IRS Shuts Down Granny’s Suicide Kit Sales

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Going back in history, the government has always used the Internal Revenue Service to shut down underground businesses that are illegal or immoral.  If the law does not support the government’s case, or if the facts and evidence are not in its favor on other charges, the government often has “tax evasion” in its back pocket.  Al Capone is the prime example.

This week’s Al Capone is a 92-year-old lady from Southern California named Sharlotte Hydorn.  She was convicted and sentenced to 5 years supervised probation for failing to file and pay taxes on the income she earned from suicide kits she sold from her home.  She was also ordered to work out a way to pay off her IRS tax debt.  As you probably guessed, there is no federal law addressing assisted suicide.

My question is “where was her family?”  I know her husband is deceased — it was his death that sparked Hydorn’s interest in benevolent killings.  But she needed somebody by her side to tell her things like:

  • Maybe you should be a little more careful about who you’re selling these kits to; like maybe find out their age and circumstances first.
  • Maybe you should be paying taxes on this income
  • Maybe when grandpa whispered “home, home” on his deathbed he wasn’t asking to die in the comfort of his home.  Maybe he was trying to communicate to you that he was now going “home” to his maker.

I realize that last point is pure speculation.  But hey, if it were true then Hydorn certainly never would have started selling suicide kits in the first place.

Taxgirl Shares Nugget of Blogging Wisdom

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Last week I blogged about “Taxgirl” Kelly Phillips Erb’s coverage of the Richard Hatch tax debt controversy.  It was my observation that she had changed something about the way she reported the story after speaking with Hatch directly about his situation.  Well Kelly was nice enough to provide me with a little clarification, part of which I have reproduced here:

“One of the reasons that I’ve blogged the story so many times is that I’ve been fascinated by the history. Like you, I practice tax law and I have been trying to get my head around why this case didn’t stop earlier. This wasn’t an ordinary story. In fact, that was the point of my original piece: the IRS doesn’t, as a rule, just toss folks in jail.

One of the cool things about blogging is that it’s not static. Providing regular content to an engaged audience allows you to update stories as they happen. And I’d like to think that’s what happened here. It wasn’t my intention to “backpedal” or paint Mr. Hatch as a victim with my follow-up piece. I don’t think I so much “changed my (sic) tune” as I found out more about the story and reported what I learned.”

She’s right.  I hadn’t thought of it that way.  It’s great that she was able to tell Hatch’s side of the story and add something that we probably wouldn’t get through standard news outlets.  I also support the notion that a good blog is often dynamic and engaging.  Thanks for the perspective Kelly!

The comments are not very prominently displayed on our blog, so click here if you want to read the Taxgirl’s comment in full.

The Hatch Tax Saga Continues: Hatch vs. Erb

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Forbes contributor, Kelly Phillips Erb, blogged about ex-Survivor contestant/winner, Richard Hatch’s tax problems last week and this week she’s completely changed her tune.  What made her backpedal?  A personal call from Mr. Hatch.

The Tax Girl’s April 24th blog post portrayed Hatch as a quasi-celeb tax-dodging goofball.  Maybe its the commercial that makes him look like a goofball.  But nonetheless, Hatch called her out in a comment to her article, claiming that she didn’t bother getting her facts straight.  Then they spoke via telephone and Hatch gave her the complete rundown on what has happened in his fight with the IRS and the judicial system from the time he finished his stint on Survivor up to the present.  AND NOW, in today’s blog post, all of a sudden Hatch is a “victim” and a true survivor.  See today’s post here.

Whatever, I get it.  The phone call made her realize that Hatch is an actual human being suffering under the burden of a massive tax debt, and following his tax story through reports of the mainstream media may not have resulted in an accurate understanding of the controversy.  Heck, if Kelly were to call me in response to this post, I’m sure I’d do some backpedaling myself:)

Supreme Court Rules in Favor of Taxpayer on Assessment Statute Question

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How many years should we be concerned about the possibility of an IRS audit?  Most people realize they are in the clear for taxes they filed in the 1990s.  The IRS can’t come back and audit you a decade later because audits and additional assessments are time bound by a 3-year statute of limitations.  In most cases you are in the clear after 3 years from the time you file or from the due date of the return.  However, there is an exception that allows the IRS to double the statutory period in cases where the taxpayer understates gross income by 25% or more.  The whole concept of understating income by 25% can be fairly convoluted as evidenced by the wide variations in how appellate courts have decided the question over the years.

But the highest court in the nation has recently sided with the taxpayer in a case that was expected by many to go the other way.  It was a tax shelter case.  The IRS wanted 6 years, but the Supreme Court ruled that the standard 3-year rule applied.  Some see this as a big win for taxpayers.  Apparently the circumstances that would allow the IRS to stray from the 3-year rule are fairly narrow.

The “Common Cause” Whistleblower Case

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You may have heard about the complaint filed by Common Cause against American Legislative Exchange Council (ALEC) asking the IRS to drop the organization’s tax-exempt status for engaging in lobbying activities.  What you may not know is this complaint was filed under the 145-year-old whistleblower provisions now codified in 26 USC 7623.

Has ALEC been exploiting the tax relief available to non-profits?

Common Cause is characterizing ALEC ‘s activities as an improper tax scheme and is asking the IRS to investigate and assess all taxes due.  If taxes are in fact collected from ALEC, it would seem that Dr. Robert W. Edgar, the president and CEO of Common Cause, stands to gain a large sum of money.  One of the requirements under the whistleblower statute is that the complaint be filed by an individual, and it appears to have been filed on behalf of Dr. Edgar.  Under the 2006 amendments to the whistleblower statute, the maximum award is 15% of the taxes and penalties collected (capped at $10 million).

So far ALEC has responded to the allegations by calling them a “harassment tactic.”

“[I]t’s clear to me that this is a tired campaign to abuse the legal system, distort the facts and tarnish the reputation of ideological foes….Without question, Common Cause is a partisan front group masquerading as an ethics watchdog.

~ Alan P. Dye, attorney for ALEC

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.

Renunciation of Citizenship on the Rise

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California is a beautiful place to visit.  The variety of landscapes and weather patterns and people attract visitors from all over the world.  Many love it so much that they decide to stay in California and call it home.  However, I have lived in California all my life, and for every one person outside of California longing to relocate to the Golden State, there are 10 people here in this state hoping to move out.  This statement does not reflect the results of an official survey or study, just an observation.

Why are so many Californians looking to set up their residence elsewhere?  It’s the same reason a number of Americans are renouncing their citizenship.  TAXES.  The people just want tax relief.

It is expensive to live in California and it’s expensive and burdensome to pay US taxes while living abroad.  Escaping California taxes is not so difficult — you just move to a different state.  But if you wish to legally escape your US federal tax responsibilities, you must renounce your citizenship.  Last year at least 1,788 people formally renounced their citizenship.  According to IRS numbers, that’s more than in 2007, 2008, and 2009 combined.

“The complexity of international tax law, combined with the administrative burden placed on these taxpayers, creates an environment where taxpayers who are trying their best to comply simply cannot, … For some U.S taxpayers abroad, the tax requirements are so confusing and the compliance burden so great that they give up their U.S. citizenship.

~ Nina Olson, National Taxpayer Advocate

Abel Maldonado: Raises Taxes in 2009, Owes Taxes in 2012

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Abel Maldonado, a Republican from Santa Maria, is running for Congress.  He voted with Governor Schwarzenegger and state Democrats to raise taxes in 2009.  Should that preclude him from seeking tax relief by disputing an IRS assessment?  Some think it should.

News sources have Maldonado owing as much as $470,000 in back taxes in connection with poorly-named family businesses, “Agro-Jal Farming” and “Tri-M Rental Group.”  The dispute is either currently in, or on its way to, US Tax Court where a judge will determine whether or not he will be held liable for the tax, plus whatever interest and penalties have accrued since 2006.  See full story here.

Of course the primary detractors are the rival congressional candidates, including Rep. Louis Capps, D-Santa Barbara, who are portraying Maldonado as a hypocrite.   This just goes to show that even the most staunch big-government Democrat usually doesn’t want to pay a penny more than he is legally obligated to pay.  I’m not sure that makes him a hypocrite.

If I voted to reduce the speed limit to 55mph, should I be morally obligated to drive 45?  No.  And if I got ticketed for driving 54mph, shouldn’t I have the right to dispute it?  Of course I should.  And the same things goes for payment of taxes.  Maldonado is no hypocrite; he’s just doing what every single warm-blooded American would do in his situation.

Do Tax Cheats Feel Much Shame?

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According to a survey of 1,105 Americans conducted by The Shelton Group, cheating on taxes is not as shameful a thing as it may have once been.  See Forbes article for more information.

The relevant portion of the survey asked “How embarrassed would you be if someone you knew found out that you were _____.”  Then from a list of offenses, participants were to select either “very embarrassed,” “somewhat embarrassed,” or “not embarrassed.”  So what do you suppose would cause people to be very embarrassed?  The results may surprise you:

  • shoplifting (73%)
  • driving under the influence (65%)
  • throwing trash out of a car window (59%)
  • cheating on your taxes (57%)
  • smoking (39%)

I’ve been puzzling over these results today and I haven’t been able to come up with much of an explanation.  If you ask the IRS, taxpayers still have a relatively strong fear of being audited, they believe everyone must contribute to society and pay their taxes, and they feel that cheating on your taxes is a serious transgression.  So how do you reconcile the Shelton Group data?

Maybe cheating on taxes is so uncommon that people don’t really know what their reaction would be; they don’t know how it ranks in relation to more everyday sins.  Unlikely, right?  Ok, maybe tax problems (and cheating to try to reduce them) are extremely common and no longer taboo.  Maybe Uncle Sam is perceived as this massive, insensitive brute who won’t miss a few thousand dollars here and there.  The ol’ “Stick it to The Man!” mentality.  Who knows…

What I want to know is this: besides smoking, is there anything less embarrassing than cheating on your taxes?

Phony IRS Email

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Today one of my clients who has a tax debt found the following email in her inbox, which was obviously NOT from the IRS:

Good day,Here is a notice, that you need to pay a penalty because you did not file income tax return by the deadline that is January 31, 2012.

Please note, that IRS [Section 6038(b)(1)] determines a monetary penalty to the amount of $10,000 for each [Form 5471] that is sent after the due date of filing the income tax return, or does not include the exhaustive information determined in [Section 6038(a)].

You will be released from the penalty provided that the taxpayer shows that the failure to meet the deadline for filing was caused by substantial reasons.

Please enter our official site for more details.

Kind regards,
Internal Revenue Service United States
Department of the Treasury

As you can probably imagine, the link (“Please enter our official site”) does not take you to the IRS website.  Had she clicked on the link, she could have compromised her computer files or possibly subjected her computer to a virus.  It is important to keep in mind that the IRS does not send unsolicited emails.