers should:

File their tax return or request an extension of time to file by the April deadline.
Taxpayers who owe tax and do not file their return on time or request an extension may face a failure-to-file penalty for not filing on time.
Pay as much as possible by the April due date.
Whether they are filing a return or requesting an extension, taxpayers must pay their bill in full by the April filing deadline. Taxpayers who do not pay their taxes on time will face a failure-to-pay penalty. Taxpayers should remember that an extension of time to file is not an extension of time to pay.
Set up a payment plan as soon as possible.
Taxpayers who owe, but cannot pay in full by the deadline don’t have to wait for a tax bill to request a payment plan. Taxpayers can apply for a payment plan on IRS.gov. Taxpayers can also submit a payment plan request in writing using Form 9465, Installment Agreement Request.

#IRSTaxTip

Source: https://go.usa.gov/xmx62

Accountant Steals NBA Client’s Identity and Gets Slam Dunked by the IRS

Randy Usow, an accountant from Mequon, WI,, was sentenced to 30 months in prison after defrauding the IRS by using his client’s identity to file bogus tax returns.

Usow used former Milwaukee Bucks center Zaza Pachulia’s personal information to file false tax returns that generated inflated refunds, much of which Usow pocketed by opening a bank account in Pachulia’s name without the player’s knowledge.

In a refund filed for 2014, Usow’s false return netted him a $463,867 refund.  The tax return given to Pachulia for review showed a refund of approximately $164,000.  Usow opened another bank account under the name of US Government LLC, where he transferred the large refund and then wired Pachulia the amount he was expecting to make it look as though the refund came from the IRS.

Prosecutors recommended the federal sentencing guideline of 54 to 61 months, but due to a plea deal, urged the judge to issue a prison term of three years.  U.S. District Judge Pamela Pepper gave the reduced sentenced and credited Usow for his generally good character and support of his family and friends.  But she also noted that unlike most tax refund fraud cases she sees, involving poorly trained people getting poor people to let them do their returns, Usow has post-graduate training and no real need for the money he stole.  “You were someone everybody had the right to put their confidence in”, she said.  Judge Pepper said Usow didn’t have to report to prison until after April 30th — so he could have time to finish tax returns for his remaining clients!