A Tennessee woman is serving 51 months in prison for attempting to cash a fraudulent $1 million bill of exchange from a foreign source. The bill of exchange was flagged because it didn’t have magnetic ink coding like an ordinary check, it contained an “autograph” line instead of a signature line, and wording at the bottom of the document contained the misspelled word “neogotobile.” A private investigator at the bank alerted the police that the bill of exchange was fraudulent. Just prior to the bank fraud incident, she had also filed a fraudulent tax return claiming a $250,000 refund. At trial, it was revealed that in 2006 she had been convicted of multiple counts of filing fraudulent returns using personal information stolen through Sheep Ministries, Inc., the faith-based nonprofit that she ran. (United States v. Marilyn Cook (May 6, 2022) U.S. Court of Appeals, Sixth Circuit, Case No. 20-5622)

Tax investigators from the J5 (Joint Chiefs of Global Tax Enforcement) have uncovered evidence of a $1 billion cryptocurrency Ponzi scheme. The leads concern transactions around the world, including crypto transactions in the J5 nations: the U.S., the U.K., the Netherlands, Canada, and Australia. Some of the leads involve individuals with significant NFT transactions; NFTs are becoming a new tool in money laundering practices. The IRS is now making tracking cryptocurrency one of its primary priorities, because the lack of regulation and oversight makes cryptocurrency vulnerable to fraud. (https://www.thestreet.com/investing/crypto-ponzi-scheme-irs-regulators)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection On-Demand Webinar. Click here for more information.

Married taxpayers were liable for fraud penalties for failing to report wage and dividend income from the daycare centers they owned and operated. The taxpayers also each had a credit card tied to the corporate bank account, which they used to purchase personal items such as college tuition, vacations, jewelry, and other luxury items. Their adult children also made personal purchases using the corporate credit cards, even though they were not employees of the daycare centers. The daycare center also paid for a Hummer, a BMW, and an Escalade for the taxpayers and their children to drive as their personal vehicles. (Hacker v. Comm., TCM 2022-16)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection On-Demand Webinar. Click here for more information.

A U.S. Consulate officer in Vietnam was charged with conspiracy after participating in a scheme where nonimmigrant visa applicants paid him to approve their visas, netting him over $3 million. He initially kept his payments in a home safe, but as the stash grew, he purchased nine properties in Thailand to attempt to hide the proceeds of the scam. On his tax return for the year at issue, he reported his income from the Consulate Office, but did not report the bribery income. As part of his plea agreement, he agreed to sell the Thailand properties to help pay off the money judgement against him. The properties were sold at a loss, which the taxpayer deducted from his bribery proceeds. But the Tax Court determined that loss deductions are disallowed where the deduction would frustrate federal or state policy. Allowing a deduction for losses arising from the properties obtained through illegal activities would undermine public policy because a portion of the forfeiture would be borne by the Government. (Sestak v. Comm., TCM 2022-41)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection On-Demand Webinar. Click here for more information.

A real estate developer in Michigan is facing five years in prison plus penalties and restitution for lying to the IRS in an attempt to hide his failure to pay employment taxes he withheld from employee wages. During the investigation, the developer (who is a former CPA) lied to IRS special agents about his companies’ assets income, filed false employment tax returns stating he had no employees, and claimed he could not afford to pay his tax debts. Meanwhile, he was using business accounts to pay for his Lake Michigan vacation home, Lansing condo, car payments, college tuition, personal credit card bills, and his boat. In 2021, he had filed a defamation suit against an East Lansing news outlet for publishing a story on his questionable business practices. The suit was dismissed. (www.justice.gov/Usao-wdmi/pr/2022_0426_Chappelle)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection On-Demand Webinar. Click here for more information.

Dear [CLIENT NAME]:

Many people think it’s a good idea to put their child’s name on the title to their home. Sometimes the parent adds the child’s name to the title and sometimes the parent changes the title to the child’s name. This is generally a very bad idea. Here are five reasons why:

1. Gift tax return: If you give your child a gift of equity in the home that exceeds $16,000 in value (in 2022), there may be a gift tax to pay and a gift tax return to file.
2. No gain exclusion: Tax law allows a taxpayer to exclude up to $250,000 of the gain on the sale of a principal residence ($500,000 for a married couple). However, the exclusion is only available if the seller owns and occupies the property for at least two out of the last five years. If the child does not live in the home for that period, the gain on the child’s share of the home is fully taxable.
3. Equity subject to debts of the child: Property is subject to the debts of its owners. If the child owns the home or is a partial owner, a creditor may file a lien on the property for any of the child’s debts. Although your child may have excellent credit and good fiscal responsibility, your home could be lost if there is an accident or a lawsuit.
4. You are now a renter: If you give 100% of the property to a child, you are now at the mercy of the child. If the child decides to sell the property, you must move out. There is no guarantee that the child will continue to care for you.
5. Medicaid problems: Under some circumstances, the gift of the home to the child could be considered a gift for Medicaid purposes. If you give the home to the child and the child subsequently sells it, you could be ineligible for Medicaid benefits in the event of a long-term health crisis.

What should you do instead?

Usually a parent gives the home to the child to make sure that the child easily gets the home at the parent’s death or so the child can manage the affairs of the parent. If this is the case, the parent will be better served by establishing a living trust, along with powers of attorney, so the child can manage the parent’s affairs.

If the reason is to help the child buy his or her first house, a better way is to lend the child money with a low but reasonable interest rate, and set up a program to give annual gifts in the form of principal forgiveness.

If you are considering giving your home to your child, contact me so we can discuss alternatives.

Sincerely,

Your tax professional

In 2020, the 82-year-old owner of a South Philadelphia cheesesteak shop and his son were indicted on tax fraud charges for failing to report more than $8 million between 2006 and 2016. However, there’s so much material to discover in their complex tax case that a Pennsylvania federal court continued discovery until May 2022. The father-son duo are accused of paying wages partially in cash to avoid payroll taxes and filing numerous false returns understating their business income. During a franchising rights dispute, the pair worried their tax fraud scheme would come to light, so they amended several returns to increase reported sales, but then claimed additional fraudulent expenses to offset the income. If they’re convicted, they face five years in prison for conspiracy and for each count of tax evasion, and three years in prison for each false return charge. (https://6abc.com/tony-lukes-tax-fraud-evasion-anthony-lucidonio-sr-nicholas/6332901/)

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If preparing (fraudulent) tax returns is wrong, then I don’t want to be right! A Texas tax pro was banned in 2011 from conducting a tax preparation business after she admitted to preparing or assisting to prepare approximately 200 false tax returns. The tax credits she tried to obtain in that case were described in a filing as “so exaggerated that no reasonable person could conclude they were anything but deliberately fabricated.” But she was back at it again, and since 2016, she had been preparing income tax returns for clients despite the prohibition. She prepared numerous false returns which claimed various false items on her clients’ behalf: false wages, salaries, tips, and tax credits such as the Earned Income Credit, Child Tax Credit, and American Opportunity Tax Credit. She has been sentenced to 15 months in prison. (www.justice.gov/usao-sdtx/pr/tax-preparer-sent-prison-tax-fraud-again)

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After a routine inspection by the Bureau of Alcohol, Firearms, Tobacco, and Explosives (ATF) uncovered violations that resulted in a taxpayer’s business ultimately closing, the taxpayer hatched a plan for revenge. Five years later, he issued W-9s to the two ATF agents, requesting their Social Security numbers. He never received that information, and he then issued a Form 1099-MISC to each of the agents, showing he paid them $250,000 apiece. The agents did not report the income, and the taxpayer deducted $500,000 on the company’s return, flowing the loss through to his individual return. At trial, the taxpayer insisted he had spoken with an IRS agent who said it was acceptable to write off the $500,000. He was sentenced to two years in prison for filing false returns. (U.S. v. Petrunak (May 4, 2017) U.S. Court of Appeals, Seventh Circuit, Case No. 16-3631)

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A taxpayer successfully argued that $10,500 in checks she received from her boyfriend were gifts, not income. Her boyfriend had reported the payments on a 1099-MISC and deducted them from his income, claiming that he had paid her wages. As a result, the IRS had come looking for income tax since the taxpayer had not reported the income. At trial, the ex-boyfriend changed his story and was evasive in answering questions. The taxpayer, on the other hand, answered every question asked — even those that did not help her case. The court found the taxpayer’s testimony to be forthright and the ex-boyfriends to be untrue, and determined that the $10,500 was paid to the taxpayer with “detached and disinterested generosity,” and held that it was a gift, not reportable income. (Jue-Ya Yang v. Comm., TCS 2008-156)

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The owner of a Georgia IT business is in prison for almost seven years for using a computer program that he built to store stolen identities and automatically submit fraudulent tax returns using those stolen identities. The program could be accessed remotely, and he hid his IP address whenever he accessed the program, making it difficult for the IRS to trace a tax return back to “one particular origination point.” Refunds were issued on prepaid debit cards and totaled around $600,000. After being indicted, he was out on bond, but was discovered to be threatening potential witnesses against his case and sent back to prison. (www.sacbee.com/news/nation-world/national/article259620689.html)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection On-Demand Webinar. Click here for more information.

IRS Criminal Investigation (IRS-CI) is the only federal law enforcement agency authorized to investigate federal criminal tax violations and related financial crimes: money laundering, corruption, currency violations, and terrorist financing. IRS-CI seized more than $3.5 billion of illicit cryptocurrency in fiscal year 2021, and they’ve already seized more than this amount in fiscal year 2022. So far in 2022, $3.6 billion has been seized by CI agents who tracked unauthorized transactions that sent stolen Bitcoin from a 2016 digital asset exchange hack to digital wallets under the control of the launderers. (FS-2022-18)

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A California woman and her five co-conspirators have been charged with defrauding the California Department of Public Health for a scheme that diverted CDPH funds for their private use. The woman was a former manager at CDPH and she billed the agency for “consulting work” that included purchasing a large number of gift cards supposedly as patient incentives, but which she herself used. She and the other fraudsters also billed the state for HIV prevention services that were never provided. Together, the group scammed CDPH out of $2 million; the woman is liable for $750,000 and faces 20 years in prison if charged. (https://fox40.com/news/local-news/former-manager-with-cdph-office-of-aids-charged-in-connection-with-fraud-scheme/)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection On-Demand Webinar. Click here for more information.

In 2020, Robert Brockman was charged with tax evasion, wire fraud, money laundering and other crimes as part of a nearly 20-year scheme to conceal billions in income from the IRS and defraud investors in software company Reynolds & Reynolds, of which he was the CEO. In December 2020, Brockman’s attorneys announced that despite the fact that he was running a multi-billion dollar software company up until November 2020, he was suffering from extreme dementia which prevents him from standing trial. Most recently, he has been accused of continuing to hide assets offshore and transferring property to family members in an attempt to avoid paying his $1.4 billion tax bill. (https://www.autonews.com/dealers/former-reynolds-and-reynolds-ceo-robert-brockman-still-hiding-assets)

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Two sisters are serving prison sentences for tax evasion and defrauding the government. The sisters created five different companies, some in the names of other people, and filed over 16,000 false returns that netted them almost $25 million in fraudulent refunds. The sisters used the funds to purchase multiple luxury homes and vehicles, before the IRS caught on that one sister had earned over $1 million during one year they were engaged in the fraud, but she had only reported earning around $200,000. In addition to prison time the sisters will pay to the IRS restitution of $24.9 million plus $500,000 for tax evasion. (www.irs.gov/compliance/criminal-investigation/orlando-sisters-sentenced-in-25-million-tax-fraud-scheme)

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In the first pandemic relief fraud case to go to trial, three San Fernando Valley family members were sentenced to prison for fraudulently obtaining $20 million in PPP loans and EIDL relief funds. The family used dozens of fraudulent and stolen identities – including names belonging to elderly or deceased people and foreign exchange students who briefly visited the U.S. and never returned — to submit fraudulent applications for approximately 150 PPP and EIDL loans. They used the funds to buy homes in Tarzana, Glendale, and Palm Desert, as well as gold coins, diamonds, jewelry, luxury watches, fine imported furnishings, designer handbags, clothing and a Harley-Davidson motorcycle. Two of the sentenced family members are fugitives, having cut their tracking bracelets and going on the run. (https://www.justice.gov/usao-cdca/pr/san-fernando-valley-family-members-sentenced-years-prison-fraudulently-obtaining-tens)

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A Bulgarian national was sentenced to 10 years and one month in prison for operating an online auction fraud that posted ads on craigslist and eBay for high-cost goods like vehicles that did not actually exist. The buyer’s payment then went through a complex money laundering scheme where someone in the U.S. would receive the payment, convert it to cryptocurrency, and then transfer it to foreign money launderers. The man sentenced had laundered nearly $5 million in cryptocurrency over three years. (https://www.justice.gov/opa/pr/owner-bitcoin-exchange-sentenced-prison-money-laundering)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection On-Demand Webinar. Click here for more information.

The founder of a Russian online bank was required to pay $508 million in tax, interest, and a $100 million fraud penalty for large stock gains following taking his company public on the London Stock Exchange. Three days after the IPO, which netted $1.1 billion, he renounced his U.S. citizenship. He did not report his assets on his expatriation forms, which require expats with a net worth of $2 million or more to report their assets and pay tax; he reported a net worth of $300,000. He also filed a false tax return, leading to his arrest and extradition. Had he paid the tax owed after the IPO ($248,525,339), his bill would have been less than half of what he paid with his plea agreement. (www.justice.gov/opa/pr/founder-russian-bank-pleads-guilty-tax-fraud)

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A New Mexico couple has been sentenced to prison for embezzling $11 million over a decade from their guardianship and financial services firm. The couple siphoned payments to clients from the Department of Veterans Affairs and Social Security Administration and used the funds to buy RVs, homes, luxury vacations, and to pay over $4 million in AmEx charges. The authorities began an investigation when employees noticed funds were missing from client accounts. The couple fled before their sentencing because they “wanted to get away one last time before they went to prison,” but were located in Oklahoma and arrested, and handed harsher prison sentences. (www.abqjournal.com/2409934/founder-of-guardianship-firms-gets-47-years-in-federal-prison.html)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection On-Demand Webinar. Click here for more information.

The chief of the Questionable Refund Unit for the New Mexico Taxation and Revenue Department was apparently confused about the purpose of his job. Rather than making sure taxpayer returns and refund claims were on the up-and-up, he altered returns and had the resulting fraudulent refunds deposited into his own bank account. In total, he siphoned almost $700,000 from New Mexico’s taxpayers. He’s facing a minimum of 32 years in federal prison on charges of wire fraud, identity theft, and money laundering. (https://www.krqe.com/news/crime/tax-official-pleads-guilty-to-stealing-nearly-700k-in-taxpayer-money/)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection On-Demand Webinar. Click here for more information.

An antiquities collector has been banned for life from acquiring antiquities after numerous pieces in his collection were determined to be stolen. An investigation into a statue stolen from Lebanon during the Lebanese Civil War led authorities to the collector, and it was determined that 180 pieces worth $70 million in his possession were stolen or had other evidence of looting. The collector claims he had no idea the items were stolen. The lifetime ban was imposed in lieu of a criminal trial, and the collector has stated that he plans to recoup his losses from the antiquities dealers he was working with. (www.wealthmanagement.com/high-net-worth/billionare-michael-steinhardt-surrenders-70-million-stolen-antiquities)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection On-Demand Webinar. Click here for more information.

A French attorney for years had been hounding her client’s stepson, accusing him of stealing her client’s inheritance, which triggered a criminal investigation into his tax reporting of various trusts. The stepson was acquitted of fraud, but the attorney is now in hot water for not reporting the $5 million her client paid her for her efforts. She has been found guilty of aggravated tax fraud and money laundering for her attempt to hide that money, on which she now owes $170,000 in income tax, $135,000 in wealth tax, and $800,000 in fines. (www.artnews.com/art-news/news/claude-dumont-beghi-1234613490/)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection On-Demand Webinar. Click here for more information.

The Cyber Crime Unit of the Internal Revenue Service’s Criminal Investigation Division released a report on its activities, which included seizing $3.5 billion in cryptocurrency in fiscal year 2021 (93% of all of its seizures). The Infrastructure Investment and Jobs Act contained provisions expanding the reporting requirements for cryptocurrency, so this will continue to be a focus for the CI division. The report also noted that in 2021, the CI division identified $2.19 billion in tax fraud and another $8.18 billion in other financial crimes. Tax-related issues accounted for 72% of its direct investigative time, with 15.4% spent on non-tax issues such as money laundering and corporate fraud, and 11.2% spent on narcotics crimes. (www.irs.gov/pub/irs-pdf/p3583.pdf)

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Although it’s probably not reason to celebrate, the 20-year anniversary of the fall of Enron is upon us. While most of the main players have served their time and moved on (many back into the energy world), they left behind a legacy of corporate greed. The company’s predecessors were formed in the 1920s and 30s and through a series of mergers, landed with Kenneth Lay. It was then known as InterNorth, and Lay spent over $100,000 on focus groups to come up with a new name: Enteron. Since this word was already taken (it means “digestive tract or system”), it was shortened to Enron. But this never-adopted moniker seemed to inform company practices, which took shady accounting practices and lying to investors to new heights before a whistleblower pulled the chain and sent it all down the drain. (https://en.wikipedia.org/wiki/Enron)

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In 2006, Walter Anderson was convicted of tax evasion for his scheme that hid $450 million in income over five years, the largest individual tax fraud case in history at the time. However, there was a typo in the plea agreement: the wrong law was cited in the restitution order and a judge ruled there was nothing he could do about it. The judge noted, “The court is not free to read something into a contract that is not there or to interpret uncertain language in the government’s favor.” The mistake essentially erased the almost $200 million of restitution that Anderson was required to pay. However, an appeals court allowed the restitution order to stand because the “conduct of the parties made it very clear that they intended the plea agreement to provide restitution authority.” (https://en.wikipedia.org/wiki/Walter_Anderson_(entrepreneur))

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection On-Demand Webinar. Click here for more information.

One of the owners of a California solar energy company was sentenced to 30 years in prison for engaging in a $1 billion Ponzi scheme that fooled investors like Berkshire Hathaway and Sherwin-Williams. The company built mobile solar generators, which investors purchased at a reduced cost. The company then leased the generators to end-users to pay down the remainder and any profit would go to the investors. Except the generators weren’t leased, and investors were paid from money coming in from new investors. The company owners acquired a baseball team, the ubiquitous stable of 150 classic cars, and threw a holiday party headlined by Pitbull. A former employee tipped off federal authorities that the company was lying about the number of leased units it had. The feds have since auctioned off 148 of the vehicles, including the 1978 Firebird previously owned by Burt Reynolds. (www.yahoo.com/news/california-man-gets-30-years-005549058.html)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection On-Demand Webinar. Click here for more information.

An entire family landed in prison after alluding police and the FBI for a decade, for a string of thefts that targeted banks and armored vehicles. The Cabello family moved to Oregon after the father, Archie, was fired from his job in Wisconsin as an armored car driver when a bag of cash containing $150,000 went missing. No one was able to pin the theft on him, but then the bank his son Vincent worked at was robbed. The thief stole $750,000 from the vault, and while police suspected Vincent was involved, he stuck to his story. Archie landed another job as an armored vehicle driver, and was the “victim” of a heist that grabbed $3 million from the truck. The family lived very modestly but a closer look discovered huge credit card bills paid off with money orders. When Vincent paid cash for a Hummer, the authorities moved in and ultimately Vincent cracked and spilled the beans. And in case you were wondering, no, they didn’t report any of the income on their tax returns. (https://abcnews.go.com/US/family-thieves-hide-4m-stolen-cash-finally-caught/story?id=40782366)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection On-Demand Webinar. Click here for more information.

In case you thought the things people spent PPP loan money on couldn’t get any weirder, one man in Georgia is charged with wire fraud after spending most of his loan disbursement on a single Pokémon card. He claimed he had a business with 10 employees and revenue of $235,000 over a year, netting him $85,000. The court documents don’t say which card he purchased for $57,789, but unopened first-edition Pokémon cards can go for as much as $400,000. (www.washingtonpost.com/nation/2021/10/24/pokemon-card-fraud-case-covid-relief/)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection On-Demand Webinar. Click here for more information.

October 18–22 is Charity Fraud Awareness Week, highlighting efforts to curb cyberattacks on charities, which lose an estimated 5% of revenue to fraud each year. Also problematic are fake charities, which are on the IRS’s Dirty Dozen list of tax scams for 2021. Fake charity scammers take advantage of tragedies and disasters such as the COVID-19 pandemic, and commonly solicit donations by phone, using organization names that sound similar to legitimate charities. They also tend to ask for donations in the form of a gift card or wired funds.

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection On-Demand Webinar. Click here for more information.

In a gross attempt to skirt the rules, a taxpayer thought if he kept his foreign-earned income to himself it would be….all net? The taxpayer played professional basketball in China and was charged with wire fraud for failing to report multiple years of foreign-earned income. He retained a U.S. firm to do his taxes for one of the early years of his career in China, and a CPA at the firm found an online article about his career in Beijing. He told the CPA he didn’t have any foreign income in that year and never returned to the firm for subsequent years’ tax return preparation. However, he had applied for an insurance policy and reported income of $1.25 million. Alley-oops. (U.S. v. Morris (September 16, 2021) U.S. District Court, Eastern Dist. of Kentucky, Case No. 5:21-014-DCR)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection On-Demand Webinar. Click here for more information.

Soon after PPP loans started being disbursed, there were a number of fraudsters identified as having set up fictitious businesses to take advantage of these loans. The investigations and prosecutions are ongoing, and one reality TV star who got caught early on for scamming the government was recently sentenced to 17 years in prison and ordered to pay $4 million in restitution. Arkansas Mo (who lives in Georgia) used his defunct trucking company to get a $3.7 million PPP loan, which he used to fund a long-running Ponzi scheme, and to purchase a Rolex, a diamond bracelet, and a diamond ring somewhere around 6 carats (reports range from 5.75 to 7.73 carats). Mo appeared on Season 8 of VH1’s Love & Hip Hop: Atlanta. (www.fox5atlanta.com/news/love-hip-hop-atlanta-star-maurice-fayne-gets-17-years-in-fraud-case)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection On-Demand Webinar. Click here for more information.

Tax protestor-type arguments sometimes find their way to Tax Court, but they’re never effective and will often only achieve the addition of a frivolous argument penalty. One tax protestor-type argument regarding the Sixteenth Amendment isn’t just that it wasn’t properly ratified and therefore doesn’t permit the taxation of individual income, instead it focuses on states’ bills of ratification that employed variances in punctuation marks. The use of semicolons instead of commas thus renders the entire Amendment null and void, freeing us all from the odious task of paying income tax. (Only four state instruments of ratification contain the language of the Sixteenth Amendment exactly as approved by Congress.) (https://en.wikipedia.org/wiki/Tax_protester_arguments; U.S. v. Thomas (1986) 788 F.2d 1250)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection On-Demand Webinar. Click here for more information.

After failing to file returns and pay taxes for five years, the IRS certified the taxpayer as having a seriously delinquent tax debt which resulted in his passport being denied. The taxpayer argued that he never received any of the deficiency notices from the IRS, and that he didn’t actually owe any of the tax due. He also argued that a right to international travel is a fundamental right and that the Tax Court should declare unconstitutional a statute that allows or requires the Secretary of State to deny or take away an individual’s passport for nonpayment of taxes. (Kaebel v. Comm., TCM 2021-109)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection On-Demand Webinar. Click here for more information.

A Tarzana couple is on the run after cutting off their ankle tracking bracelets while they awaited trial for their part in a COVID-19 fund scam. The two fugitives and two relatives were found guilty in June for fraudulent loan applications that netted them more than $18 million in PPP and EIDL program funds. The scam focused on vulnerable victims such as the elderly, foreign exchange students, and deceased individuals. The couple used the funds to put down payments on luxury homes in Tarzana, Glendale, and Palm Desert and purchase diamonds, designer handbags, and a Harley Davidson motorcycle. They were scheduled to be sentenced on October 4. (https://abc7.com/tarzana-fugitives-fbi-couple/11019826/)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection On-Demand Webinar. Click here for more information.

Just because the word “tax” is in his title, doesn’t mean he’s familiar with the IRC. A taxidermist in Minnesota is facing a stiff prison sentence for tax fraud stemming from failure to file sales and use tax and employment tax returns related to his taxidermy business, plus failure to file his individual returns. When state DOR investigators asked the taxidermist why he hadn’t filed his taxes for 2018–20, he allegedly replied, “I really don’t have a good answer.” There are multiple charges against him, each carrying a five-year prison sentence and a $10,000 fine. (www.swnewsmedia.com/savage_pacer/news/public_safety/savage-taxidermist-accused-of-tax-fraud-following-dept-of-revenue-investigation/article_3a751c3e-d473-5394-9838-b9c80f124d36.html)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection On-Demand Webinar. Click here for more information.

A Utah man was found guilty of wire fraud and tax fraud tied to his involvement with a South Carolina resort project. He had purchased the resort after borrowing $17.5 million and obtaining another $10 million from investors. But from the beginning he was unable to make the mortgage payments on the property. In a last ditch effort to keep the property from being sold at auction, he faked a payment receipt for $502,759 in property taxes paid to the County Treasurer’s Office. At the time, the resort only had $121.07 in its bank account. He also collected payroll taxes from his employees which he did not pay over to the IRS, and he used some of the investment funds for personal purposes and failed to report it on his tax return. (www.fitsnews.com/2021/08/30/daufuskie-island-developer-pleads-guilty-in-multimillion-dollar-fraud-scheme/)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection Live Webinar. Click here for more information.

A Las Vegas tax preparer was sentenced to two years in prison for causing over $500,000 of tax loss to the IRS. The preparer engaged in the typical scam of reporting fictitious business deductions on client returns to inflate their refunds. Between 2014 and 2019, she estimated that she applied these false deductions to approximately 75% of the returns she filed. However, she also took the extra step of going to the IRS website and applying for and receiving Employer Identification Numbers for the fictitious businesses in order to make them appear legitimate. (www.8newsnow.com/news/local-news/woman-sentenced-to-2-years-in-prison-for-tax-fraud-that-cost-irs-more-than-500k/)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection Live Webinar. Click here for more information.

Renewable energy entrepreneur David Dunham was sentenced to seven years in prison and ordered to pay $10,207,000 in restitution for defrauding government subsidy programs. Dunham started Smarter Fuel Inc. after converting his Volkswagen to run on cooking oil to keep his commuting costs down. He and his business partner planned to collect used cooking oil from restaurant and cafeteria kitchens to process into biodiesel to power vehicles and heat buildings. However, the company claimed credits for partially processed oil and oil that the company never possessed, and claimed credits for the same oil multiple times. Then during an audit, Dunham fabricated paperwork, hid the identities of his customers, provided fraudulent explanations and directed his customers to do the same. (www.justice.gov/opa/pr/biofuel-fraudster-sentenced-seven-years-prison-scamming-multiple-federal-agencies-and)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection Live Webinar. Click here for more information.

According to IRS Commissioner Rettig at a presentation to a Senate panel in April, tax evasion may cost the U.S. $1 trillion a year. In the past when this number was calculated, it came in at around $440 billion per year because of tax evasion techniques that the IRS was not yet focused on. New estimates of the tax gap include cryptocurrency, offshore tax evasion, illegal income that goes undetected by the IRS, and underreporting from passthrough businesses. (www.chicagotribune.com/business/ct-biz-tax-cheating-irs-trillion-20210414-kbl3og5orndm3nmbdmkquokvrq-story.html)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection Live Webinar. Click here for more information.

Celebrity pizza chef Bruno DiFabio was sentenced to 30 days in prison for tax evasion. Known as “Lord of the Pies,” he pleaded guilty in 2018 to conspiracy to file false income tax returns and false payroll tax returns resulting in a more than $800,000 loss in tax revenue to the federal government. When caught, he admitted he knew what he was doing was wrong and had let the issue spiral out of control as he opened more restaurants and became more successful. His business partner as well as his bookkeeper and accountant also pleaded guilty. (https://apnews.com/article/business-tax-evasion-entertainment-arts-and-entertainment-76d7ca76bc80d150d7b38e5352b506c8)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection Live Webinar. Click here for more information.

A Spanish judge has recommended that Colombian pop star Shakira go to trial on allegations of tax evasion in Spain. Shakira was charged in December 2019 with not paying 14.5 million euros ($16.4 million) in taxes in Spain between 2012 and 2014. During that time, she lived mostly in Spain, although her official residence was in Panama. She faces a fine and even possible jail time if found guilty. (https://apnews.com/article/entertainment-business-europe-arts-and-entertainment-trials-8205aa4b2e0f599468cd4efe12739a47)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection Live Webinar. Click here for more information.

An Illinois man was found guilty for operating an India-based call center scam ring that impersonated IRS and U.S. Citizenship and Immigration Services officials. Beginning in 2013, call center operators targeted U.S. victims who were threatened with arrest, imprisonment, fines, or deportation if they failed to pay amounts allegedly owed to the government. Victims who did pay the scammers were instructed to provide payment by purchasing reloadable debit cards or wiring money. Upon payment, the call centers would immediately turn to a network of co-conspirators in the United States to liquidate and launder the funds. Seven of the U.S. co-conspirators were also found guilty. (www.justice.gov/usao-sdtx/pr/last-us-defendant-pleads-guilty-multimillion-dollar-india-based-call-center-scam)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection Live Webinar. Click here for more information.

A CPA is serving prison time for filing fraudulent returns for a former Massachusetts senator in a scheme that lost the IRS $600,000 in tax. The CPA reported income that should have appeared on the senator’s corporate tax return on his personal tax return, and created a SEP for the senator and his wife (which they were not entitled to) followed by an illegal rollover of the SEP account to purchase stock in a private company. The senator also pled guilty to racketeering, money laundering, mail fraud, conspiracy, and scheming to defraud the IRS, in addition to the especially egregious crime of accepting hundreds of pounds of free coffee from a local Dunkin’ Donuts owner. (www.justice.gov/usao-ma/pr/former-state-senator-s-accountant-sentenced-tax-fraud; https://en.wikipedia.org/wiki/Brian_A._Joyce)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection Live Webinar. Click here for more information.

A California tax preparer who had previously worked at the Franchise Tax Board was sentenced to 5 years in prison in 2019 for claiming bogus withholdings that fraudulently generated substantial tax refunds. Between 2012 and 2019, he submitted 222 false client tax returns claiming approximately $5,648,809 in fabricated income tax withholdings. More recently, the tax pro argued against the omission of a neuropsychologist’s testimony that a 1992 head injury affected his ability to judge right from wrong. The court upheld that evidence being omitted from the trial, along with the tax pro’s sister’s vague testimony that after the head injury he never returned to normal and his memory was worse. (U.S. v. Williams (June 6, 2021) U.S. Court of Appeals, Ninth Circuit, Case No. 2:19-cr-00280-PA-1)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection Live Webinar. Click here for more information.

A Florida couple who claimed to be farming in the front yards of their homes were sentenced to prison terms for using those “farms” to claim $1.1 million in PPP loans and EIDLs. The couple also claimed to operate a beauty supply store and an auto leasing business, both of which were inactive. Between the four fictitious enterprises, they claimed dozens of employees on their SBA loan applications, which were approved by a local bank. (www.justice.gov/opa/pr/couple-who-falsely-claimed-be-farmers-sentenced-11-million-covid-relief-fraud)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection On-Demand Webinar. Click here for more information.

TIGTA recently released a report on the IRS’s process for collecting criminal restitution from taxpayers convicted for tax-related crimes. The Firearms Excise Tax Improvement Act allows the IRS to assess and collect criminal restitution in certain cases as if it were a civil tax. Before this Act, the IRS lacked the legal authority to assess the amount of restitution ordered. During 2016–2020, defendants were ordered to pay over $2.7 billion in criminal restitution to the IRS but paid only $844 million, or 31%. In its report, TIGTA made recommendations to the IRS regarding procedures to ensure that defendants are held responsible for their crimes and the maximum amount of criminal restitution is collected. (www.treasury.gov/tigta/auditreports/2021reports/202130033fr.pdf)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection On-Demand Webinar. Click here for more information.

Married California doctors were charged with tax evasion for hiding income by converting revenue from their alternative medicine clinic into gold and silver coins, placing assets under different names, and using cash to conduct business. The couple instructed their patients to pay for their medical services with checks payable to gold dealers, who then would purchase gold and silver coins. The couple converted nearly $4 million of revenue to gold and silver coins between 2007 and 2014. (https://sanfrancisco.cbslocal.com/2020/03/02/santa-rosa-husband-wife-doctors-gold-coin-purchases-tax-evasion/)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection Live Webinar. Click here for more information.

A North Carolina man was sentenced to 6 years in prison for money laundering and filing false tax returns stemming from a scheme where he smuggled tobacco into Canada without paying federal excise duties and provincial taxes. He shipped truckloads of cut-rag tobacco, totaling 6 million pounds, to a Mohawk Nation reservation that straddles the U.S.-Canada border where it was then sent on to make contraband cigarettes. He was paid in cash and cigarettes and laundered more than $2 million in proceeds. The estimated tax loss borne by Canada was $600 million. (https://www.justice.gov/opa/pr/north-carolina-man-sentenced-78-months-money-laundering-and-filing-false-tax-return-tobacco)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection Live Webinar. Click here for more information.  

Corrine Brown, the former U.S. representative who was in prison for two years following her conviction for operating a sham charity, was released in May when her conviction was overturned. Ms. Brown was found to have used donations to her charity, One Door for Education, for various luxury personal expenses. However, she was released after a federal appeals court determined that a juror was wrongly dismissed for his comments that the Holy Spirit told him Brown was innocent. The court has ordered a new trial for Brown. (https://www.orlandosentinel.com/politics/os-ne-corrine-brown-conviction-overturned-20210507-wwkgggh7u5bjnd2rucrbovh2me-story.html)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection Live Webinar. Click here for more information.

A Florida convenience store owner was sentenced to 78 months in prison for charges stemming from a fraud scheme he operated with his two children out of the convenience store. The daughter purchased stolen identities which were used to file false returns claiming large refunds that were mailed to addresses owned by the store owner. He would often bring the checks to the store to endorse and then deposit into one of many accounts the trio opened for this purpose. At trial, the store owner claimed he had no idea what he was doing was fraud, and that the whole scheme, which netted over $2.7 million in two years, was under the direction and control of his children. (U.S. v. Jeanty (April 21, 2021) U.S. Court of Appeals, Eleventh Circuit, Case No. 6:17-cr-00140-PGB-LRH-3)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection Live Webinar. Click here for more information.

The first person outside the United States to receive a permanent artificial heart pump was Leif Stenberg in 1985, who was known in Sweden as “Mr. X” in a series of fraud investigations, and who was under indictment for tax evasion at the time of his surgery. However, the case was dropped when he went into surgery because he was not expected to survive the operation. Further complicating matters, not only did Stenberg survive, but because Sweden defines death as death of the heart, many wondered whether he had found a loophole. Stenberg died 229 days after the surgery. (Tax Trivia, California Taxpayers Association CalTaxletter Vol. XXXIV, No. 17 (May 7, 2021))

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection Live Webinar. Click here for more information.

A taxpayer recently had his motion denied for reconsideration of a fraud penalty, causing us to recall a Tax Court case involving the same taxpayer in which he attempted to hide millions of dollars by having his mistress “hold on to” a condo, cars, furs, and jewelry, totaling $8.7 million. He also transferred shares of his company to a trust, with the mistress as trustee, for the future benefit of the mistress and their child. Once the taxpayer was legally divorced, the mistress ended their relationship and would not transfer the shares back to the company. A state court judgment ordered the mistress to repay $4,551,931 to the company, but she filed for bankruptcy and the money was never recovered. (Boulware v. Comm. (April 27, 2021) U.S. Court of Appeals, Ninth Circuit, Case No. 19-73235; HIE Holdings, Inc. v. Comm., TCM 2009-130)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection Live Webinar. Click here for more information.

A Florida father/daughter duo is in prison for defrauding the IRS out of millions in false tax refunds. They each filed several fraudulent returns starting in 2015, claiming refunds on their lottery winnings. They were both issued multiple refund payments, totaling $3.4 million, before the IRS realized they had never even won the lottery. According to a 2018 GAO report, the IRS estimated that it paid out $1.7 billion dollars in invalid refunds in 2016, but the IRS also estimated that it eventually caught about 84% of these fraudulent filings. (www.sun-sentinel.com/local/palm-beach/fl-ne-dad-and-daughter-irs-fraudsters-sentenced-20200222-lxoaosuebzf25gw4e72ey5yilq-story.html)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection Live Webinar. Click here for more information.

Two Miami-area tax preparers are charged with filing false returns to get large refunds for their clients. The women prepared the fraudulent returns in exchange for fees equal to 30 percent of the tax refunds issued over a four-year period. One of the accused is working without a lawyer, and has filed a 23-page response to her charges in which she challenged the authority of the IRS and the validity of U.S. tax laws and referred to herself as “a living breathing self-aware woman.” (www.cpapracticeadvisor.com/tax-compliance/news/11670243/two-miami-women-face-tax-fraud-charges-3-millionplus-in-bogus-refunds)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection Live Webinar. Click here for more information.

The IRS Whistleblower Office pays money to people who blow the whistle on persons who fail to pay the tax that they owe. If the IRS uses information provided by the whistleblower, it can award the whistleblower up to 30% of the additional tax, penalties, and other amounts collected. For example (although probably an unrealistically high one), Brad Birkenfeld, the UBS whistleblower, received an award of $104 million dollars from the IRS. This is the largest amount ever paid to a single whistleblower.

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection Live Webinar. Click here for more information.

In 2014, a Georgia woman filed a state income tax return that claimed a $94 million refund. The return was fraudulent, but Georgia revenue agents went ahead cut a check for $94,323,148 and invited her to come on down to a bank inside a supermarket to cash it. She was arrested upon arrival. Investigators were tipped off when the woman kept calling the Georgia DOR to check on the refund. (www.wsbtv.com/news/local/woman-arrested-allegedly-filing-fake-94-million-ta/138017395/)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection Live Webinar. Click here for more information.

A nonprofit executive is going to jail for 24 months after convincing her employer to take her off the books and pay her under the table. The exec incurred medical and student loan debt that led to her wages being garnished. She worked out a deal where the nonprofit’s director instead diverted funds for her salary into his own personal bank account and then cut her checks or paid her in cash, in excess of what her salary had been. The exec then filed false returns that didn’t report the income and reported other fraudulent entries to create large refunds. The nonprofit’s director was also sentenced to 27 months.

(www.justice.gov/usao-md/pr/former-executive-director-maryland-center-adult-training-sentence-two-years-federal)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection Live Webinar. Click here for more information.

An embezzlement scheme involving Bank of America and fake charities was also a family affair: a Georgia woman was recently charged with tax fraud for using fraudulent charities to funnel money back to family members who had embezzled the funds from Bank of America, where one was a Senior VP. The bank VP authorized the donations, and then she and her husband would intimidate the donee into returning a portion of the funds directly to them. She also authorized donations to fraudulent charities, which then kicked back some of the funds to her and her husband. The Georgia woman ran several of these charities that received the embezzled funds; she returned 25% to her family members and spent the rest on personal items. (https://www.justice.gov/usao-ma/pr/owner-fake-georgia-charitable-organizations-pleads-guilty-tax-fraud)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection Live Webinar. Click here for more information.

In 2016, tax attorney Paul Dagueras was sentenced to 180 months for conspiring to defraud the IRS, evading taxes, mail and wire fraud, and four counts of tax evasion relating to the use of tax shelters for clients. Prosecutors called him “the most prolific, pernicious and utterly unrepentant tax cheat in United States history.” He was tried twice, the second time after it was discovered an original juror had lied to get on the jury. It was until only recently that Mr. Dagueras held the distinction of biggest tax cheat; his $1 billion scam now pales in comparison to Robert Brockman’s $2 billion tax evasion case that broke earlier this year. (U.S. v. Daguerdas (September 21, 2016) U.S. Court of Appeals, Second Circuit, Case No. 14–2437–cr)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection Live Webinar. Click here for more information.

A restaurant owner in Nashville is facing 45 years in prison for tax evasion, money laundering, failing to pay employment tax, and harboring illegal aliens who he employed at his restaurant. The workers were from China and Guatemala, and lived with the taxpayer at his home. He would transport them back and forth to work in the restaurant, where they only worked in the kitchen so they would avoid interacting with restaurant patrons. (www.justice.gov/usao-mdtn/pr/clarksville-resturant-owner-pleads-guilty-alien-harboring-and-tax-fraud-conspiracy)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection Live Webinar. Click here for more information.

A Pennsylvania couple is facing up to 30 years in prison for mail fraud, filing false tax returns, and submitting falsified loan documents. The wife was the COO of a hospital and used her position to embezzle $1.3 million, which the couple used on vacations, home renovations, and a 70-acre motocross course. She used her corporate credit card for many of the purchases, and then disguised the charges as business-related. For example, she purchased hundreds of gift cards worth more than $350,000, claiming they were for distribution to “focus groups” or physicians. Ironically, her husband was a financial crimes detective who investigated theft and fraud. (www.justice.gov/usao-wdpa/pr/butler-county-couple-plead-guilty-fraud-and-tax-charges)

CPAs, get four hours of fraud CPE with our 2021 Fundamentals of Fraud Prevention & Detection Live Webinar. Click here for more information.

Brothers who own one of the two locations of Mama Lu’s Dumpling House in Monterey Park have been charged with underreporting sales by millions of dollars and underpaying sales and use tax, and the CDTFA is steamed. The Lu brothers face 17 counts, including conspiracy to file false sales tax returns, filing false sale tax returns, and filing false income tax returns. The second Monterey Park location is under separate ownership and is not being investigated. Still, you may want to pick up some xiao long bao before we have to say xiao long to one of these locations. (https://laist.com/latest/post/20210216/charges-mama-lus-dumpling-house-monterey-park-11-million-tax-sales-fraud-attorney-general)

CPAs, get four hours of fraud CPE with our 2020 Fundamentals of Fraud Prevention and Detection On-Demand Webinar. Click here for more information.

“Don’t put all your eggs in one basket” is typically good advice, except in the case of a North Carolina tax preparer who diversified her practice to include dealing meth. When an undercover agent placed an order for a pound of meth and she took the bait, it was safe to say that she was likely engaged in other unsavory business practices. It turned out she had been fraudulently e-filing returns claiming false wage income and had done so on at least 489 false returns that generated $3.2 million in fraudulent refunds. She faces five years in prison for tax fraud and five to 40 years for methamphetamine distribution. (https://www.accountingtoday.com/news/tax-fraud-blotter-junior-achievements)

CPAs, get four hours of fraud CPE with our 2020 Fundamentals of Fraud Prevention and Detection On-Demand Webinar. Click here for more information.

Former Illinois senator Sam McCann was indicted on charges of fraud, money laundering, and tax evasion for misuse of over $200,000 of campaign money for personal expenses. After a failed run for Governor, he employed a scheme that caused the Conservative Party of Illinois to issue approximately $187,000 in payments to himself personally and an additional $52,282 in payments for payroll taxes by using a payroll service to conceal himself as the payee. He also spent campaign funds on an RV, a Ford F-250 truck, credit card charges related to a family vacation in Colorado, charges from Apple iTunes, Amazon, a skeet and trap club, Best Buy, a gun store, and cash withdrawals. He’s facing 20 years in prison. (https://wrex.com/2021/02/03/former-illinois-senator-indicted-for-alleged-misuse-of-campaign-funds-tax-evasion-money-laundering/)

CPAs, get four hours of fraud CPE with our 2020 Fundamentals of Fraud Prevention and Detection On-Demand Webinar. Click here for more information.

A Virginia tax preparer was sentenced to two years in prison for filing over 400 false returns. The preparer owned At Ease Tax Services, a tax preparation business that was so at ease that she operated it out of hotel rooms, preparing tax returns that claimed fraudulent credits and deductions that inflated her clients’ refunds. She did not sign any of the returns, she didn’t review the completed returns with clients, and she never provided a copy of the return, even when clients asked for one. Early in 2020, her husband was convicted of felony murder. She met him in 2015 while preparing his taxes. (https://www.dailypress.com/news/crime/dp-nw-federal-tax-fraud-20200814-mtamqe3h7bbcvpvvknr6t6fmwe-story.html)

CPAs, get four hours of fraud CPE with our 2020 Fundamentals of Fraud Prevention and Detection On-Demand Webinar. Click here for more information.

An office manager/bookkeeper at a medical office was sentenced to four years in prison after it was discovered she had been writing checks to herself and adjusting invoices and expenses to cover up the theft. She opened a business bank account in the owner’s name without his knowledge and deposited checks made out to the Oregon Department of Revenue into her own personal account. When the IRS came calling, the office manager created a fictitious IRS revenue agent named “Linda Gibson” – complete with a phone number and voicemail – and “assisted” the owner with the collections action using this alias. (www.justice.gov/usao-or/pr/eastern-oregon-medical-practice-employee-pleads-guilty-tax-crimes-bank-fraud)

CPAs, get four hours of fraud CPE with our 2020 Fundamentals of Fraud Prevention and Detection On-Demand Webinar. Click here for more information.

A Northern California man who opened a wine storage facility was charged with stealing wine from customers (wineries) who stored their product there. He sold the stolen wine using aliases and kept the proceeds. After he was charged with stealing 8,000 bottles, he burned down the facility, destroying 4.5 million bottles valued at over $100 million. The fire also damaged pasta sauce stored in the facility by the Francis Ford Coppola brand and sugar stored by C&H Sugar. Sentenced to 27 years in prison and $73 million in restitution, he sought release to home confinement due to COVID-19. He was denied due to risk of harm to the community and the fact that he had already contracted the virus once and recovered. (U.S. v. Anderson (January 6, 2021) United States District Court, Eastern District of California, Case No. 2:07-cr-00096-KJM)

CPAs, get four hours of fraud CPE with our 2020 Fundamentals of Fraud Prevention and Detection On-Demand Webinar. Click here for more information.

The former chief of collections for the D.C. Office of Tax and Revenue was sentenced to 14 months in prison for his conviction for a bribery charge. He paid an OTR official $5,000 to remove $150,000 in tax liabilities for a business; he then turned around and charged the business $25,000 for his efforts in having their tax liability reduced. After collecting part of the payment, he met the OTR official in a parking garage to split the cash. His arrest was part of an ongoing investigation and years-long audit that also nabbed two other government workers and a businessman who were involved in the scheme. (www.justice.gov/usao-dc/pr/former-office-tax-and-revenue-head-collections-sentenced-paying-bribes-otr-official-help)

CPAs, get four hours of fraud CPE with our 2020 Fundamentals of Fraud Prevention and Detection On-Demand Webinar. Click here for more information.

A former EDD employee, Andrea Gervais, is accused of filing 100 false Pandemic Unemployment Assistance claims. Of those claims, 12 were processed for over $200,000 in unemployment benefits; if all 100 had been processed, she would have received around $2 million. Authorities were tipped off to the scam when $21,000 in PUA benefits were filed under Senator Dianne Feinstein’s name. Gervais was then caught on camera withdrawing cash from an ATM using at least seven PUA debit cards, including the one issued to Senator Feinstein. If convicted, Gervais faces 20 years in prison. (https://sacramento.cbslocal.com/2020/12/18/fired-edd-employee-andrea-gervais-edd-fraud/)

CPAs, get four hours of fraud CPE with our 2020 Fundamentals of Fraud Prevention and Detection On-Demand Webinar. Click here for more information.

A New York tax preparer was already serving 41 months in federal prison for preparing false returns, and during his stay he used a smuggled smartphone to continue to prepare returns for clients and divert the refunds to an account he controlled. The clients received documents showing a lower refund amount and in some cases the tax preparer took a $900 fee from their refunds without their knowledge. Several clients did not know that the tax preparer was in prison when he filed their returns. (www.nytimes.com/2020/12/03/us/abdel-soliman-tax-fraud.html)

CPAs, get four hours of fraud CPE with our 2020 Fundamentals of Fraud Prevention and Detection On-Demand Webinar. Click here for more information.

Hitesh Patel has been sentenced to 20 years in prison for his role in operating and funding India-based call centers that defrauded U.S. victims out of millions. Patel ran a complex telephone scheme in which employees from call centers in India impersonated officials from the IRS and U.S. Citizenship and Immigration Services. Victims were threatened with arrest, imprisonment, fines, or deportation if they did not pay money supposedly owed to the U.S. government. Victims were instructed to provide payment by purchasing reloadable debit cards or wiring money. Patel was prosecuted after being extradited from Singapore in April 2019 and he was ordered to pay $8,970,396 in restitution. (www.justice.gov/opa/pr/owner-and-operator-india-based-call-centers-sentenced-prison-scamming-us-victims-out-millions)

CPAs, get four hours of fraud CPE with our 2020 Fundamentals of Fraud Prevention and Detection On-Demand Webinar. Click here for more information.

The owner of Beebe’s Roaring River Waterslide in Cassville, MO is in hot water: he’s facing prison time after meeting with an undercover federal agent to discuss the sale of his business. During the meeting, Beebe showed the agent records with the business’s true gross receipts, which were different from the amount reported on his federal tax returns. Beebe also admitted to routinely destroying business records, explaining to the agent that he was in “the mode of secrecy” and used cash whenever possible. But old records were found during a search of his residence, and he now owes restitution to the state and the feds.

CPAs, get four hours of fraud CPE with our 2020 Fundamentals of Fraud Prevention and Detection On-Demand Webinar. Click here for more information.

A taxpayer claimed that in 2015 she sustained a deductible theft loss of approximately $2.5 million, which resulted from her ex-husband’s refusal to transfer marital property awarded to her in their 2008 divorce. She further argued that the theft loss generated a net operating loss in 2015, which she attempted to carry forward to 2016 and back to 2013 and 2014. While the court noted it was true that the ex-husband consistently ignored court orders to transfer assets to the taxpayer, the taxpayer wasn’t able to prove a theft had occurred and the court ruled against her. (Bruno v. Comm., TCM 2020-156)

CPAs, get four hours of fraud CPE with our 2020 Fundamentals of Fraud Prevention and Detection On-Demand Webinar. Click here for more information.

The office manager for the Rapid City Rush, an East Coast Hockey League team, will be spending 37 months in the ultimate penalty box: prison. Over the 11 years that she worked for the team, she embezzled more than $700,000 from the Rush organization, and of course failed to report and pay tax on the income. Her attorney noted that she is indeed guilty but had committed her crimes within the organization’s “culture of corruption.” The theft was discovered when the team came under new ownership and the owners scrutinized the bookkeeping. (https://apnews.com/article/hockey-crime-embezzlement-tax-evasion-courts-663e4bbd4af1fb24cff1dbcb30129199)

CPAs, get four hours of fraud CPE with our 2020 Fundamentals of Fraud Prevention and Detection On-Demand Webinar. Click here for more information.

The IRS has released its Criminal Investigations Annual Report for 2020. During 2020, the IRS Criminal Investigations division initiated nearly 1,600 investigations and identified $2.3 billion in tax fraud schemes. As the only federal law enforcement agency with jurisdiction over federal tax crimes, Criminal Investigations has one of the highest conviction rates in federal law enforcement: 90.4%. In fiscal year 2020 alone, more information was shared through the Joint Chiefs of Global Tax Enforcement committee regarding cryptocurrency, tax crimes, and related enforcement, than in the previous ten years combined. The full report can be found at: www.irs.gov/pub/irs-pdf/p3583.pdf.

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In 1989, Mrs. Green was hit by a shopping cart while at a grocery store, sustaining injuries that she claimed made it impossible for her to continue to work at her job. The Greens claimed $53,888 and $102,242 in medical expenses for 2004 and 2005 respectively, which included a personal driver to take her to doctor appointments, the grocery store, and hair and nail appointments; two housekeepers to cook, clean, and serve the Greens; and accrued but not yet paid medical expenses (the Greens argued that they were accrual basis taxpayers). While the Greens did not meet enough of the badges of fraud to prove that there was intent to evade tax, the court did find the taxpayers guilty of negligence. Note: Mr. Green was an IRS tax service representative and auditor for 20 years. (Theodore M. Green, et ux. v. Comm., TCM 2010-109)

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While Al Capone is the classic case of a gangster finally getting popped for tax evasion rather than his numerous other crimes, Heidi Fleiss is another such example. Known as the Hollywood Madame whose call girl scandal exploded in the 1990s, she was not convicted for pandering, but rather for money laundering and evading tax on hundreds of thousands of dollars by funneling cash into relatives’ savings accounts and a house that was purchased in her father’s name. Her father, a Los Feliz pediatrician, pleaded guilty to conspiracy and making false statements on loan documents. Heidi served her 37-month sentence and now lives alone in a parrot sanctuary in Pahrump, NV. (www.latimes.com/archives/la-xpm-1997-01-08-me-16452-story.html)

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How do you hide $2 billion? Apparently, you don’t. Robert Brockman, the CEO of software company Reynolds and Reynolds Co., has been charged with tax evasion, wire fraud, money laundering, and other offenses after it was discovered he hid capital gains income for over 20 years through a web of offshore entities in Bermuda and Nevis and secret bank accounts in Bermuda and Switzerland. This is the largest-ever tax charge against an individual in the United States. However, Brockman, who is #461 on the Forbes billionaires list, so far is cooperating with the investigation. (Source: https://www.nbcnews.com/business/business-news/tech-billionaire-charged-largest-ever-tax-fraud-hiding-2-billion-n1243776)

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A rapper known as Nuke Bizzle was arrested after boasting in a YouTube video about getting rich off an unemployment benefit scam. He applied for Pandemic Unemployment Assistance benefits under the CARES Act using stolen identities, and ninety-two pre-loaded debit cards with more than $1.2 million in fraudulently obtained benefits from the California Employment Development Department were sent to an address linked to Bizzle. In the video, Bizzle waves a stack of EDD envelopes and informs viewers, “You gotta sell cocaine, I just file a claim.” This advice also applies to how to land oneself in prison, because he’s now facing a sentence of up to 22 years. (https://www.yahoo.com/news/rapper-charged-coronavirus-benefit-fraud-163101525.html)

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Back when reality TV was in its infancy, Richard Hatch, winner of the first season of “Survivor,” served two jail terms for failing to file amended returns to pay the tax owed on the $1 million he won on “Survivor.” The first accounting firm Hatch hired to prepare his 2001 tax return calculated that he owed $441,501 in taxes, but he never filed the return. He went to a second preparer who came up with about half the amount owed, but Hatch didn’t file that return, either. That second firm then prepared an “informational” return that didn’t include the winnings at all, but warned Hatch not to file it. Of course, he immediately did. He served a total of 51 months in federal prison. (www.brysonlawfirm.com/news/253-the-irs-woes-of-the-first-survivor-winner.html)

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How much does it pay to be a whistleblower? If the taxes, penalties, interest, and other amounts in dispute exceed $2 million, and a few other qualifications are met, the IRS will pay 15–30% of the amount collected. If the case deals with an individual, his or her annual gross income must be more than $200,000. For dollar amounts under the $2 million/$200,000 thresholds, there is a different process and the awards through this program are less, with a maximum award of 15% up to $10 million, and are at the discretion of the IRS. The whistleblower program has been around since March 1867. (www.irs.gov/compliance/whistleblower-informant-award)

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During the month of September, federal investigators have arrested 44 people in Beverly Hills who were involved in a complex fraud ring involving unemployment benefits obtained from the EDD by out-of-state individuals using stolen identities. Those arrests netted 129 EDD debit cards with a total value exceeding $2.5 million, along with $289,000 in cash and seven handguns. The funds on the debit cards could be as high as $20,000 and cardholders are able to withdraw up to $1,000 per day, per card. The EDD is looking at a segment of PUA applications that may have used a vulnerability in the PUA system to fraudulently obtain the benefits. (https://apnews.com/article/arrests-california-archive-2f6f6392a5f3c32312048c0aa77c7770)

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The promoters of a bitcoin mining Ponzi scheme have been charged with wire fraud and selling unregistered securities. From April 2014 through December 2019, BitClub Network was a fraudulent scheme in which investors got shares of cryptocurrency mining pools and were rewarded for recruiting new investors into the scheme. Investors were shown fabricated “bitcoin mining earnings” allegedly generated by BitClub Network’s bitcoin mining pool. The promoters of the scheme sold BitClub Network shares—which were securities BitClub Network did not register with the SEC. The scheme defrauded hundreds of thousands of investors out of around $722 million, one of the largest cryptocurrency frauds in the books. (www.justice.gov/usao-nj/bitclub)

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A Columbus, Ohio, tax attorney was sentenced to 18 months in prison for providing the IRS with false documents and misleading information to help his client cover up tax fraud. The attorney provided false, inflated bills of sale to support depreciation deductions on medical equipment. He also lied to a revenue officer, causing her to believe that some of the taxpayer’s entities were defunct with no assets which led her to close the collection cases. In January 2017, the taxpayer pleaded guilty to drug, tax, and fraud charges, but died before sentencing in that case. (https://www.justice.gov/opa/pr/ohio-tax-attorney-pleads-guilty-obstructing-irs)

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Country music star Willie Nelson got into tax trouble after the IRS found that the tax shelters his accountants set up were not valid. Left with a $16.7 million tax bill (negotiated down to $6 million), Nelson’s property was seized and sold at auction. But most of it was purchased by friends and supporters who immediately returned it to him. To pay off the balance, Nelson released the album “The IRS Tapes: Who Will Buy My Memories?” and did an ad spot for Taco Bell. This tactic certainly cannot be used by everyone owing money to the IRS, but it worked for Nelson; his debt was paid off by 1993. (www.rollingstone.com/music/music-country/flashback-willie-nelson-settles-irs-tax-debt-196254/)

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Under IRS Notice 2020-51 Reminder: August 31 is the final day a taxpayer may roll over an RMD taken on or after January 1, 2020 back into an IRA. The notice also clarifies that the one rollover per 12 month period limitation does not apply to 2020 RMDs that are recontributed to a retirement accounts by August 31, 2020.

The CARES Act provides that taxpayers with an RMD requirement due in 2020 may skip those RMDs in 2020. The 2020 RMD suspension also includes anyone who turned age 70½ in 2019 and would have had to take their first RMD by April 1, 2020. The 2020 RMD suspension does not apply to defined benefit plans.

Eligible retirement accounts are:

• 401(k)s;
• Defined contribution plans (IRC §403(a) and (b));
• Tax-sheltered annuity plans (IRC §403(b));
• Defined contribution plans under IRC §457(b) maintained by a state or municipal government (the waiver does not apply to current or former employees of exempt organizations that maintain an IRC §457(b) plan); and

• An individual retirement plan such as a traditional, SEP, or SIMPLE IRA.

For the purposes of using the First-time Homebuyer Credit, a taxpayer who was living in a shed on his property was deemed not to have owned a principal residence within the three years prior to the purchase of a new home. After losing his home in a fire, the taxpayer lived with friends, family, and his girlfriend, and then moved into a storage shed on his property. The taxpayer only spent about 40% of his time living in the shed; the rest of the time was spent living mostly with his girlfriend. The shed was found not to be the taxpayer’s principal residence because he did not spend the majority of his time there. (CCA 201104037)

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Of the famous tax cheats, one of the few women on the list is hotelier Leona Helmsley, a.k.a., The Queen of Mean. Illegal billings tied to the renovation of one of the Helmsleys’ weekend mansions clued investigators in to tax evasion. In the end, Helmsley was ordered to report for her jail sentence on April 15, 1992. She was famously quoted as saying “We don’t pay taxes. Only the little people pay taxes.” That may be so, but the big people go to jail.

(https://en.wikipedia.org/wiki/Leona_Helmsley)

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A taxpayer had an oral agreement with her then-son-in-law to repay money she lent him; after her daughter divorced him and payment was not made, the taxpayer filed a Form 1099-C discharging $30,000. Her ex-son-in-law filed suit, claiming that the filing was fraudulent and was done only with the intent to cause him to pay extra tax. The Court of Appeals determined that the district court should have thrown out the case because the nine types of false information returns for which an injured taxpayer may recover do not include Form 1099-C. Although the taxpayer was not required to file a Form 1099-C, she was not prohibited from doing so. (Cavoto v. Hayes (February 28, 2011) U.S. Court of Appeals, Seventh Circuit, Case No. 10-2681)

Two taxpayers were sentenced and ordered to pay $22 million in restitution for their fraudulent loan scam where they would “flip” gas stations by lining up a buyer for a station before they had even purchased that station. Along with several co-conspirators, they falsified just about all of the documents needed for the buyers to get the loans; the buyers were almost never in a position financially to be able to purchase a gas station. They had relatives act as sham co-signors on the loans, and an accountant who would prepare false tax returns to show nonexistent income. The bank providing the funds ultimately issued more than $38 million in loans as part of the scheme. (U.S. v. Ghuman (July 16, 2020) U.S. Court of Appeals, Seventh Circuit, Case Nos. 19-1734, 19-1745)

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A Florida man was busted for overstating his payroll expenses for the purposed of getting a huge PPP loan, which he immediately turned around and spent on luxury items. First, he dropped $320,000 on a Lamborghini Huracán EVO, $9,000 at a jeweler, and $5,000 at Saks Fifth Avenue. Other payments from the account where he deposited the PPP funds were also clearly not business expenses, including two $15,000 payments to “Mom.” (https://abc7.com/florida-man-david-hines-lamborghini-huracn-evo-ppp/6340991/)

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A grocery store owner was caught filing fraudulent returns that failed to report almost $500,000 of income over two years, mostly tied to food stamp fraud. The owner argued against the unreported income, saying that the cash register’s void function didn’t work, and that he used the cash register mostly as an adding machine. He also claimed that cash back transactions were rung into the register as sales and that he made cash payments to vendors but didn’t record them in the register receipts. (U.S. v. Mohammad (July 8, 2020) U.S. District Court, Northern District of Ohio, Case No. 1:18CR735)

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A prominent political figure in PA was sentenced to 7 years in prison for skimming almost $2 million from a federally supported nonprofit, which helped people with substance abuse, and failing to report the income. She jacked up the rents on the clinics and then approved the increases herself, for example charging monthly rent of $75,000 on one of the clinic’s buildings when the market rate was around $23,000. Her husband, who was also involved with the non-profit, was not charged, although he has spent time in prison for bribing elected officials in Atlantic City. (U.S. v. Tartaglione (June 9, 2020) U.S. Court of Appeals, Third Circuit, Case Nos. 18-2638, 18-3017)

A tax preparer from the Bronx was sentenced to two years in prison for engaging in numerous filing schemes, one of which involved charging her clients an extra fee to use stolen names and ID numbers as false dependents. She recycled those same names and ID numbers for various returns over a four-year period. She also used stolen personal information to file returns that generated refunds, which she collected. (U.S. v. Bayuo (June 17, 2020) U.S. Court of Appeals, Second Circuit, Case No. 19-1854)

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TIGTA has issued a report urging the IRS to address non-filing preparers and high-risk preparers with their own balance due tax liabilities and penalties. The report identified 10,495 preparers who prepared more than two million tax returns for clients in 2016, but who did not file a corresponding 2016 personal tax return. The top 100 preparers prepared approximately 1,000 to 6,000 tax returns for clients and received between $189,000 and $1 million in compensation for tax preparation. TIGTA estimated $45.6 million in potential taxes could be assessed if the IRS worked 6,903 of the cases. (www.treasury.gov/tigta/auditreports/2020reports/202030027fr.pdf)

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Here are a few tax evasion stats: Nearly all Americans believe that cheating on taxes is morally and ethically unacceptable. The voluntary compliance rate in the U.S. is generally around 81% to 84%. This is one of the highest rates in the world. By contrast, Germany’s voluntary compliance rate is 68% and Italy’s is 62%. The typical tax evader in the U.S. is a male under the age of 50 in the highest tax bracket and with a complicated return, and the most common means of tax evasion is overstatement of charitable contributions, particularly church donations. (Source: https://en.wikipedia.org/wiki/Tax_evasion_in_the_United_States)

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Blast from the past: A veteran agent with the CA Bureau of Narcotic organized the biggest drug theft from a CA police agency, conspiring with two others to swipe 650 pounds of cocaine from the agency’s Riverside office over the 1997 Fourth of July weekend. The steal had an estimated street value of $3 million. The agent was caught a year later in an unrelated drug bust involving his girlfriend, who immediately turned him in. The first jury deadlocked on the drug charges but convicted him of filing a false tax return; a second trial resulted in a life sentence with no parole. (https://www.latimes.com/archives/la-xpm-2000-jan-20-me-55840-story.html)

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A taxpayer who owned and operated various mobile clinics was found to be the responsible person for collected but unpaid California sales and use taxes. The taxpayer, who was an engineer, claimed that he had no background in accounting and shouldn’t have been expected to know that he had to actually pay over the tax charged to and paid by his customers. At his appeal, the taxpayer tried to throw his bookkeeper under the bus, accusing her of embezzling the funds and changing the books to reflect nontaxable sales, but he produced no evidence of the embezzlement and she had started working for him after the years at issue. (Appeal of Mello, 2020-OTA-070)