Dear [CLIENT NAME]:

We hope that you and your family are doing well. Enclosed is your annual organizer for your 2023 taxes. It’s been an interesting year with important tax changes that will impact you. Here are some of the changes and issues you need to know about.

Tax return due dates:

• Individuals must file returns by April 15, 2024, for the 2023 tax year;
• Partnerships and S corporations must file returns by the 15th day of the third month following the close of the taxable year (March 15 for calendar-year taxpayers);
• C corporation returns are generally due by the 15th day of the fourth month following the close of the taxable year (April 15 for calendar-year taxpayers); and
• W-2s and 1099s must be filed by January 31, 2024, for the 2023 tax year.

SECURE 2.0 Act: Passed in the closing days of 2022 as part of the annual year-end appropriations bill, the SECURE 2.0 Act, like its predecessor, the SECURE Act, which was passed in 2019, makes significant retirement changes, including increasing the age at which required distributions must be made, changing the catch-up contribution limits for older workers, and numerous Roth account changes, among many more.

Clean vehicle credits: Starting in 2023, taxpayers have three separate tax credits available for the purchase of clean vehicles: a credit for new vehicles, a credit for previously-owned vehicles, and a credit for business vehicles. Each credit contains many rules and limitations, and starting in 2024, some of these credits can be claimed at the dealership at the time of purchase.

Be sure to discuss the tax ramifications with us if you are unsure whether you qualify for a vehicle credit.

Property transactions: Did you sell any real estate this year? Be sure to provide copies of escrow statements, as well as the Loan Estimate form and the Closing Disclosure form. We need these documents to properly prepare your return. If you can get them to us as early as possible, we can make sure we have everything we need, and make sure that any state withholding documentation is correct.

1099s and K-1s: If you received 1099s or K-1s from investments in 2023, we may extend your return in case these documents are corrected after the original filing deadline. We are seeing increasing numbers of corrected information returns, which require taxpayers to amend their original tax returns to reflect the corrected amounts. In some cases, the amounts are vastly different and can create additional costs in amending the tax returns and potential penalty problems.

1099-Ks: The filing threshold for 1099-Ks has dropped to $600 for 2023. If you receive income through a third-party settlement provider (such as a credit card company or even a mobile phone app like Venmo or Apple Pay, among many others) then you may receive a 1099-K for that income even if you haven’t in the past.

Be sure to provide a copy of any 1099-Ks you receive and let’s discuss the source of the income. In the case of mobile phone payment apps, if you designated your account as a business account, but receive payments for non-business items, then you may receive a 1099-K for income that should not be taxable to you. Do not ignore the 1099-K. The IRS will expect you to report the income. If the income was not receive in exchange for goods and services then we can report the 1099-K in a way that ensures you are not taxed on it.

Foreign accounts: We must report overseas assets owned by businesses as well as individuals. The reporting requirements are increasing and the penalties for failure to report continue to be harsh. Not all foreign holdings must be reported. If, for example, you hold stock in a foreign company through a U.S. broker, those holdings do not have to be separately reported. However, if you hold any other types of foreign assets, including bank accounts and securities accounts, please let us know. If you have any doubt as to whether any of your assets are foreign, please discuss those assets with us. Again, this year we will need information on a business’ foreign holdings as well.

Please take extra care in preparing your organizer and documentation so we can do the best possible job to find new tax benefits that are hidden in the law and protect you from more aggressive audit programs and larger penalties.

Yours truly,

Your tax professional

Dear [CLIENT NAME]:

You are receiving this letter because there are special rules pertaining to the way the IRS audits all partnerships (and LLCs taxed as partnerships). These rules are referred to as the Centralized Partnership Audit Regime (CPAR) or BBA partnership rules by the IRS.

Additional taxes assessed due to an audit will be owed by the partnership or LLC directly and will be assessed in the “adjustment year” based on adjustments found in the “reviewed year.” This effectively shifts the economic burden of the additional tax liability from those persons who were partners for the year under audit (the reviewed year) to the current partners in the partnership or LLC. In order to address potential partner inequities resulting from these new partnership audit rules, we recommend discussing amendments to your partnership agreement with your partnership attorney.

In general, all adjustments resulting from the audit will be netted, and if an “imputed underpayment” for the adjustment year is calculated, then it is assessed using the highest tax bracket for individuals. In 2023, the highest tax rate for individuals is 37% for ordinary income.

The new rules allow partnerships to elect out of the new partnership audit process annually on your partnership’s income tax return, but only if certain requirements are met. You can’t wait until you are selected for audit to elect out of the CPAR rules. For partnerships that are eligible to elect out of the CPAR rules, doing so is often the most appropriate course of action.

Also under the CPAR rules, partnerships must elect a partnership representative. This representative does not need to be a partner and is the only party authorized to act on behalf of the partnership and all of its partners during the course of an IRS audit. All agreements made by the partnership representative and the IRS are binding on the partnership and its partners. The election of a partnership representative should be accomplished by amending your partnership agreement and is made on the partnership’s income tax return each year.

Further information

This is a simplified overview of the complex CPAR rules. Please contact our office to discuss how these new rules will affect your partnership and the changes you should consider making to your partnership agreement to address these new audit rules.

Sincerely,

Your tax professional

The FTB has announced that it will commence sending out its annual notices in December, including FTB 4693, State Income Tax Balance Notice. Due to the tax filing extensions from the winter storms, the FTB had delayed sending out these notices until now. (FTB Tax News, December 2023)

The IRS released its annual Dirty Dozen Tax Scams list for 2023, and this year there is a new entry for third parties who target taxpayers who are not eligible for the Employee Retention Credit, but convince them to claim the credit so the third party can charge a fee. The third-party also then collects the taxpayer’s personally identifiable information. The list also cautions against scams offering to help taxpayers set up their IRS Online Account. Taxpayers should do this themselves because of the sensitive information required to set up the account, which would then be in the hands of any “helpful” third-party. (www.irs.gov/newsroom/dirty-dozen)

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A New Jersey tax pro pleaded guilty to conspiracy to defraud the government after marketing a scheme to sell $1.3 billion in fraudulent tax deductions that allegedly preserved green spaces. He admitted to guaranteeing tax deductions worth at least four times clients’ investments, knowing this was “too good to be true.” (www.justice.gov/opa/pr/cpa-pleads-guilty-conspiring-promote-fraudulent-tax-shelter-scheme) The IRS has issued proposed regulations that identify certain syndicated conservation easement transactions as “listed transactions,” a.k.a., abusive tax transactions that must be reported to the IRS. (IRS Notice 2022-28) The IRS issued the proposed regulations in response to Tax Court and Court of Appeals for the Sixth Circuit rulings that the IRS lacks the authority to identify listed transactions by notices, such as Notice 2017-10. The regulations are intended to be finalized in 2023.

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Husband and wife duo Wolfgang and Helene Beltracchi spent decades painting forgeries in the styles of deceased European artists and selling them for millions of euros. The Betracchis extensively researched the artists’ lives: travelling to where they had lived, reading letters and diaries, and reading academic discussions of their work. Wolfgang painted the images (numbering around 300) which were claimed to be either known paintings that had been lost or undiscovered ones; he claimed to have mastered the style of about 50 deceased artists. However, one mistake blew the whole operation open when Wolfgang purchased a zinc pigment that also contained titanium, which wasn’t used in pigments until the 1920s. The painting in question was supposedly painted in 1914. The pair spent several years in prison and were ordered to pay €35 million in restitution. (https://www.cnn.com/style/article/wolfgang-helen-beltracchi-forgers/index.html)

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We’ve all heard of a “Ponzi scheme,” but who was the man behind the scam? Born Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi in Italy in 1882, Chuck did not invent the eponymous scheme that pays earlier investors using the investments from later investors. He was known as a swindler in the 1920s, and he promised clients a 50% profit within 45 days or 100% profit within 90 days, by buying discounted postal reply coupons in other countries and redeeming them at face value in the U.S. The fraud held up for over a year before it collapsed, taking $20 million in “investments” with it. He was sentenced to five years in prison for mail fraud and when he was released, he was immediately hit with state larceny charges and served another nine years, followed by seven more for a Florida swampland scam, after which he was deported back to Italy. It is reported that while serving his various prison terms, he continued to receive Christmas cards and requests to invest from some of his more dedicated investors. (https://en.wikipedia.org/wiki/Charles_Ponzi)

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Lucent Polymers, Inc. discovered a way to turn “garbage to gold” by using recycled and scrap materials to create high-quality plastics that were flame-resistant and extremely strong. Unfortunately, the business model was a total sham. The flame-resistant products routinely caught fire and impact-resistant materials were too brittle and shattered. But the company’s founders hid this from potential buyers by providing them with falsified lab tests that shows the products performed as claimed. After the company sold twice in quick succession, the SEC caught wind and the founders have been convicted of securities fraud and money laundering.

(https://resource-recycling.com/plastics/2021/03/31/lucent-execs-sentenced-for-federal-crimes/)

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The SEC filed a complaint against Nutra Pharma, Inc., which claimed to make pain relief drugs from cobra snake venom. The SEC took issue with fraudulent press releases the company put out regarding upgrades to their cobra farm, when in fact there was no cobra farm, the company never owned cobras, and therefore had never produced a drop of cobra venom. The SEC complaint noted that Nutra Pharma had never turned a profit. The FDA was also on the attack, issuing a warning letter to Nutra Pharma for claims it posted on its website that its products could be used to treat asthma, arthritis, and pain related to cancer.

(www.sec.gov/litigation/complaints/2018/comp24295.pdf)

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In Amanda Ramirez v. Kraft Heinz Foods, Ms. Ramirez is suing Kraft over the statement on the packaging of Velveeta Shells & Cheese Original Microwaveable that states “Ready within three-and-a-half minutes.” She alleges that these instructions only describe the cooking time and fail to take into account the time it takes to remove the lid, add the cheese sauce, add water, and stir; had she known it would take longer than the stated time, she claims she never would have purchased the product. Ms. Ramirez is asking that Kraft cease its deceptive advertising and demands $5 million in punitive damages. (Her attorney had also filed a lawsuit against Frito-Lay for its “Hint of Lime” Tostitos, which the plaintiff in that case claimed contain only a “negligible or de minimis” amount of lime.)

(https://wsvn.com/news/local/miami-dade/south-florida-woman-sues-kraft-claims-mac-and-cheese-instructions-are-misleading)

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The founder of Argyle Coin, a virtual currency that was allegedly backed by “fancy colored diamonds” received a seven-year sentence and will pay $23 million in restitution for defrauding investors. Argyle Coin, LLC was created when the founder’s prior diamond-selling scam had started to unravel, and he used money from investors in his new “high return, no risk” digital currency to pay off existing investors. He also managed to siphon away $10 million for himself to spend on a house, shopping at Gucci, purchasing horses, and riding lessons for his adult son.

(https://coingeek.com/argyle-coin-founder-involved-in-25m-scam-gets-7-years-in-jail/)

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One of the earliest recorded instances of fraud took place in 300 B.C. Two Greek merchants, Hegestratos and Zenosthemis, took out an insurance policy and borrowed money on a cargo ship that was allegedly going to be filled with corn, but their plan was to sink the boat, keep the money, and sell the corn elsewhere. As Hegestratos was attempting to chop a hole in the hull of the boat with an axe, one of the crew members discovered him. Hegestratos attempted to escape by jumping off the boat and trying to swim to shore, but he drown at sea; Zenosthemis was tried in an Athenian court.

(www.investopedia.com/articles/financial-theory/09/history-of-fraud.asp)

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Celebrity attorney Michael Avenatti was sentenced to 168 months in prison for wire fraud and endeavoring to obstruct the administration of the Internal Revenue Code. He was also ordered to pay $10 million in restitution to four clients and the IRS. Avenatti received funds for his clients and placed them into client trust accounts, but then misappropriated the funds to finance an extravagant lifestyle. He then lied to clients about the terms of their settlement or whether he had received their funds. In one case, Avenatti drained a client’s trust account to fund his own coffee business; in another case, he used the bulk of a client’s settlement to purchase a private jet. Regarding the obstruction charge, Avenatti lied to IRS agents, and changed his company’s name, EIN, and bank information to avoid IRS levies.

(www.justice.gov/usao-cdca/pr/lawyer-michael-avenatti-sentenced-14-years-federal-prison-stealing-millions-dollars)

A Detroit-area personal injury attorney known for his 855-CAR-HIT-U billboards has been convicted for tax fraud for failing to report over $2.6 million in income. He concealed the funds by placing them in undisclosed Interest on Lawyer’s Trust Accounts, which are used to hold funds on behalf of clients. He failed to disclose these accounts to the Michigan State Bar Foundation and his tax return preparer. He’s facing prison time plus penalties for each count.

(www.detroitnews.com/story/news/local/michigan/2022/11/19/metro-detroit-personal-injury-attorney-convicted-of-tax-fraud/69662737007/)

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A Texas tax preparer and his two children were convicted for defrauding the U.S. after filing false tax returns to inflate their clients’ refunds. They fabricated clients’ Schedule A, itemized deductions, and Schedule C, sole proprietorship profit and loss statements, claiming the taxpayer owned a business when no such business existed, claiming unreimbursed employee expenses such as travel and per diem, and claiming business expenses that were never incurred. The company also had a “tax preparation manual,” which was a handbook that outlined exactly how to commit fraud. The manual advised tax preparers to manipulate income to maximize refunds rather than referring to the law to determine whether an activity was a business for income tax purposes and whether expenses properly qualified as a business deduction.

(www.justice.gov/usao-ndtx/pr/san-angelo-tax-preparer-sentenced-14-years-tax-fraud)

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A man who has “won” the Massachusetts lottery in excess of 13,000 times has pleaded guilty to charges of tax fraud conspiracy, money laundering conspiracy, and filing false tax returns. The man and family members operated a lottery ticket cashing scheme that brought in $21 million between 2011 and 2019. In Massachusetts, money owed in federal taxes or child support can be deducted from lottery wins over $600. To avoid this deduction, winners often use underground ticket cashing businesses, which take a cut of the winnings. The family members reported fraudulent gambling losses and understated their income, resulting in large refunds. 

(www.casino.org/news/mass-lottery-frequent-winner-pleads-guilty-to-tax-fraud-conspiracy/)

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The Nigerian Prince e-mail scam is a modern interpretation of the Spanish Prisoner scam that dates back to the late 18th century. Originally, businessmen were contacted by an individual allegedly trying to smuggle someone connected to a wealthy family out of a prison in Spain. The scammer promised to share money with the victim in exchange for a small amount of money up front to bribe prison guards. The scam has persisted, shifting to requests for assistance purportedly coming from a Nigerian prince. While Nigeria is most often the nation referred to in these scams, they originate in other nations as well. The scam is also known as the “419 scam”; 419 refers to the article of the Nigerian Criminal Code dealing with fraud (in Chapter 38: “Obtaining property by false pretenses; Cheating”).

(https://en.wikipedia.org/wiki/Advance-fee_scam)

Two female Detroit rappers (known on stage as Deuces Wild) are charged with identity theft and conspiracy for a scheme going back to 2013 that involved filing fraudulent estate and trust tax returns claiming $13.6 million, of which they had already received more than $5 million. The duo filed 122 returns, opened 29 bank accounts, and roped friends and acquaintances into the scheme by promising them a cut of the money in exchange for receiving checks. One of the women used stolen identification to open accounts, rent apartments, open a UPS Box, and purchase expensive items, including jewelry and watches. Both women are facing ten years in prison if convicted.

(www.fox2detroit.com/news/metro-detroit-rappers-charged-with-stealing-over-5-million-from-irs)

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“Tax redirection” is a form of tax rebellion where the individual pays their tax directly to another source rather than the IRS as a form of protest. Julia “Butterfly” Hill, an environmentalist turned proponent of tax redirection, sent about $150,000 in federal taxes directly to schools, arts and culture programs, community gardens, and other recipients, stating in a letter to the IRS, “I’m not refusing to pay my taxes. I’m actually paying them but I’m paying them where they belong because you refuse to do so.” Hill is best known for her tree sit in the late 1990s, when she lived in a 180-foot tall Redwood tree named Luna for 738 days to protect it from being cut down by the Pacific Lumber Company.

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

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In 1791, Treasury Secretary Alexander Hamilton proposed the first U.S. tax, an excise on distilled spirits, to pay down the debt incurred from the American Revolution. Large whiskey producers paid the tax annually at a rate of six cents per gallon, with further tax breaks the more they produced. But small producers were charged nine cents per gallon in taxes. Farmers in western Pennsylvania who used whiskey for trade objected to the tax and protested by tarring and feathering the tax collectors. The rebellion lasted from 1791 to 1794, ending with a confrontation that caused President George Washington to send 13,000 troops to contain what some feared would become another revolution. (www.history.com/topics/early-us/whiskey-rebellion)

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Tax protestors rely on various arguments, such as the Sixteenth Amendment not being properly ratified, income is not defined in the Internal Revenue Code or the Constitution, or that the Internal Revenue Code actually doesn’t require anyone to pay tax. Prior to 1998, the IRS would label such individuals as “illegal tax protestors” in their system to flag them for enforcement actions and alert IRS employees to be cautious in dealing with them. But in 1998, Congress passed the Internal Revenue Service Restructuring and Reform Act of 1998 (P.L. 105-206) prohibiting the IRS from continuing this practice because it stigmatized these individuals and biased IRS employees against them, even if they had ultimately paid their tax.

(www.washingtonpost.com/news/federal-eye/wp/2014/09/11/what-is-an-illegal-tax-protester-and-why-cant-the-irs-use-that-term-any-more/)

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A Minnesota dog breeder is in the doghouse after an investigation discovered that they were reporting income on their tax returns from fewer sales of puppies than they actually made in the years at issue. The Facebook page for BrookeMarie’s Goldendoodle Love clearly showed the number of litters and how many total puppies were for sale, which did not match up with the amounts reported. The puppies were going for between $2,500 and $3,500 each, plus there should have been charged 7% Minnesota sales tax, which the breeder also failed to pay. The owner has been charged with three felony counts of filing fraudulent income and sales tax returns and failing to pay or collect income and sales tax.

(www.southernminnesotanews.com/dog-breeder-accused-of-tax-fraud/)

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A California tax preparer was sentenced to ten years in prison for orchestrating a scheme that defrauded the Paycheck Protection Program out of $62 million. At the time he engaged in the fraud, he was on supervised release for a previous fraud scheme in which he filed false income tax returns on behalf of more than nine professional athletes. In the PPP scam, he filed false applications for PPP loans on behalf of small businesses and shell companies in exchange for 30% of the loan proceeds. He also filed fraudulent supporting tax returns that the small business owners never saw or approved. To hide the funds he received from the scam, he asked the businesses to pay the fee with cashier’s checks and to write “payroll” in the memo line.

(www.wric.com/news/crime/man-sentenced-for-tax-fraud-schemes-resulting-in-more-than-62-million-loss-for-us-government/)

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Sotheby’s auction house is under investigation in New York for allegedly distributing false resale certificates to around a dozen clients, allowing them to pose as art dealers and avoid paying tax on revenue from their sales. The scheme is related to a lawsuit in which a Sotheby’s client purchased $27 million in art for his personal collection in transactions that avoided tax. Initially, it seemed this was an isolated incident, but further investigation revealed multiple fraudulent resale certificates, indicating that staff at Sotheby’s had “willfully turned a blind eye to the fraudulent distribution of resale certificates.” Sotheby’s argues it shouldn’t be held responsible for the actions of low-level employees. (www.artnews.com/art-news/news/sothebys-tax-fraud-investigation-expands-1234637480/)

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France is using AI to find undeclared swimming pools, which so far has generated 10 million in tax. In France, a swimming pool can affect tax because housing taxes are calculated based on a property’s rental value. Since the beginning of the pandemic, and with recent heat waves affecting Europe, the number of pools in France has greatly increased. The AI pool-finding project so far has only covered nine of France’s 96 metropolitan areas, but it has already discovered 20,356 undeclared swimming pools. The French tax office DGFiP (a.k.a., Le Fisc) estimates it can bring in an additional €40 million in tax once it’s finished using AI to analyze the rest of metropolitan France. (www.theverge.com/2022/8/30/23328442/france-ai-swimming-pool-tax-aerial-photos)

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The U.S. will return $1.2 million in forfeited funds to Romania, stemming from a tax fraud scheme involving diesel fuel. A Romanian couple avoided Romanian taxes on imported diesel fuel by claiming the fuel was a lower grade of industrial and maritime fuel. The untaxed income from the sale of the higher value diesel was laundered through a number of bank accounts and shell companies controlled by the couple, and resulted in an overall $58.677 million tax loss to Romania. Before they could be arrested, the couple fled to Washington state, but eventually were extradited, leaving behind a large piece of property and assets that were sold. The funds from the sale will be returned to the government of Romania. 

(www.justice.gov/opa/pr/12-million-be-returned-romanian-government-victim-international-tax-fraud-and-money, www.justice.gov/opa/pr/12-million-be-returned-romanian-government-victim-international-tax-fraud-and-money)

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A German woman who owns a cleaning company that earns revenue from paid public restrooms is on trial for failing to report around €1.2 million. The restrooms have voluntary contribution plates where visitors can leave change, which generated the income that she failed to report. But the case is complicated in that some of the charges date back more than 14 years, the German statute of limitations for tax fraud. Also, some of the restrooms were near the Austrian border and present a jurisdictional problem. And because income from the restrooms is based on voluntary donations, it’s difficult to nail down an exact amount of revenue; even the judge in the case suggested that an amount of €600,000 may be more appropriate than €1.2 million. 

(www.taxbuzz.com/blog/germany-toilet-tax-evasion-trial-begins)

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Owners of a NYC yoga studio are facing 30 years in prison for conspiracy and tax evasion for failing to file returns while the yoga studio raked in millions. The chain of studios closed in 2020 following allegations of questionable business practices such as pressuring instructors to work for free. Yoga session fees were donation-based and collected in tissue boxes that were passed around, but instructors were not allowed to count the money collected. Instead, the cash was brought to one studio owner’s home for “stacking parties” where the bills were counted and stacked. The owners spent the funds on personal items such as $270,000 on airfare, $76,000 on hotels, $40,000 on Denver Broncos season tickets, $39,000 at restaurants, and more than $60,000 spent at country clubs and on event tickets. 

(www.nytimes.com/2022/08/24/nyregion/tax-fraud-yoga-to-the-people.html)

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A Court of Appeals upheld a ruling against a taxpayer for filing false tax returns connected to his wife’s embezzlement of millions of dollars from her employer. The taxpayer argued he thought the funds were his wife’s gambling winnings, which he used to buy a yacht, a snowmobile, and other luxury items. At the appeal trial, the taxpayer argued the district court erred in not allowing evidence of his cognitive deficiencies, consisting of expert testimony and his high school transcript that contained numerous “E” grades. However, the expert could not rule out that the taxpayer’s performance during his cognitive exam was the result of malingering, and the high school transcript contained “an unexplained grading system and imprecise IQ scores.” Based on these and the taxpayer’s own testimony, the court agreed he was aware the couple was spending more than they reported and was found to have not disclosed all income to his accountants. (U.S. v. Mills (July 22, 2022) U.S. Court of Appeals, Third Circuit, Case No. 21-2423)

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The House Ways and Means Oversight Subcommittee has contacted the IRS looking for answers regarding the streamlined process for applications for tax-exempt status, which allowed one fraudster to have 76 fraudulent charities approved. The fake nonprofits all had names that sounded similar to legitimate nonprofits, such as “American Cancer Society of Michigan.” The actual American Cancer Society had even gotten wind of its fraudulent namesake and contacted the IRS. The IRS is now under fire for not noticing that this particular group of fraudulent charities all used the same Staten Island address. It also highlights the IRS’s own statistics that only one in 2,400 of these streamlined applications gets denied. (www.wealthmanagement.com/philanthropy/irs-hot-water-over-fraudulent-charities)

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After being disbarred for bringing numerous unmeritorious litigations and being declared a vexatious litigant (one trial judge wrote in a statement of decision that the taxpayer is “a relentless bully” who displays “terrifying arrogance”), a former attorney found himself in Tax Court regarding disallowed Schedule C expenses. The claimed Schedule C business activities did not generate a profit and mostly stemmed from litigation relating to challenging the taxpayer’s disbarment and lawsuits that would otherwise personally benefit him. He deducted court filing fees, life insurance policy expenses, and various utility expenses, none of which were allowable expenses because the taxpayer failed to show that he engaged in any business activities for the year at issue. (Kinney v. Comm., TCM 2022-81)

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A Michigan man is facing felony charges and prison time for bouncing three checks he wrote to pay his taxes. The man, who also claims to be a sovereign citizen, sent the State of Michigan three checks for $1 million each, which bounced because they had routing numbers for TCF Bank. That in and of itself is not a crime, except he did not actually have an account at TCF Bank. Under Michigan law, no-account checks/writing checks on closed account is a class H felony that carries up to 2 years in prison. (www.michigan.gov/ag/news/press-releases/2022/02/10/self-proclaimed-sovereign-citizen-charged-with-writing-fake-checks)

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After being accused by the Spanish government of failing to pay €14 million in tax on income earned between 2012 and 2014, pop star Shakira has rejected a plea deal with Spanish authorities and is moving forward with a trial that she says will prove she has already paid the tax in question and owes no tax debt. For the tax years at issue, Shakira’s official residence was the Bahamas, but she also lived with footballer Gerard Pique in Barcelona. If found guilty, she could face fines and a prison term. (www.euronews.com/2022/07/27/shakira-opts-to-go-to-trial-in-spain-over-alleged-145m-tax-fraud)

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A Los Angeles tax preparer has pleaded guilty to engaging in two separate fraud schemes. The first involved filing fraudulent income tax returns for at least nine professional athletes, reporting fabricated business and personal losses. The tax pro and his associates claimed they had specialized knowledge that the athletes’ prior tax professionals lacked and convinced the athletes to amend past returns to generate large fraudulent refunds. They then charged the athletes a fee of 30% of the resulting refund and directed the athletes to send the fee to shell entities. Second, the tax pro and his associates applied for PPP loans on behalf of a number of small businesses, shell entities with few or no employees that they controlled, and business entities controlled by others. They inflated the number of employees and monthly payroll costs claimed on the PPP loan applications and submitted fabricated tax returns in support of the applications. Some of the business owners never saw their loan applications before they were filed. The tax pro charged a fee of 30% of the loan amounts. He’s facing up to 25 years in prison. (https://www.justice.gov/opa/pr/second-defendant-pleads-guilty-multimillion-dollar-tax-fraud-scheme-involving-professional)

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A North Carolina tax preparation business owner has been sentenced to almost four years in prison for a tax fraud scheme that involved hundreds of tax returns and that netted him $700,000. Kapital Financial Services had two locations in Charlotte, and the business owner directed employees to falsify clients’ tax returns, including claiming false deductions, business losses, American Opportunity credits, education credits and earned income tax credits. He also trained his employees on how to create the fraudulent returns to avoid IRS detection and provided them with scripts and cheat sheets. Employees were not allowed to provide clients with copies of their returns, they were only allowed to give clients their refund amount because the fees Kapital charged were taken from the inflated refunds. (https://www.justice.gov/opa/pr/charlotte-tax-preparer-sentenced-prison)

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Crypto scams have reached the $1 billion mark for the period between January 2021 and March 2022. Almost 40% of the scams originated on social media. In terms of type of fraud, most scams relate to fake investments that promise large returns, with second place going to “romance scams” that involve gaining trust using a fake online identity and then manipulating funds out of the victim. Most of the scams involve Bitcoin (70%), followed by tether (10%) and Ethereum (9%). (www.forbes.com/sites/rosemariemiller/2022/06/06/bitcoin-leads-crypto-fraud-as-ftc-confirms-1-billion-milestone)

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After busting a tax shelter promoter, the U.S. government seized many of the assets he purchased with the proceeds, including a $750,000 show jumping horse. However, after realizing that it was going to cost at least $50,000 to feed and care for the horse, the government agreed to sell the horse back to the tax shelter promoter’s daughter for $25,000. The daughter had been planning to ride the horse down the aisle on her wedding day. The government has seized horses before; in 2012 they sold 150 horses for $4.8 million, which were seized from a comptroller who had been misappropriating city funds. But maintaining assets before they’re sold can be expensive, as the government has found regarding the maintenance of superyachts seized from Russian oligarchs. (https://finance.yahoo.com/news/horse-seized-tax-fraud-case-133413396.html)

A bust of U.S.-themed candy stores on Oxford Street in London raked in £22,000 worth of counterfeit Wonka bars and over £100,000 of counterfeit goods such as vapes, Apple and Samsung products, hookah products, and watches. All counterfeit vapes recovered contained excessive levels of nicotine and had not been approved by the Medicines and Healthcare Products Regulatory Agency. The Food Standard Agency also warned anyone who purchased the counterfeit Wonka bars not to eat them, as there is no way of knowing what ingredients were used or whether food hygiene practices were followed. The stores are being investigated for millions of pounds in tax evasion as well.

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McDonald’s France has agreed to pay a total of €1.25 billion in fines, penalties, and back taxes to settle a tax evasion case after years of negotiations.  McDonalds France was accused of hiding French profits in lower-tax Luxembourg from 2009 through 2020, and reporting lower profits in France. An investigation was started in 2016 after union officials reported the company for tax evasion. The settlement is made up of a €508 million fine and €737 million in back taxes and is the second-biggest tax settlement in French history. (The largest was the €2.1 billion fine paid by aircraft builder Airbus in 2020.) (https://abcnews.go.com/Business/wireStory/mcdonalds-pay-france-13-billion-tax-fraud-case-85434599)

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Austin St. John, the actor who played the Red Power Ranger in the 1990s TV show Mighty Morphin’ Power Rangers is facing up to 20 years in prison for participating in COVID-19–related wire fraud. St. John was part of a ring of 18 people who filed for $3.5 million in fraudulent PPP loans for existing or newly created small businesses. This is just the latest in the curse of the Red Power Ranger: in 2017 the actor who portrayed the Red Wild Force Ranger in Power Rangers Wild Force pled guilty to voluntary manslaughter for stabbing his roommate with a sword.

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A 70-year-old tax collector in Pennsylvania was sentenced to one year in prison for filing false returns that understated her income. She started underreporting in 2014 and gradually increased the unreported amount each year until her actual income was six times higher than what she reported to the IRS in 2018. She used the funds to buy a mobile home at the Jersey Shore, fund home renovations, and pay for a family vacation to Hawaii. The tax collector and her family argued for her to serve the sentence at home so she could begin paying restitution to the IRS, but the judge was unmoved considering the seriousness of the crime and the fact that she was an elected county tax collector who used her position to not pay her own taxes. (https://www.inquirer.com/news/rosezanna-czwalina-ridley-township-false-income-tax-sentence-20220518.html)

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)

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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)

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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)

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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)

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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)

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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/)

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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)

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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)

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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/)

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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)

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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/)

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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))

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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)

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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)

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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/)

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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.

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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)

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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)

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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)

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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)

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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/)

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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)

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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/)

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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/)

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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)

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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)

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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)

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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)

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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)

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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)

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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)

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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)

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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/)

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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)

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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)

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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)

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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)

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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.

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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/)

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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)

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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.