The Multi-Talented Chinese Tax Authority

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photo via blog.pgi.com

We think the IRS has been tasked with more than it can handle now that it will have to enforce the new health care law, but it takes just one look at the Chinese taxing authority to rethink how bad it really is here.

Chinese tax collectors take multitasking to a whole new level.  The case of Chinese artist/political activist Ai Weiwei shows how their duties go far beyond collection of revenue.  In between their bean counting sessions, they somehow found time to detain and interrogate Ai in a secret location for 81 days last year.  All in a day’s work for the Chinese tax authority.

The Chinese Government insists that it is only interested in Ai paying his tax debt, but it is clear that what they really want from Ai is silence.  This story is back in the news now because Ai recently lost his appeal.  A Chinese appellate court rejected his argument that the tax authority had violated its own procedures by temporarily robbing him of his freedom last year.  And still Ai refuses to hold his peace when it comes to important Chinese social & political issues.  See full story here.

The IRS "Bad Seeds"

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Why is it so fun to hear about IRS employees cheating the system from the inside?  Every warm-blooded taxpayer gets some kind of morbid satisfaction from the irony of these stories: the tax man, charged with the responsibility of enforcing the tax laws to a tee and collecting every last dime from others, bends and/or ignores the rules when it comes to his own tax obligations.  The same person who issues a wage garnishment on Christmas Eve lacks the integrity to pay his own fair share.

This week we have been treated to two such stories.

One is the story of Domeen Flowers, a 48-year-old former IRS mail clerk who allegedly abused her access to taxpayer records, stealing several identities which she used to apply for credit cards.  Good luck cracking down on identity theft, TIGTA and Commissioner Doug, if you can’t even keep good tabs on your own.

The other story involves Jacynthia Quinn, an IRS veteran of 30 years, who appears to have doctored receipts and bills in an attempt to substantiate her $95,000 in deductions (of which only $215 was allowed).  Her response: she didn’t know she would be required to provide proof of her deductions!  And Quinn was no mail clerk; she knew the rules and wilfully violated them.

One of the big barriers to voluntary compliance in other countries is corruption and distrust of the system.  It’s nowhere near as rampant here as it is in countries like Italy or Greece, but these tax crimes by IRS insiders can’t be good for the IRS’ image.

www.mwattorneys.com

San Diego Couple Busted for Alleged Tax Fraud

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Dr. James Francis Murphy, 51, and his wife Denine Christine Murphy, 49, from the San Diego area, ran a successful medical practice.  But while Dr. Murphy was providing pain relief to his patients, he must have been sneaking toxic doses of tax relief for himself.  According to the indictment, their crimes were “corrupt interference with the administration of IRS laws and presenting false claims to the United States for fraudulent income tax refunds” over a period of about 10 years.

This story illustrates the fact that there is no one demographic for those who would cheat the system by either failing to pay their fair share or by scamming the government out of money by way of false refund claims (or both).  Many of the criminals as of late tend to be trafficking in stolen identities straight off the streets of Tampa, FL.  But there are plenty of sophisticated “professionals” who are scam artists too.

One would expect that the more sophisticated tax criminals would engage in elaborate, complicated transactions to suppress their tax problems and make a buck, but Mr. and Mrs. Murphy preferred to keep it simple.  Their master plan included the following basic components:

  • hide income
  • claim huge unjustifiable refunds
  • pay taxes with checks that bounce
  • threaten IRS employees

See full story here.

IRS Promises to Start Showing Whistleblowers Some Love

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photo courtesy of blogs.courant.com

The IRS appreciates getting tips that help them catch people who seek tax relief illegally, but they haven’t done a very good job of showing it over the years.  The relationship between the IRS and whistleblowers has been strained, to say the least.

The IRS Whistleblower Office was established in 2007, and for all we know it was set up in an empty warehouse staffed by crickets.  The Whistleblower Office is notorious for dragging out cases far too long, failing to communicate with whistleblowers to obtain key information, not reaching the correct decision on cases, and not paying out when the decision is favorable for the whistleblower.

However, in a June 20th memorandum, the IRS declared that it would make some concrete improvements to the Whistleblower Program (outlined below).

“Let’s Kiss & Make up”:

  1. Improve communication with whistleblowers by debriefing in most cases
  2. Act on cases in a timely manner
  3. Comprehensive review of Whistleblower Office procedures
  4. Established interim guidelines imposing 90-day deadlines at key stages of the review process

AND, if you happen to be an “external stakeholder,” (whoever that might be) then the IRS says it will be working with you to establish more permanent guidelines.

www.mwattorneys.com

 

 

The Ultimate Case of Refund Fraud

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I’ve blogged about refund fraud before.  I’ve even blogged about inmates committing refund fraud from their prison cells, as odd as that may sound.  But the story of Jason Whitfield will Blow. Your. Mind.

Whitfield was charged with second degree murder back in November 2011.  He is accused of shooting and killing 26-year-old Michael Massaline on October 26, 2011.  Then, while in prison, Whitfield was caught putting together fraudulent refund returns in hopes of getting free money from the government.  Sometimes these refund fraud types use the identities of people they know, and sometimes inmates even sell their personal information knowing what it will be used for.  Not the case here.  At least one of Whitfield’s victims was definitely not a willing participant because it was the same guy he is accused of murdering!  Talk about adding insult to injury!  I guess once you’ve killed someone your tax problem seems inconsequential, and there isn’t much else you can feel guilty about . . . IF he’s guilty, of course.

It probably won’t surprise you to learn that this is another case out of the (now infamous) tax fraud capital of the nation, Tampa Bay, FL.  If it bothers you that inmates are surfing the internet and maintaining improper contacts with the outside world, you’re not the only one.  Prison guards and officials in Hillsborough County are in over their heads with this “epidemic.”  One deputy estimated that more than half of the inmates there are somehow involved in fraudulent refund schemes.

Football, Concussions, & Taxes

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Maybe you have seen this popular statistic:

By the time they have been retired for two years, 78% of former NFL players have gone bankrupt or are under financial stress because of joblessness or divorce.

True or not, it is difficult to dispute the fact that many NFL players have a hard time after their football career is over.  One thing is certain — they are routinely getting into trouble with the IRS.  The most recent example is former Atlanta Falcon, Jamaal Anderson.  News sources say he has tax debt from 2007 and 2008 in the neighborhood of $1.1 million.  The IRS has filed a lien to protect the government’s interest in his property until he can pay back what he owes.

Football takes a huge toll on the body and these guys typically retire very young.  I don’t know if there are any formal studies on this type of thing, but I would guess many pro football players retire with tons of ambition, but insufficient business acumen and, who knows, maybe one too many concussions to be able to maintain the type of lifestyle they were used to while in their prime.

Any thoughts on this topic?

Tax Crimes in the Sunshine State

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For whatever reason, sunny Florida is a hotbed of criminal tax activities.  Refund fraud is particularly rampant in Tampa, as described in a very interesting article appearing in the Tampa Bay Times over the weekend.  According to the author, Patty Ryan, the new generation of tax criminals either do not fear the IRS or do not believe what they are doing is all that bad when compared to other crimes like drug dealing.

“Frequently, when police find probable cause to search for drugs on a traffic stop, they find trappings of the tax refund trade.

A Nissan Xterra searched in a March 30 drug bust … in East Tampa turned up 48.7 grams of powder and rock cocaine, 100 grams of marijuana, digital scales, $14,957 in cash, four fraudulent tax return checks worth $32,165, and 67 TurboTax debit cards, along with ledgers of personal information for hundreds of people, police said.

The IRS has identified Tampa as an ideal location for a pilot program that would enlist the cooperation of local law enforcement in cracking down on tax cheats.  It’s easy to see why they chose Tampa.

Another Co-conspirator in the Madoff Scheme

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Today Enrica Cotellessa-Pitz, Bernie Madoff’s former controller, pleaded guilty to conspiracy, falsifying books and records, and making false filings with the Securities and Exchange Commission. She could spend up to 50 years in prison.

Cotellessa-Pitz said she started working at Bernard L. Madoff Investment Securities LLC in 1978 while she was studying economics in college. She was named controller in late 1998. She said Madoff and others within months were directing her to put false entries in the company’s books to make it appear profitable trades were being made and that losses were not incurred.

~ LARRY NEUMEISTER, The Associated Press

She also helped Madoff’s organization reduce its tax liabilities by underreporting income to the IRS. Madoff’s own 2004 tax return was audited when he underreported by millions of dollars. And then when faced with audits, Cotellessa-Pitz perpetuated the fraud by providing false information to the SEC and the IRS.

www.mwattorneys.com

DOJ Shuts Down “Redemption Theory” Tax Fraud Ring

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This week the US Department of Justice released the names of seven individuals who have been charged in a $120 million tax fraud scheme. According to the indictment, the false return scheme was national in scope, causing the filing of tax returns for at least 180 clients from 30 different states, and requesting more than $120 million worth of fraudulent tax refunds. The indictment alleges that the defendants and clients of the scheme collectively filed more than 380 tax returns, mostly from tax year 2008, reporting the amount of their personal debt obligations as both income and as federal tax withholding.

Other reports mention the scammers were promulgating a “redemption theory.” Here’s the scoop on this bizarre tax protestor theory according to Wikipedia:

Redemption theory involves claims that when the U.S. government abandoned the gold standard in 1933, the government pledged its citizens as collateral so that the government could borrow money. The movement also asserts that common citizens can gain access to funds in secret accounts using obscure procedures and regulations.

According to the theory, the government created a fictitious person (or “straw man”) corresponding to each newborn citizen with bank accounts initially holding $630,000. The theory further holds that through obscure procedures under the Uniform Commercial Code, a citizen can “reclaim” the straw man and write checks against its accounts.

The “straw man” argument is cited by the IRS as one of the 40 frivolous tax arguments which, if made, subjects the taxpayer to tougher penalties. The “straw man” argument is #18.

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Madoff’s Unnecessary Tax Payments

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We often hear about people trying to get out of paying taxes that they are legally obligated to pay. I blog about tax crimes all the time. But seldom do we hear about somebody paying taxes that are not owed as part of their fraudulent scheme.

Bernie Madoff went to great lengths to ensure that his fraud would not be exposed. He and his firm paid some $326 million in taxes on behalf of foreign investors in connection with the sale of securities. The only problem is Madoff’s firm never purchased or sold any securities on behalf of foreign investors.

Legitimate firms pay taxes. This much Madoff understood. Perhaps Madoff was thinking that by paying as much as he did, it would eliminate any doubt about the legitimacy of his operations.

I believe that the payments made to the IRS falsely identified the funds as income tax withholding in order to give the investment advisory arm of Bernard L. Madoff Investment Securities LLC (BLMIS) an air of legitimacy and to avoid inquiries . . .

~ Irving Picard, trustee acting on behalf of Madoff’s victims

Picard struck a deal with the IRS today whereby the IRS would refund the $326 million. This will help offset some small fraction of the losses suffered by Madoff’s victims.