Medical Doctor Tests the IRS

Dr. Joseph Jacob Hummel a medical doctor from North Carolina, pled guilty to charges of corruptly obstructing the due administration of the internal revenue laws.

As shown in court, Dr. Hummel purchased a home from a friend, who repaid Hummel for the purchase a short time later.  While being interviewed by Special Agents from the IRS regarding the real estate transaction, Dr. Hummel falsely stated that he rented the property to the original owner and tried to support this statement with a sham lease.

Dr. Hummel faces a maximum of three years in prison, supervised release and monetary fines.  His sentencing is scheduled for March 26, 2019.

Tax Evasion is What Brought Down Michael Cohen

Once again, it’s tax evasion that will send someone to prison every time, and in Michael Cohen’s case, brought by Federal Prosecutors in New York, it’s no different for the former lawyer of President Trump.   Cohen was sentenced to 36 months in prison, which in part was for five counts of tax evasion.

The tax evasion charges stem from his failure to report income earned from his taxi fleets in New York and Chicago on his 2012-2016 income tax returns totaling over $4 million.  In addition, Cohen failed to report $100,000 he made selling property in Ocala, FL in 2014, a $30,000 profit he earned for arranging the sale of a couture Birkin handbag and $200,000 in consulting fees he made from an assisted-living company.

In addition to jail time, as part of his plea deal, Cohen has agreed to pay restitution to the Internal Revenue Service in the amount of $1.5 million.

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.

IRS Terror Tale of the Month

Unless you have been living under a rock, you’ve probably heard of Paul Manafort and the millions he failed to pay the IRS in taxes. Due to the brief time Manafort spent as President Donald Trump’s campaign manager during the 2016 election, Manafort’s tax fraud and other crimes were often spun based on political leanings. However, the fact remains that the millions Manafort owed and the lengths to which he went to defraud the IRS are astonishing. Here are a few of the highlights that make this story so extraordinary.

Manafort was first arrested in October 2017 on a series of charges that included engaging in a conspiracy to launder money and failing to file reports of foreign bank and financial accounts. Prosecutors claimed Manafort laundered more than $18 million and that he failed to report at least $16 million in taxable income between 2010 and 2014. A great deal of his unreported income came from the Ukraine, where Manafort worked as a political consultant.

In an attempt to hide this income and pay less than he owed to the IRS, Manafort would falsely classify income as a loan and list false business expenses, like claiming to have paid 132,000 euros to a yacht company or $45,000 for cosmetic dentistry. Additionally, when filing his taxes in 2012, Manafort didn’t disclose that he had a foreign bank account. At this time, Manafort in fact had 30 foreign bank accounts around the world in Cyprus, St. Vincent and the Grenadines, and the United Kingdom.

When all was said and done, Manafort was hit with 18 different charges and faced 80 years in prison. In August 2018, a jury found Manafort guilty  of eight of those charges, including all five counts of tax fraud. Manafort has since pleaded guilty to other charges, and the case is still ongoing.

Pail Manafort may have enjoyed a long, powerful political career, but when the IRS comes knocking, they always get what they’re owed.

First Prison Term for Cannabis Related Tax Crimes

After the November 6, 2018 elections, 10 states now have legalized recreation marijuana use, and 31 states have legal medical marijuana.

Even though cannabis is still illegal on a federal level, income earned must still be reported on an individual and/or business tax return.

Matthew Price, a dispensary owner in Oregon learned the hard way.  He was sentenced to seven months in prison for failing to file individual income tax returns from 2011 to 2014 and disclosing income earned from the dispensary operation.

Cannabis business owners also need to understand IRC Section 280E and how it affects these companies.  The code section strictly prohibits the deduction of ordinary business expenses from gross income associated with the trafficking of Schedule 1 or Schedule II as defined by the Controlled Substances Act.  So unlike other businesses, cannabis companies must pay taxes on the gross income alone.

Check Out “Bob’s” Response to an IRS Notice

Dear Sirs: I am responding to your letter denying the deduction for two of the three dependents I claimed on my Federal Tax return. Thank you. I have questioned whether or not these are my children for years. They are evil and expensive. It’s only fair that, since they are minors and no longer my responsibility, the government should know something about them and what to expect over the next year. Please do not try to reassign them to me next year and reinstate the deduction. They are yours!

The oldest, Kristen, is now 17. She is brilliant. Ask her! I suggest you put her to work in your office where she can answer people’s questions about their returns. While she has no formal training, it has not seemed to hamper her mastery of any subject you can name. Taxes should be a breeze. Next year she is going to college. I think it’s wonderful that you will now be responsible for that little expense.

While you mull that over, keep in mind that she has a truck. It doesn’t run at the moment, so you have the choice of appropriating some Department of Defense funds to fix the vehicle, or getting up early to drive her to school. Kristen also has a boyfriend.

Oh joy! While she possesses all of the wisdom of the universe, her alleged mother and I have felt it best to occasionally remind her of the virtues of abstinence, or in the face of overwhelming passion, safe sex. This is always uncomfortable, and I am quite relieved you will be handling this in the future. May I suggest that you reinstate Dr. Jocelyn Elders who had a rather good handle on the problem?

Patrick is 14. I’ve had my suspicions about this one. His eyes are a little closer together than those of normal people. He may be a tax examiner himself one day, if he is not incarcerated first. In February, I was awakened at three in the morning by a police officer who was bringing Pat home. He and his friends were TP’ing houses. In the future, would you like him delivered to the local IRS office, or to Ogden, UT?

Kids at 14 will do almost anything on a dare. His hair is purple. Permanent dye, temporary dye, what’s the big deal? Learn to deal with it. You’ll have plenty of time, as he is sitting out a few days of school after instigating a food fight in the cafeteria.

I’ll take care of filing your phone number with the vice-principal. Oh yes, he and all of his friends have raging hormones. This is the house of testosterone and it will be much more peaceful when he lives in your home. DO NOT leave him or his friends unsupervised with girls, explosives, inflammables, inflatables, vehicles, or telephones. (They find telephones a source of unimaginable amusement. Be sure to lock out the 900 and 976 numbers!)

Heather is an alien. She slid through a time warp and appeared as if by magic one year. I’m sure this one is yours. She is 10 going on 21. She came from a bad trip in the sixties. She wears tie-dyed clothes, beads, sandals, and hair that looks like Tiny Tim’s. Fortunately you will be raising my taxes to help offset the pinch of her remedial reading courses. “Hooked On Phonics” is expensive, so the schools dropped it.

But here’s the good news! You can buy it yourself for half the amount of the deduction that you are denying me! It’s quite obvious that we were terrible parents (ask the other two). She cannot speak English. Most people under twenty understand the curious patois she fashioned out of valley girls/boys in the hood/reggae/yuppie/political double speak.

The school sends her to a speech pathologist who has her roll her “r’s.” It added a refreshing Mexican/Irish touch to her voice. She wears hats backwards, baggy pants, and wants one of her ears pierced four more times. There is a fascination with tattoos that worries me, but I am sure that you can handle it. Bring a truck when you come to get her, she sort of “nests” in her room and I think that it would be easier to move the entire thing than find out what it is really made of.

You denied two of the three exemptions, so it is only fair that you get to pick which two you will take. I prefer that you take the youngest two, I will still go bankrupt with Kristen’s college, but then I am free! If you take the two oldest, then I still have time for counseling before Heather becomes a teenager. If you take the two girls, then I won’t feel so bad about putting Patrick in a military academy.

Please let me know of your decision as soon as possible, as I have already increased the withholding on my W-4 to cover the $395 in additional tax and made a down payment on an airplane.   Yours truly, Bob      (Note: The IRS allowed the deductions and reinstated his refund)

**Originally published in “Chicken Soup for the Parent’s Soul”, a real letter to the IRS written by Bob Mullen**

New Jersey Taxpayers: Amnesty Available Until Jan 15th!

Info on NJ Tax Amnesty

  • New Jersey tax amnesty begins November 15, 2018 and ends at midnight on January 15, 2019.
  • Taxpayers have an opportunity to pay their state tax liabilities and one-half of the interest that remains due on November 15, 2018, related to State tax returns due on or after February 1, 2009 and before September 1, 2017. All penalties, collection fees, and one-half of the balance of interest due will be waived if you meet all the eligibility requirements.
  • Almost everyone qualifies for amnesty. If you have filed an administrative or judicial appeal related to a tax assessment, you may participate in amnesty only if you withdraw your appeal, waive all rights to a future appeal, and receive written approval from the Director of the Division. You are not eligible for amnesty if you are under criminal investigation or charge for a State tax matter by a county prosecutor or New Jersey’s Attorney General.
  • NJ Tax Amnesty Hotline 1-800-781-8407

Martial Arts Instructor Will Soon be Wearing an Orange Belt

Marlene Seo, of Arvada, CO pled guilty in court to one count of willfully making and subscribing to a fraudulent corporate income tax return, which means Seo knowingly filled the false return.

Seo was the owner and operator of the National Martial Arts Academy.  From 2011 to 2013, she deposited income from her business into accounts she did not disclose to the corporation’s bookkeepers and accountants, which resulted in an underreporting of the business’s gross receipts by approximately $650,000 for the years 2011, 2012 and 2013.  Seo is scheduled to be sentenced in February, 2019, where she faces three years in prison, supervised release, restitution and monetary penalties.

“Inventor” Learns That Even Money Scammed Needs to be Reported to the IRS

Michael Sang Han , formerly of Palm Beach, FL was sentenced to four years in prison on charges of two counts of tax evasion following his conviction for a multi-million dollar tax evasion scheme.

Han owned and operated Envion, a company in which he claimed held the patent on converting plastics into fuel oil.  Starting in 2004, Han convinced two individuals to invest more than $40 million in his company.

Instead, between 2004 and 2011, Han used the money for personal expenditures, which included flying in private jets, expensive meals and adult entertainment and luxury cars such as BMWs, a Range Rover and a Ferrari costing over $440,000.  Han purchased a West Palm Beach house for $3 million, and paid an additional $2 million on renovations.

Han concealed the investment money from his tax preparers and did not report the income on his tax returns, specifically for the years 2010 and 2011.

In addition to prison time, Han was ordered to pay restitution to the IRS in the amount of $4,954,027 and three years of supervised release.

When Your Business is Teaching Tax Fraud, the IRS Will Surely Find You!

Winston Shrout, of Hillsboro, OR, was sentenced to ten years in prison on charges of filing fraudulent financial documents to financial institutions and the US Treasury, and for failing to file tax returns.

Shrout held seminars and private meetings to promote and market the use of the fraudulent financial documents to pay off debts, including federal taxes.  He also sold recordings of his seminars, and templates for fraudulent financial documents, on his website.

From 2008 to 2015, Shrout created and submitted more than 300 fraudulent documents with the intent to defraud financial institutions and the US Treasury.  It was also shown in court that from 2009 to 2014, Shrout failed to file tax returns despite having a substantial income from his business and pension payments. He admitted in court that he had not paid federal income taxes for over 20 years.

In addition to jail time, the judge ordered Shrout to serve five years supervised release and restitution to the IRS.