Tax Crime Snapshot: Ministers, Congressional Staffers and Restaurant Owners

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I enjoy reading police blotters. I am not sure why. I am not alone in this pursuit. An article a few years ago in the Washington Post provides an “appreciation of America’s police blotters, featuring nearly all 50 states, and favorites from a few police blotter writers themselves.” When a paper (like the Durango Herald) reports that “someone reported a stolen inflatable dinosaur” that to me is newsworthy. It is easy to see why the NY Times reported in 2007 when discussing police blotters in Connecticut that people read it religiously, though also worth noting (as the NY Times did) that the blotters often just reflect the newspaper’s publishing police reports uncensored, with the potential for damaging the reputation of those mentioned. After all, the blotter reflects arrests, not convictions, and we thankfully live in a country where one is presumed innocent.

How does this connect to tax procedure and tax administration? The Department of Justice Tax Division has its own digital press room where in straightforward often one or two page announcements it discusses the work of the government’s efforts to punish tax wrongdoers. The last few weeks have shown a cross-section of Americans with tax problems, and I discuss some of them in this post.

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Thai Restaurant Owner 

Just last week DOJ reported on a restaurant owner from Ukiah, California who pleaded guilty to “corruptly endeavoring to obstruct the due administration of the internal revenue laws and to harboring illegal aliens for profit.” The release discusses the sordid facts:

[She] admitted that she knowingly hired Thai nationals who were illegally present in the United States to work at her restaurants, Ruen Tong Thai Cuisine and Walter Café, both located in Ukiah.

Ritdet further admitted that she underpaid employees and instructed them not to speak to anyone about their immigration status.  Ritdet also admitted that she willfully filed false individual income tax returns for tax years 2007 through 2011, failing to disclose gross receipts, sales and income received from her two restaurants, as well as rental income and a foreign bank account and failed to accurately report employment taxes owed for her restaurant employees, who were paid in cash.

That is a sad tale but one I suspect is not uncommon around the country. People are desperate to come to the US, and someone who takes advantage of those who are in a weak place in society, and fails to pay their fair share at the same time, is especially reprehensible.

Traveling Minister Tax Scam

When a local paper runs a story on a tax crime, that gets my attention. This past weekend I was in Cleveland, the Paris of the Midwest, to drop my stepdaughter off for her freshman year at Case Western. In addition to catching an Indians game with my wife and son (prior to an unfortunate case of food poisoning from at the time tasty ceviche), and catching up with an old friend and former PT guest poster, I read the Plain Dealer. The paper featured an article about an Arkansas traveling minister who was sentenced to 13 years in prison for “his role in a scheme to steal people’s identities and hundreds of thousands of dollars in ill-gotten tax refunds.” The scheme here was particularly obnoxious, with the minister telling “people that they needed their personal information to apply for what they called a “government stimulus program.” He would then recruit “ministers and church leaders in other states to obtain personal identification information from congregants.” The minister would take a cut of about $125 from each of the refunds and at the end of the day was responsible for filing 2,750 false returns with people receiving about $4.8 million in refunds and the minister walking away with about a quarter of a million dollars. Many of the victims were from Canton and were on social security and did not have a filing requirement. His crime was a complete abuse of trust by preying on low income church going elderly.

I gather the minister exploited Form 8888, which allows taxpayers to allocate refunds to up to three bank accounts (though all have to be in the taxpayer’s name). As an aside, the Form 8888 is subject to abuse, and it is in part responsible for the growth in refund anticipation checks over the past few years, a topic that warrants a different post on a different day. To be sure, those who filed the tax returns may not be completely blameless and they face the possibility that the SOL on assessment is open indefinitely due to the preparer’s fraud. I am not sure if the IRS has been tracking down the victims to seek repayment of the refunds they received, though it is possible that the victims might qualify for an effective tax administration offer, also an issue that warrants another post.

Congressional Staffer Alleged to Not Willfully Fail to File Returns

Here is another in the line of cases of someone who should know better allegedly violating the internal revenue laws. Courtesy of our tax prof blogging colleague David Herzig at The Surly Subgroup, Politico reported this week that “Isaac Lanier Avant, chief of staff to Rep. Bennie Thompson (D-Miss.) and Democratic staff director for the Homeland Security Committee, allegedly did not file returns for the 2009 to 2013 tax years.” The DOJ press release lays out the allegations:

For tax years 2009 through 2013, Avant earned annual wages of over $170,000, but did not timely file a personal income tax return for any of those years.  In May 2005, Avant filed a form with his employer that falsely claimed he was exempt from federal income taxes.  Avant did not have any federal tax withheld from his paycheck until the Internal Revenue Service (IRS) mandated that his employer begin withholding in January 2013.

Homeland security is a resource-intense activity. Over 46% of tax revenues from come from the individual income tax. While there are millions of individuals who fail to file income tax returns, and there are few prosecutions of those non filers, when someone with responsibilities relating to protecting our security allegedly flouts the internal revenue laws it is sure to attract a prosecutor’s interest.

Update: Jack Townsend covers this extensively here in Federal Tax Crimes Blog

NYC Restaurant Owner in Hot Water

One last story as reported by Bloomberg late last week; this one addressing a celebrity restaurant owner who “made the gossip pages for getting socked by Diane von Furstenburg’s son and multimillion-dollar court fights he’s waging with celebrity chef Gordon Ramsay.” Last Friday he “was sentenced to one month behind bars for using undeclared Swiss bank accounts and a Panamanian shell company to hide more than $1 million from the Internal Revenue Service.” The Bloomberg piece discusses how the conduct that led to the sentencing started when the restaurateur graduated from business school and went to Switzerland with his mother to set up a secret UBS bank account (working with Bradley Birkenfeld along the way). When news circulated about UBS in the limelight he shifted the funds into a new Swiss bank and set up a Panamanian shell company to cover the traces.

Jack Townsend discusses this case extensively here in his Federal Tax Crimes blog, which is the place to turn for deep insight on criminal tax matters. I find it particularly revolting when super rich people (ultra high net worth individuals in financial planner world) take multiple affirmative steps to cover their tracks and evade their responsibilities to pay their fair share. The NY Times earlier this summer discussed the efforts of UHNW Americans and their advisors in Panama Papers Show How Rich United States Clients Hid Millions Abroad. And while there are some legitimate purposes for the creation of layers of offshore accounts, I think it is a safe bet to assume that a high percentage of those who affirmatively create layers of offshore accounts (as opposed to say those who inherit funds from rich Uncle Wilhelm) do so with a purpose of evading tax obligations.

Conclusion

Criminal prosecution and even the consideration of criminal prosecution is one extreme end of tax procedure thankfully reserved only for a small number of egregious cases each year. Neither I nor my PT colleagues have particular expertise in criminal tax or sentencing matters. Because criminal cases do represent one end of the spectrum of tax procedure, we will occasionally comment on criminal tax matters but as mentioned above we recommend Jack Townsend’s excellent blog on the subject if you want more or want a deeper understanding. I do find it odd that judges appear to have more sympathy for the very rich tax evaders when it comes to sentencing times (Jack Townsend discusses this and more in The Beanie Baby Man, The Tax Evader Adult Man, Ty Warner, Gets Probation! as well as in his recent post on the NYC restaurant owner). If I understood criminal tax better, perhaps I could provide an insightful reason for this apparent paradox. As it is, I will leave it for you to find the reason for this phenomenon yourself.

 

 

 

Leslie Book About Leslie Book

Professor Book is a Professor of Law at the Villanova University Charles Widger School of Law.

Comments

  1. Jim Malone says

    Fun piece, thanks for putting together. Also, I lived in Cleveland, and I have visited Paris. Would never equate the two.

    • Actually, I have lived and practiced in Cleveland my whole life. Paris is the Cleveland of France!! In all seriousness, we also have some great tax lawyers here. I do quite a bit of criminal tax work and I always appreciate the updates. Anyone have any thoughts on the application of the Tweel doctrine to a 7202 case where the RO puts you in an PPIA or OIC but is really working on a referral? Possibly Estoppel? I know the crime is supposedly complete as soon as the required withholdings are not deposited, but it does not feel right to have an RO “work towards” or recommend a solution that does not pay (or contemplate the full payment of) the tax and then prosecute the person for not paying the tax. Any comments are more than welcome.

  2. Bob Kamman says

    My recent favorite is still the Taxpayer Advocate employee who was convicted of identity theft. But that’s just because I was stonewalled again in my efforts to help my 84-year-old widow client whose 2015 return has been “locked” and who has been accused, by an IRS notice CP-01H, of filing a return that used her late husband’s SSN. The TAS “Systemic Advocacy” employee who initially left me the wrong callback number apparently learned of my earlier comment here, and reached me with the correct one. After researching my client’s case she tells me that this was caused by some sort of glitch in processing my client’s 2014 joint return. Her solution is to follow the instructions in the notice, which included visiting a Social Security office, then resubmitting, with photo ID, a signed original return with a written request to unlock it. Presumably the $1,300 payment made with the first, completely correct return need not be resubmitted.

    IRS errs, so taxpayers must jump through hoops to help them correct their mistakes. Can anyone explain why TAS can’t just tell some key IRS employee to fix this?

  3. I’ve had an inflatable dinosaur stolen from me. I don’t think that is something to joke about.

    My dinosaur was four feet tall, and earmarked for a prank involving a fake dinosaur security system (some irony there). There is a significant chance that the thief will read this blog post, so I want them to know I know who they are, and the retribution will harsh.

  4. For those who want more detail and some insight, Jack Townsend covers the allegations pertaining to the Congressional staffer in Federal Tax Crimes Blog http://federaltaxcrimes.blogspot.com/2016/08/congressional-staffer-charged-with.html

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