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.

San Diego Couple Busted for Alleged Tax Fraud

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.

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…

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 to Cooperate with Local Police in Fraud Probes

The IRS’ criminal investigation division has kept itself very busy with refund fraud cases in recent years.  They would love to be able to enlist the cooperation of local law enforcement but have always been prohibited from sharing some of the information necessary to apprehend tax criminals.  Individual tax return information, for instance, has always been kept strictly confidential under long-standing IRS rules.  In fact, it is a crime for IRS workers to share this sensitive information outside the context of their work.  Believe me, they are very cautious with this data, even in standard tax resolution inquiries.

However, under a pilot program that will be initiated in Tampa, Florida, the IRS will begin sharing some tax return information to local police, so long as the victims of identity theft and tax refund fraud give their consent.  There is no start date yet.

Surprisingly, National Taxpayer Advocate, Nina Olson, is not opposed to this new legislation, as long as the information shared with police is used strictly for law enforcement purposes.

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.

DOJ Shuts Down “Redemption Theory” Tax Fraud Ring

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.

Don’t Forget to Report your Cash Bribes

The number one IRS rule that every taxpayer should remember to avoid tax trouble: you must report all your income, whatever the source.  Even illegal sources.

John Guarini, a former Jersey City housing inspector, pleaded guilty to tax evasion on Tuesday. Here’s what he did:

  1. Accepted cash bribes totaling $20,000 from a government informant in exchange for building permits
  2. Accepted cash bribe meant for another government official, but then pocketed the money for himself
  3. Failed to report any of it on his income tax return

Full story here.

These types of criminals are commonly prosecuted on tax fraud grounds, and this particular criminal faces 3 years in prison and fines of up to $250,000.

Multiple-filers and the Martinsburg Monster

Before the IRS went into full automation mode and before the IRS used computers in any meaningful way, there were the “multiple-filers.” This was the illegal practice of filing false returns (with phony names, wages, and social security numbers) claiming refunds — usually several returns claiming modest refunds so as to not draw too much attention. And it worked. Many refunds were paid out in error this way. But the multiple-filers would get caught sometimes too (the IRS would probably say “most of the time”).

The term “multiple-filing” doesn’t appear anywhere on the IRS website. Today it is more commonly referred to as “refund fraud.”

In the early 1960′s the IRS housed its computers in a single location in Martinsburg, West Virginia. That first IRS computer center began busting multiple-filers and other tax cheats with a computer system known as the “Martinsburg Monster.”

Check out the April 12, 1963 Life magazine story discussing several successful multiple-filer busts by IRS Intelligence Division head, H. Alan Long and his agents.