Billionaire evades prison time for evading millions in taxes.

Back in September 2013, we reported that your Beanie Babies in the attic may become more valuable because Beanie Baby creator, Ty Warner, was facing charges for evading his federal taxes. Last week Judge Charles Kocoras “sentenced” billionaire (with a “B”) Warner to two-years probation and 500 hours of community service for his tax crimes.

The sentence, or lack-there-of, is actually a bit surprising. The government often seeks harsh punishment in high profile cases knowing that punishing the infamous will have a chilling effect on less substantial, but still costly, tax crimes committed by regular citizens. Judge Kocoras rejected such punishment in this case based on Warner’s “good works” in society.

Warner pleaded  guilty to tax evasion and paid a civil penalty of $53.6 million for failing to report$3.2 million in income on a secret Swiss bank account that held as much as $93.6 million in assets. Unfortunately for Warner, he attempted to avoid prosecution and take advantage of one of the government’s many offshore voluntary disclosure amnesty programs, but was denied tax relief. In addition to the civil penalty already paid by Warner, Judge Kocoras fined Warner an additional $100,000.

I was actually looking forward to the tax evasion Beanie Baby. However, now we’ll probably have a reincarnation of the fad, and all its versions, so Warner can pay his fines.

Tax Deadline Tomorrow! Are You Prepared?

There’s a tax deadline tomorrow causing many people to work on their taxes into the wee hours tonight. Even though the federal government is closed, the second tax day is tomorrow, October 15, 2013. This second tax day is the deadline to file your personal federal tax return with the Internal Revenue Service (IRS) if you filed an extension to file your taxes by April 15, 2013, the first tax day.

On September 26, 2013, the IRS announced that “many of the more than 12 million taxpayers who requested an automatic six-month extension this year have yet to file.” These are likely the people that are going to be up late tonight enjoying tax returns instead of playoff baseball and Monday night football. Individuals and their tax preparers alike are guilty of procrastinating until this upcoming second tax day to prepare and file their tax returns.

Many people file a tax extension in April once they prepare their tax return and determine that they’re going to owe a tax liability. Others just need additional time to review their finances and prepare their tax returns. In either case, filing a timely tax extension in April only allows taxpayers extra time to get their tax returns filed. However, an extension to file does not extend the time that taxpayers have to pay any tax due on their tax return. This is often overlooked or simply ignored by taxpayers when requesting a tax filing extension.

If you filed an extension to file but owe a balance due, you will owe interest on any amount not paid by the April 15 tax filing deadline, plus you may owe penalties. The late payment penalty is generally ½ of 1% of any tax not paid by the original filing deadline of April 15, 2013. It is charged when reasonable cause for non-payment is not established, for each month or part of a month the tax is unpaid maxing out at 25%. Fear of not being able to pay the tax due often causes individuals to not file their tax returns, even if they have an extension to file. They’re often delaying the inevitable.

The IRS promotes payment plans to the public to entice the public to file their tax returns even if they cannot immediately pay the entire tax liability. Beware however, as the IRS is a collection machine, their job is to collect the debt owed; assuming of course that they return to work.

There are different types of payments plans allowed by law that may better fit your budget than the IRS may share with you, unless you know the rules. The IRS has a hardship program called currently non collectible status for taxpayers that are unable to pay the tax debt owed. Additionally, the IRS has a debt settlement program for tax payers that can prove that it is in the government’s best interest to collect less money than what is owed, this is called an offer in compromise. The point is that there are options available for taxpayers that cannot pay their taxes owed. The first step is to file your tax return, preferably before tomorrow’s second tax day deadline.

IRS closed – technical difficulties or government shutdown?

Because our elected representatives can’t do their job, the government has shutdown. The Internal Revenue Service (IRS) is not immune from the shutdown … but you are still responsible to make payments and meet IRS deadlines.

Curious as to how the government shutdown would impact the IRS collection officers I face off against on a daily basis; I started to make my normal phone calls to the IRS today. The IRS practitioner’s line has a pre-recorded message acknowledging that it is closed due to the government shutdown. The standard collections phone number used by the public at large has a pre-recorded message that it is having technical difficulties. I called a small sample of Revenue Officers that I know and got their voice messages (no surprise there). I also called a couple of the duty lines at my local IRS office. The duty lines were not staffed. One had a rather funny message recorded either yesterday or today, acknowledging the government shutdown and then the person recording the message was either yanked off the phone or spat a profanity into the message.

According to the IRS website, they softly acknowledge the government shutdown as follows:

“Due to the current lapse in appropriations, IRS operations are limited. However, the underlying tax law remains in effect, and all taxpayers should continue to meet their tax obligations as normal.”

Individuals and businesses should keep filing their tax returns and making deposits with the IRS, as they are required to do so by law. The IRS will accept and process all tax returns with payments, but will be unable to issue refunds during this time. Taxpayers are urged to file electronically, because most of these returns will be processed automatically.

If you have an upcoming appointment scheduled with the IRS, you should assume that the appointment is cancelled and will be rescheduled. The IRS will also continue to send its scary collection notices; however, correspondences received will not be reviewed (again, not a real surprise announcement).

I suppose what I’m really waiting for is for a prospective client to contact me with a stack of IRS levy notices that were issued at the eleventh hour on September 30, 2013 by an IRS official knowing they were going on a forced holiday for an undetermined amount of time.

Introducing the tax evasion beanie baby

This week, the creator of the Beanie Baby toy phenomenon, Ty Warner, was charged with tax evasion. The charges allege that Warner committed tax crimes on his 2002 tax return by failing to report $3.2 million in income on a secret Swiss bank account that held as much as $93.6 million in assets. The federal government alleges that Warner falsely reported his 2002 income as $49.1 million, omitting money he made on his UBS account. He amended his 2002 return in 2007, yet it is alleged that he again understated his tax by $885,300.  In 2009, Warner tried to avoid prosecution by taking advantage of the Internal Revenue Service (IRS) amnesty program known as the Offshore Voluntary Disclosure Program. According to Warner’s tax attorney, the IRS denied amnesty to Warner.

Warner is expected to plead guilty as part of a plea agreement and will pay a civil penalty of $53.6 million for failing to file a required Report of Foreign Bank and Financial Accounts (FBAR). Warner is not the first UBS client to be prosecuted for tax crimes. Since 2009, the United States has prosecuted approximately 70 taxpayers, 30 bankers, lawyers and advisers in a crackdown on offshore tax evasion. I wonder if this is the time to sell those Beanie Babies I have in the attic.

Would you rob the IRS to fund your “before I die” fund?

Reading between the lines, it appears that Frank F. Frink of Washington lost his gamble that the government wouldn’t catch up with his tax crimes until after he left this world on a high note and a pocket full of cash.

Although the IRS is usually slow to pick up on tax evasion and other tax crimes, they do eventually usually catch up to criminal and civil tax shenanigans … it’s just a matter of time. Mr. Frink doesn’t have to report to prison until September for his tax crimes, allowing him time to seek treatment for undisclosed medical issues. If he’s still around in September, he will have to serve a one year prison term for his tax crimes.

My assumption that he wanted to leave this world with a pocket full of cash is based on the referenced medical problems and absurdly bold manner in which he robbed the IRS. Frink plead guilty to filing a false, fictitious and fraudulent tax claim on his 2008 tax return and was sentenced earlier this week. According to the U.S. Attorney’s Office, Frink hired a tax preparer to prepare his 2008 return and calculated he was owed a refund of $7,413. This is a pretty substantial refund for most households these days. However, for Frink, it was not enough. So he sought the help of a witless tax preparer to fund his final days; he went to H&R Block.

After his first tax preparer determine that he was owed a federal tax refund of $7,413, Frink went to an H & R Block branch with bogus tax forms showing that more than $1 million had been withheld in taxes. H & R Block then calculated he was therefore owed a tax refund of $827,117. The IRS issued Frink this windfall and didn’t catch the fraud for some time as he wasn’t criminally charged until September 2012, approximately three years later. Even when the IRS began to investigate Frink’s tax crimes, he continued to spend his generous tax refund.

While Frink may be living on borrowed time and took advantage of the IRS, most taxpayers want to resolve their tax headache without the specter of prison time. If you’re fighting the IRS, and don’t have Frink’s exit strategy, our tax law firm offers a free consultation so you may determine if we’re the right tax attorneys to fight the IRS for you.

How long should you keep your tax records?

It’s now summertime, officially, and you still haven’t finished your spring cleaning. So, what tax records do you need to keep while catching up on your spring cleaning this summer? You need to give some thought before throwing out those old tax records.

What tax records should I keep?

This question requires an analysis of why you would need any of your tax records, other than shoe box filler of course. If you’re “lucky” enough to have your tax returns audited by the government, the burden of proof will be yours to substantiate the entries, deductions, and statements on your tax return. This is the primary reason for keeping your tax records. Therefore, the records you need to hang on to are the documents that you used, or should have used, to prepare your tax returns. This often includes, among other things, receipts, cancelled checks, bank statements, income statements, repair statements, mileage logs, withdrawal statements, and property transfer closing paperwork.

How long do I need to keep my tax records?

This is really a question of, how long is the government allowed to pester you for verification of the representations on your tax returns. If you file a federal income tax return, you will you need to keep your tax records for three years from the date the tax return was due, or the date the tax return was filed, whichever is later. However some states, such as California for example, may audit your records longer than the IRS can; so you will need to check your state’s rules to verify how much longer you need to keep your records depending on which state tax return(s) you file.

There are exceptions to the IRS’ three year rule that require you to keep records for longer than the three year period. These exceptions include when you don’t file a tax return, when you understate your income, or when you file a fraudulent return. Ironically, if you fall into one of these categories, you likely don’t have accurate records to begin with; so the government truly has you on the hook for a serious tax problem longer than taxpayers who keep accurate records. It’s also generally a good idea to keep tax returns and supporting documentation for the tax years when you acquire or transfer property that may be used to calculate gains or losses on a future tax return. And of course, there may be non-tax reasons to keep documentation accessible longer than the government’s need for evidence.

These days, converting files to an electronic format is pretty accessible to anyone with a scanner or near a print shop. So, if you’re not sure whether to dispose the document after the appropriate time has elapsed, at least scan and save the documentation to give you peace of mind. Lastly, when disposing of old tax records and supporting documents, be smart, securely shred the documents … your trash may be a thief’s treasure.

IRS to Cancel Tax Relief Programs?

Is the IRS really warning that emergency tax relief will no longer be allowed? I doubt it. Last week, the IRS issued a warning to taxpayers to safeguard and anticipate information needed for various tax issues in the event of an emergency during this year’s hurricane season. Typically, the IRS offers tax relief to victims and affected areas of natural disasters and other crises, such as the Oklahoma tornados and the Boston marathon bombing.

While the IRS has many many many faults, some of which are just finally being made public, I don’t think even the IRS would disallow emergency tax relief in the event of a hurricane disaster, and then point to their May 29, 2013, news release as warning taxpayers that they should have been more prepared during hurricane season. The warning may be filed under “preventative education”.

The preventative education provided by the IRS are reminders of some of the safeguards that we all know we need to take to keep our financial affairs in order, but will also allow you to maintain tax compliant in the event of an emergency.  This includes:

  • Creating an electronic backup of your records that can be accessed via the internet or other electronic format. Additionally, non-internet backup records should be stored in a secondary location;
  • A photo and video record can help prove the market value of real property and tangible items for insurance and casualty loss claims. Photos should be stored with a friend or family member who lives outside the area. However, these days photos and videos can also be easily uploaded and downloaded online.
  • Employers who use payroll service providers should ask the provider if it has a fiduciary bond in place. The bond could protect the employer in the event of default by the payroll service provider.

These precautions may help you be prepared tax-wise in the event of an emergency. While emergency tax relief will likely be offered as emergencies arise, a consultation with a tax relief attorney will ensure that your tax rights are protected even when there isn’t a natural disaster.

The IRS has a new misstep every day – what scandal is next?

During congressional hearings on the Internal Revenue Service (IRS) scandal, Congressman Hal Rogers (Republican – Kentucky) said, “It seems we have a new misstep every day at the IRS.” This is on the heels of news of lavish spending on conferences by the IRS. This of course was expected after new broke in March about the ridiculous Star Trek Parody Videos.

A report released Tuesday by the Treasury Inspector General for Tax Administration (TIGTA) details frivolous spending by the IRS which included $27,000 on an innovation expert, $10,000 on diversity and inclusion expert, $11,000 on a happiness expert, and $17,000 for something called leadership through art.  Given the overall demeanor of the IRS employees I’ve had the pleasure of dealing with as a tax attorney; I don’t necessarily disagree with the IRS trying to improve their happiness.

TIGTA conducted its audit to identify the IRS’s spending on conferences during fiscal years 2010 through 2012.  The audit’s primary focus was on the IRS Small Business and Self-Employed division’s 2010 conference in Anaheim where it spent $4.1 million for planning trips, outside speakers, video productions, and promotional items and gifts for IRS employees.

“Excessive spending by federal agencies on management conferences has been highlighted by recent Inspectors General reports and in congressional hearings,” said TIGTA Inspector General J. Russell George. “Effective cost management is especially important given the current economic environment and focus on Government efficiency. Certain of the IRS’s expenses associated with the Anaheim conference do not appear to be a good use of taxpayer funds.”

In watching the recent hearings, it seems like members of Congress are out of touch with their constituents and surprised as to the frustrations the public has to endure while dealing with the IRS every day. The surface is just being scratched as to inappropriateness at the IRS as the issues under scrutiny have not even (yet) dealt with IRS collection and audit issues. However, there may be pressure to not bring such issues to light as I suspect the IRS collection and audit practices may scare the public, and as Congressman Mike Kelly (Republican – Pennsylvania) repeatedly lectured during Tuesday’s hearings, “do not be afraid of this government.”

When do you need to file an amended tax return?

This is the time of the “tax year” that little tax issues on your recently filed tax return usually come to light. You thought your taxes were done when you filed your tax return in April. Well, you may have some more work to do.

The “little issues” may include the discovery of the misfiled or belatedly received income statement, the discovery of a corrected income statement, or remembering that it was (or wasn’t) your turn to claim a shared dependent. The amended tax return, simplified, is a tool often used in one of two ways; 1) to make changes to a filed tax return for the taxpayer’s benefit, or 2) to make changes to a filed tax return for the government’s benefit.

Taxpayer Will Benefit From Amending the Tax Return

The use of an amended tax return is the tool to use when you notice that you paid too much tax or you were due more money back from the government than you received on your original tax return. The government isn’t likely going to make an adjustment when the unadjusted return is in their favor. Therefore, you’re going to need to push the issue to ensure you don’t pay more taxes than you’re legally obligated to pay.

This may include correcting your filing status or the number of dependents to your benefit, or claiming credits you were entitled to claim, but didn’t, on your original tax return. Although more rare, sometimes there are changes in the law that are retroactive and allow you to amend your tax return for a past tax year to take advantage of the change to the law.

In the present age of initial computer review of your tax return, calculation or transposition errors are normally caught fairly quickly by the IRS and normally do not require amending your tax return, as you will normally be notified of errors or the need for additional information.

If you will receive an additional refund by filing an amended tax return, you should normally wait until you have received the refund due to you as shown on your original tax return before filing your amended tax return. Waiting until the original refund is received may help avoid IRS delays and errors in processing your amended return and the additional refund. Generally, to claim a refund based on an amended tax return, the amended tax return must be filed within three years from the due date of the original tax return or within two years from the date the tax was paid, whichever is later.

The Government Will Benefit From Amending the Tax Return

In cases where amending a tax return will result in a higher tax owed and a tax debt, the taxpayer may drag their feet in filing their amended tax return. This situation may include, for example, the realization that you earned more income than you thought you had at the time you filed your tax return, or you claimed a dependent you were not eligible to claim. The reality is that the IRS, for all their faults, is likely to eventually catch an error that will result in a higher tax owed. The real question most taxpayers in this situation face is whether they can actually pay the increase in tax; and they often opt to wait for the IRS to push the issue.

Similar to calculation and transposition errors that benefit the taxpayer, simple calculation and transposition errors that may benefit the government are likely to be discovered in the initial computer processing of your tax return and don’t necessarily require an amendment. It is the more complex or intentional errors that warrant use of the amended tax return to minimize civil and criminal exposure for disclosures made on your original tax return. The use of the amended tax return will minimize the monetary penalties and interest assessed if amended before the IRS corrects the return for you. Like any tax issue, a proactive and organized approach will save you money over time.

Pimping Isn’t Easy When the IRS is Watching You

You usually hear about the IRS wielding its power to criminally prosecute tax offenders in those cases where the dollar amount involved is great or the notoriety from the case will make lawful taxpayers think twice before fudging the numbers on their tax returns. I was a little surprised when I read about Johnny Ray Taylor, who recently pled guilty to tax evasion in U.S. District Court in Las Vegas earlier this week, until I read-on.

At first glance, the headlines capture you about a panderer and pimp, needing to cut a deal with the IRS. How much could such a “profession” really bring in? Surely not enough to catch the attention of the IRS; wrong! According to Taylor’s plea agreement, he copped receiving gross income in excess of $230,000 for tax year 2010. Although he didn’t file tax returns for tax years 2008, 2009, and 2010, he agreed to pay restitution in the amount of $117,559.82 to the IRS for those tax years. He’s presently awaiting sentencing. I’m still curious as to how much money he really “earned” since he cut a deal admitting that he earned in excess of $230,000 for just one tax year alone.