California Attorney Failed to File Tax Returns – Sentenced to 6 Months in Prison

California attorney Kevin Mirecki has been sentenced to six months in federal prison after pleading guilty to three counts of failing to file his tax returns and will not obtain tax relief. Mirecki was also ordered to pay more than $225,000 in restitution and fines. Mirecki entered his guilty plea in 2009 and admitted he failed to report more than $1.3 million in income over a three-year period.

Mirecki also founded Genesis Fund Ltd., which investigators say was a foreign-currency Ponzi scheme that bilked at least $80 million from hundreds of investors. Eight people pleaded guilty and another was convicted at trial in connection with the scam.

According to the indictment related to Genesis Fund Ltd., the defendants falsely claimed that investors received monthly returns of four percent, when investments were actually used to make “profit” distributions to defendants and early investors. The defendants promoted the Genesis Fund as having no reporting obligations to the IRS. Bank accounts in the names of trusts and offshore bank accounts were allegedly used to receive distributions from the Genesis Fund that were not reported to the IRS. Some of the defendants allegedly created “disclosed” and “undisclosed” Genesis Fund accounts for themselves and certain fund investors in order to conceal from the IRS all but a small portion of the fund’s distributions. In addition, some Genesis Fund investors were allegedly advised to create nominee offshore corporations and bank accounts to receive distributions from the fund.

The indictment further alleged that to obscure the operations of the fund and to limit scrutiny of its operations by investors and the government, the defendants caused the Genesis Fund to maintain no financial statements or other statements of operation. Additionally, in or about April 2000, to conceal the true nature of its operations from investors and the government, Genesis Fund’s administrative operations were relocated from Anaheim, Calif., to Costa Rica. At about the same time, paper records were moved to Costa Rica and electronic data on computers was destroyed.

Ex-UBS Client Sentenced For Tax Crimes

In 2009 Zurich-based UBS avoided federal prosecution by paying $780 million, admitting it helped thousands of United States citizens evade federal taxes and turned over the names of 250 clients to U.S. authorities. U.S. prosecutors have since charged about 50 Americans with tax crimes

One such former client, Luis Quintero, from Florida, was recently sentenced to four months in federal prison for failing to disclose $4 million in Swiss bank accounts. Quintero, a 64-year-old wholesale perfume importer, pleaded guilty in April and agreed to pay a $2 million fine for failing to file a Report of Foreign Bank and Financial Accounts for the calendar year 2006, according to court records. Read the full article by Susannah Nesmith here.


Dolce & Gabbana Face Tax Evasion Charges

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Italian fashion designers Domenico Dolce and Stefano Gabbana allegedly owe in the neighborhood of 1 billion euros in back taxes (that’s equal to $1.25 billion this side of the pond), and of course they deny it.  I’m sure they’re innocent, since Italians are so good about paying their taxes.  FYI, the only nation with more tax evaders than Italy is Greece.  Here is Gabbana’s well-reasoned tweet from earlier today:

Everyone knows that we haven’t done anything.

With 140 available characters that’s all he could say for himself!?  I wonder if Dolce is any brighter than Gabanna.  The Italian tax authorities have beeen investigating the two since 2007.  A lower court acquitted them, but the government appealed, so their quest for tax relief continues.

Based on the designs pictured in this post, Italy should consider taxing D&G at an even higher rate.  Maybe if they taxed these designs like cigarettes it would discourage anybody from wearing them.

An Academic View of Tax Fraud

A new book by Duke University professor, Dan Ariely, may shed some light on why so many people looking for tax relief tend to cheat on their income taxes.

The book is called The (Honest) Truth About Dishonesty: How We Lie To Everyone — Especially Ourselves. I should point out that, as far as I can tell from the 8 minute NPR piece that I heard yesterday, this book has nothing to do with taxes. But some of the conclusions drawn from one of his cheating experiments really seems applicable to tax cheats (including those looking for a way to overcome their tax debt and those simply looking for a windfall).

The experiment went something like this: people were given a number of simple math problems and were told that they would be awarded a dollar for each correct answer. At the conclusion of the quiz,and after the correct answers were given, the participants were instructed to go to the back of the room and shred their answer sheets. What they didn’t know is the shredder was rigged so that it only shredded the sides of the paper (so the experimenters could go back and check their honesty). Ariely found that many people were ok with fudging their scores to earn a couple extra bucks.

Then the experiment was altered slightly and the participants, instead of being paid directly for their correct answers, were given tokens which they cashed in for money nearby (1 token = $1). Ariely found that adding this extra step of separation increased the dishonesty of the participants.

The moment something is one step removed from money … people can cheat more and [still] feel good about themselves. It basically relieves people from the moral shackles.

~ Dan Ariely, Duke University

Then one additional variable was added to the experiment. One of the math quiz administrators was pretending to be distracted by a cell phone call in the middle of his instructions. As you might have guessed, Ariely found that this resulted in even more drastic cheating. Apparently, if people can come up with a good reason for cheating (i.e., like somebody was being rude by talking on their phone at an inappropriate time) then it’s that much easier to cheat.

Too many taxpayers fudge their numbers to get a bigger refund. Maybe people feel ok about doing this because the process seems so far removed from the government’s money. AND maybe they feel it is justified because they have been mistreated by The System at one time or another.

IRS Shuts Down Granny’s Suicide Kit Sales

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.

What’s with Floridians and their Penchant for Tax Crimes?

I recently blogged about how Florida is becoming a hotbed of tax crimes.  The US Department of Justice issued a press release this week about a Floridian who appears to be engaging in illegal tax activities right from his prison cell.  I say “appears to be” because, procedurally, this is still just a grand jury indictment, not a conviction.

David Marrero has been charged with corruptly endeavoring to obstruct the Internal Revenue Service (IRS) and filing false claims.  He filed false tax returns in hopes of getting a refund from the government.  He even went so far as to prepare bogus income docs to support his fraudulent refund claims.  Marrero also used other peoples’ financial information as part of his scheme — a common technique in the underground business of false return filing.  If you have tax problems, hopefully this story makes them seem small in comparison.

The IRS has promised to scrutinize return preparer certifications that are issued to inmates, perhaps they should also be taking a careful look at any and all returns filed from prisons.  I’m sure they already are, and that is probably why David Marrero’s strategy failed.  So much for getting out early for good behavior…

Tax Crimes in the Sunshine State

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.

Do Tax Cheats Feel Much Shame?

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?

IRS Whistleblower Payouts Often Take Seven Years

Deciding to expose the criminal activities of your colleagues is not easy.  Whistleblowers probably grapple with the pros and cons over a period of weeks or months.  Will I lose all respect in my community?  Will I get fired?  Will they deny it?  Will it completely ruin my career?  Will I be implicated if I don’t speak up?  How could I live with myself if I were to keep quiet.

In 2006, Congress passed a law which allows the IRS to reward whistleblowers who expose tax cheats.  Therefore, in the context of tax fraud and tax crimes, there is another layer of questions to consider: will the reward help to offset the negative consequences?  Six years later many whistleblowers are still waiting for an answer to this question because of the IRS’ inaction.  I suppose it should come as no surprise that the IRS is really good at collecting money, but very bad at paying it out.

Such is the case of Joseph Insigna, former executive at Rabobank Group, who exposed his employer for helping several U.S. companies avoid paying taxes.  Insigna filed his whistleblower claim in 2007 and to this date there is still no word from the IRS about whether or not he has a compensable claim.  His patience has finally run thin and he has, with the help of a tax attorney, filed a lawsuit against the IRS to see if he can finally get a determination.

IRS Sweeping the Nation for Identity Theives

Yesterday the IRS announced a nation-wide crackdown on suspected identity theft perpetrators.  With the help of DOJ’s Tax Division and local US Attorneys, the IRS conducted a flurry of visits, inquiries, indictments, and arrests over the last week.  The IRS almost seems obsessed with their stats:

  • 939 criminal charges
  • 250 check-cashing operations under audit
  • 105 people targeted in 23 states
  • 69 indictments
  • visits to 150 money services businesses
  • 58 arrests
  • 19 search warrants
  • 10 guilty pleas
  • 4 sentencing
  • 1 lethal injection administered*

The IRS has also recently added new content to their website dedicated to curbing identity theft. The reason for all this focus on identity theft is to stop and prevent new cases of refund fraud ahead of the tax filing season.

This unprecedented effort against identity theft sends a strong, unmistakable message to anyone considering participating in a refund fraud scheme this tax season. We are aggressively pursuing cases across the nation with the Justice Department, and people will be going to jail. This is part of a much wider effort underway at the IRS to help protect taxpayers.

~ IRS Commissioner Doug Shulman

I don’t know about you but I wouldn’t want to be one of Shulman’s statistics.  The Commish isn’t fooling around.