F.C. Manager on Trial for Tax Evasion

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Harry Redknapp, former manager of the Tottenham Hotspur F.C., was recently accused of tax evasion related to a bung he received for player transfers. What!?  I know, English news articles are fun, but sometimes difficult to decipher.

Translation for American readers:

  • Harry Redknapp is the current manager of the Tottenham Hotspur Football Club. The spherical kind of football, not the prolate spheroid with pointed ends so popular around this time of year in the United States.
  • Tottenham Hotspur has been around since 1882, often referred to as the “Spurs.”
  • A “bung” is an English word used to mean a BRIBE.

Redknapp allegedly hid his bonuses in an offshore account in Monaco which he named “Rosie 47″ after his dog and his own birth year. Once again we see that people will do whatever it takes to find tax relief these days, even if it means resorting to nefarious tricks and schemes. Full story here.

Anti-Tax Evasion Agreement Emerges from G20 Summit

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Tax shelters seem to be especially despised these days — both the people who use them and the countries that harbor them. With so many countries struggling financially, it’s hard to sit back and do nothing to the uber-wealthy individuals and corporations that hide their billions offshore. This past Friday, each G20 nation pledged to make greater efforts to work together to fight tax evasion. This also means they will strive to do more to enforce the tax laws within the borders of their own countries. Besides Switzerland, one of the most infamous tax havens, there are several other nations that have transparency problems, including Monaco, Panama, and Uruguay. Moving forward, the goal will be to get these other nations to sign on as well.

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Can Greece Improve its Tax Morale?

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One of the reasons Greece has had such a difficult time raising revenue is because tax evasion is sort of their national pastime.

In Greece the “tax gap” (the difference between what should be paid by taxpayers and what actually gets paid) is about 1/3 of total tax revenue. About 28% of all business in Greece is conducted outside of the tax system (“under the table”). And the cost of tracking down so many tax cheats is astronomical. All other factors being equal, Greece spends 4 times what the US spends on tax collection efforts.

One author believes that this culture of tax evasion is the result of poor enforcement practices and low “tax morale.” See The New Yorker article “Dodger Mania” by James Surowiecki.

Enforcement

  • tax collectors in Greece frequently accept bribes
  • tax laws have too many loopholes and are not applied fairly
  • even when tax cheats are caught, justice comes very slowly in backlogged tax courts

Tax Morale

  • the people of Greece doubt their government will spend the tax revenues judiciously
  • since the rich and prominent members of society avoid paying taxes, the burden falls on those who can afford it least
  • citizens in any country tend to pay if they see others paying, but if they see others cheating then the tendency is to cheat (paying taxes seems to be a social animal)

It’s easy to see how these problems are related. Low tax morale leads to difficulties with enforcement, and enforcement problems lead to poor tax morale. The morale issues will probably work themselves out over time as long as Greece really cracks down on enforcement. Maybe they should start putting away famous tax evaders like the IRS has done here; that would send a strong message.

Leona Helmsley

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On this day in 1989, a federal jury in New York found “hotel queen” Leona Helmsley guilty of income tax evasion.  Helmsley is known for her sharp tongue, difficult personality, and her famous declaration: “only the little people pay taxes.”

The Capone Investigation

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Everybody knows the most infamous tax evader of all time: Alphonse “Scarface” Capone, the Chicago gangster with  all the highly lucrative and illegal business. But did you know that some of the internal IRS correspondence from the Al Capone investigation are available online? What follows is a sample taken from a 1931 letter written by IRS agents Hodgins, Westrich, and Clagett. Note the sarcastic tone of the letter (it helps if you read it out loud and with a Chicago accent):

Al Capone, a punk hoodlum, came to Chicago from New York about 1920, as a protegé of John Torrio, who, at the time was a lieutenant of Jim Colisimo. The first heard of Capone was as a bouncer in a notoriously tough joint called the “Four Deuces”. In the course of time, Colisimo, following the path of all good gangsters, was “bumped off” and Torrio took control. True to tradition, the guns again began to blaze, but this time the person behind the gun evidently had poor eyesight, and Torrio, instead of going to the cemetery, took a vacation in the hospital.

Normally records such as these would not be available to the public, but the Capone records were released because they have such extraordinary historical significance. According to the IRS, “No other IRS records meet the unique set of circumstances that make the Capone records publicly available.”

For tax relief that doesn’t involve “bumping off” the collector, contact Montgomery & Wetenkamp.

Richard Hatch Barely Surviving

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On this day in 2000, the first season finale of the reality show “Survivor” aired on CBS, with contestant Richard Hatch winning the $1 million prize . . . that he never paid taxes one.  See full story here.

Hatch spent more than three years in prison for not paying taxes on “Survivor” winnings. He was released in 2009 and ordered to refile his 2000 and 2001 taxes and pay what he owed, but he never did, so he was returned to prison. He is appealing this decision and wants a court-appointed attorney to help him, claiming that he is destitute and completely unable to pay for counsel himself.

Hatch claims the Internal Revenue Service has yet to inform him how much he owes on his winnings from 10 years ago. He also says he has new evidence indicating the taxes are due to the government of Malaysia, where the first season was filmed, and not to the United States. It doesn’t look like he’s going to get a court-appointed attorney, and it is going to be an uphill climb for him to get the tax relief he seeks without one.

Tax Crimes

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Ever wonder what it would take to be convicted of a tax crime? It’s probably less than what you would think. Hopefully you continue reading this post to satisfy your curiosity and not because you have any real need to know. Obtaining tax relief early in the game will usually help you avoid criminal investigations.

So for inquiring minds, here are some of the more common tax violations:

1. Evasion of Assessment

2. Evasion of Payment

3. Failure to Collect or Pay over Tax

4. Failure to File

5. Fraud & False Statements

All of these offenses require wilfulness, or criminal intent. Take “Failure to File,” for example. You may be guilty under Internal Revenue Code section 7203 for failure to file a return if (1) you are required to file a return, and (2) you willfully fail to file the return when it is required to be filed. Simple as that. If convicted, the penalty can be as high as $25,000, or imprisonment for up to one year, or both.

The “Evasion of Assessment” and “Evasion of Payment” crimes may be applicable even if the tax assessment or payment was not ultimately evaded. For example, you may be found guilty under Internal Revenue Code section 7201 for attempting to evade or defeat a tax if (1) a tax is due and owing, and (2) you willfully attempt to evade or defeat a tax or the payment of a tax. If convicted, the penalty can be as high as $100,000, or imprisonment for up to five years, or both. See the IRS Tax Crimes Handbook for more information.

The silver lining here is that wilfulness is usually a subjective standard in the tax code, meaning that a defendant’s good faith belief that he is not violating the tax laws, no matter how objectively unreasonable that belief may be, is a defense in a tax prosecution.

Germany Cracking Down on Tax Evasion

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Americans aren’t the only ones who keep Swiss bank accounts. Germans have a long history of evading taxes in this manner too, and the German government has finally established a way to mitigate the damage this has done over the years. The two countries are reportedly going to sign a deal on August 10th that would allow for taxation of German deposits in Swiss banks. Under the agreement, Swiss banks could have to pay the equivalent of $2.5 billion to the German government for damage already done due to tax evasion over the past 10 years. These German accounts will thereafter be considered legitimate. Also, some think that this accord will make a positive impact on the relationship between these two countries.

Like the IRS, German tax officials have cracked down on tax evasion in recent years, and it appears to be paying off. See full story here.

Lawyer Indicted for Tax Evasion

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Who: Knoxville attorney, John Threadgill

What: Indicted by Federal Grand Jury for paying personal expenses out of his law practice and deducted them as legitimate business expenses.

How Much: Threadgill was charged with evading $1.4 million in Federal income tax during the period of 1986-2004.

More Info: If convicted, Threadgill faces a fine of up to $100,000 and 5 years imprisonment. Clickhere for full article.

This is a very blatant example of tax fraud. I’m sure that the magnitude of the offense and the fact that the offender is an attorney played a major role in the IRS deciding to pursue him criminally. I suppose the legitimate forms of tax relief just did not seem as attractive to him at the time.