Archive for the ‘Tax Fraud’ Category

Hog versus Rooster

July 8th, 2012 No comments

Last February Cook County Commissioner William Beavers was indicted for three separate counts of filing false income tax returns. Beavers has adamantly denied any wrongdoing.

Last week, Beavers held a press conference to further emphasize his innocence as a December trial date looms, the Chicago Sun-Times reports.

Referencing former U.S. Attorney Patrick Fitzgerald, who pushed to bring the charges, Beavers said, “He’s a rooster without nuts, a capon. OK? That’s what he is, a capon.”

I’ll let you look up what a capon is.

Beavers shed some light regarding his defense. In the indictment, Beavers allegedly used more than $68,000 from a campaign account in 2006 to boost his city pensions without paying income tax on the funds. At the press conference, Beavers shared bank statements reflecting that the campaign funds received was in fact a loan he repaid in 2009.

Beavers is a fighter. I wouldn’t be surprised if he takes this matter to trial just for the satisfaction of victory.

NY Attorney’s License Suspended for Tax Fraud

June 22nd, 2012 No comments

Last January, former Sullivan and Cromwell partner John O’Brien was sentenced to two years and four months in prison for failing to pay taxes on over $10 million in partnership income earned between 2003 and 2008.

Earlier this week, his license to practice law in New York was suspended by the Appellate Division, First Department.

The Departmental Disciplinary Committee petitioned the court seeking suspension. Under NY law, any attorney convicted of a “serious crime” shall be suspended from the practice of law.

Although O’Brien did not plead guilty to any felonies, he pleaded guilty to willful failure to file income tax returns, which is considered a “serious crime.”

In a sentencing memorandum, O’Brien’s attorney Russel Neufeld indicated the tax problems initially arose when O’Brien invested $3 million in his domestic partner’s failed rare book business, according to the New York Law Journal.

Categories: Tax Fraud Tags:

Pure with Tax Fraud

June 22nd, 2012 No comments

Yesterday, Kelly Doll, a former employee at the popular Las Vegas nightclub Pure, pleaded guilty to one count of filing a false tax return, reports the Las Vegas Review-Journal.

Tip income is taxable. Over $220,000 in tips he received between 2005 and 2006 didn’t make its way onto his income tax returns.

You may think I sound like a broken record. That’s because this is the third time I’ve written about former Pure employees/owners committing tax fraud. See here and here. I think I’m running out of catchy headlines.

Doll’s sentencing date is September 24.

Offshore Tax Investigations: First Switzerland, Is Israel Next?

June 19th, 2012 No comments


The strongest indication emerged last week when a superseding indictment was unsealed, charging three American tax preparers for assisting their clients with concealing assets and income in unidentified Israeli banks.

U.S. residents must report all income earned to the IRS. U.S. residents must report whether they have a financial interest in a foreign financial account worth more than $10,000 in a particular year.

According to the Department of Justice press release:

The superseding indictment alleges that the co-conspirators prepared false individual income tax returns which did not disclose the clients’ foreign financial accounts nor report the income earned from those accounts. In order to conceal the clients’ ownership and control of assets and conceal the clients’ income from the IRS, the co-conspirators incorporated offshore companies in Belize and elsewhere and helped clients open secret bank accounts at the Luxembourg locations of two Israeli banks, Bank A and Bank B. Bank A is a large financial institution headquartered in Tel-Aviv, Israel, with more than 300 branches across 18 countries worldwide. Bank B is a mid-size financial institution also headquartered in Tel-Aviv, with a worldwide presence on four continents.

The federal government has aggressively pursued offshore tax evaders since 2008, when Swiss-based financial firm UBS was accused of assisting U.S. residents with committing tax evasion by shielding assets in offshore accounts. In 2009, UBS agreed to pay $780 million to the U.S. in fines, penalties, interest and restitution.

Over the four years since then, the IRS has run three offshore voluntary disclosure programs (in 2009, 2011, and 2012) to encourage taxpayers with undisclosed financial accounts to come forward and pay stiff penalties.

A benefit to participating in the program, if eligible, is that criminal charges will not be pursued against taxpayers making complete and truthful disclosures. Read more about the pros and cons of a voluntary disclosure here.

Undoubtedly the IRS and DOJ have collected a lot of information from these programs. “Enablers” such as those indicted above have not been eligible for the programs, however. It’s very possible these enablers were discovered through disclosures of their own clients.

CNBC is reporting the recent indictment may be the first of a series involving U.S. tax evasion by shielding assets in Israeli banks via “cash-transfer banking,” by which an offshore banker is set up with an American taxpayer seeking to withdraw and deposit the same amount of cash with the foreign bank:

The bankers appear in the U.S., typically at a hotel, and arrange for couriers to bring the cash to the hotel from the depositing customer, and later turn it over to the withdrawing customer, only later crediting each account for the transaction back in the foreign bank offices.

In somewhat related news, yesterday Israeli authorities arrested nine individuals and questioned fifteen more in connection with the possibly largest tax fraud scheme in Israeli history. I don’t see any connections aside from the nature and location of the crimes, however.

Hat tip: Federal Tax Crimes

Another Former Madoff Employee Pleads Guilty

June 5th, 2012 No comments

In his plea allocution, Bernie Madoff strongly implied he ran the largest Ponzi scheme in history all by himself.

Craig Kugel used to work in human resources at Madoff’s firm, Bernard L. Madoff Investment Securities LLC (“BLMIS”). Earlier today, he became the seventh individual to plead guilty in connection with the federal investigation into Madoff’s former firm, according to Bloomberg.

Kugel was charged with, among other things, making false statements in relation to documents required by the Employee Retirement Income Security Act (known as “ERISA”), and subscribing to false income tax returns.

From the U.S. Attorney’s Office press release:

KUGEL was aware that there were individuals on BLMIS’s payroll who did not work for the firm but who nevertheless received salaries and benefits, and he created and maintained false BLMIS employee records on their behalf.  Specifically, KUGEL was responsible for submitting an Annual Return (“Form 5500”) concerning BLMIS’s employee benefit plan to the United States Department of Labor (“DOL”).  Form 5500 required KUGEL to identify accurately the number of employees at the firm, but instead, he included a number of employees who in fact did not work there.

During his tenure at BLMIS, KUGEL also charged more than $200,000 in personal expenses, including luxury clothes, jewelry, and vacations for himself and his family, to a corporate American Express card, but did not report it as income on his tax returns.

He faces up to 19 years in prison, and will pay at least $2.3 million in restitution. The monies will be used to compensate victims of the fraud. His sentencing is scheduled for December 13.

At today’s hearing Kugel said, “I want to make clear I had nothing to do with the Madoff Ponzi scheme and I was never involved in the Madoff trading operation.”

Kugel’s father, David, was a supervisory trader in Madoff’s operation. Last November, he pleaded guilty to six criminal counts, including falsifying trading and business records, and securities and bank fraud.

It’s rather hard to believe Madoff did not have co-conspirators.

Former Giant, Eagle Fails to File Tax Returns

May 23rd, 2012 1 comment

William James Peterson, Jr. was drafted by the New York Giants in the third round of the 2001 NFL draft to play cornerback. Upon joining the Philadelphia Eagles in 2006, James dropped “Peterson Jr.” from his name.

Around the same time, James apparently thought he could also drop the requirement to file his tax returns. The Associated Press is reporting James has pleaded guilty to willfully failing to file tax returns from 2005 to 2009.

James also played for the Buffalo Bills and the Jacksonville Jaguars during those years. Prosecutors say he earned over $9 million throughout the five years in question.

James faces up to a year in prison and a $100,000 fine. His sentencing is scheduled for September 21. If he didn’t pay any federal income tax on $9 million, a one year maximum seems like a fairly lenient punishment.

Categories: Sports, Tax Fraud Tags:

Trying to Make a Killing

May 7th, 2012 No comments

Sharlotte Hydorn is 92 years old. She lost her husband to colon cancer. According to Sharlotte, he was anything but comfortable during his last days in the hospital.

In order to offer the terminally ill the opportunity to pass peacefully while surrounded by family and friends at home, Hydorn created and sold over 1,300 helium hood kits. Each kit included tubing, material for the hood, and a user diagram. A helium source was not included.

Hydorn didn’t take steps to verify who was actually buying the kits. One purchaser was a 19-year-old boy, who took his own life. Last year, at least four others used the kit to end their lives.

None of them were terminally ill.

Authorities raided her suburban San Diego home and located thousands of dollars in cash from buyers. She was charged with failure to file tax returns on the income earned from the kits since 2007.

The Associated Press is reporting Hydorn was sentenced earlier today to five years supervised probation for the tax charges.

State prosecutors agreed to not press charges in involvement with six suicides, despite her telling authorities she knew the helium kits were intended to be used to commit suicide. Her lawyer said her “involvement in the suicide kits was an act of compassion and not based on greed.”

There is no federal law on assisted suicides.

Considering her age, I can’t argue too much with the sentencing. The cost to take care of a 92-year-old woman behind bars is a waste when probation monitoring procedures should suffice.

Categories: Tax Fraud Tags:

Lacking the Wisdom To Pay Taxes

April 18th, 2012 1 comment

The Doctor of Philosophy (Ph.D) typically takes several years for one to acquire. The term “philosophy” is in reference to its Greek meaning, “love of wisdom.”

Apparently, not all Ph.D recipients have the widsom to pay their taxes. Earlier this week, the Department of Justice announced its charges brought against David Gilmartin, an economist with a Ph.D, including tax evasion, obstruction of the IRS, failure to file a tax return, and failure to pay taxes.

From the DOJ press release:

Despite being paid compensation for every year between 1989 and 2010, Gilmartin failed to file tax returns with the IRS as required, and failed to pay more than $500,000 that he owed in taxes. As alleged, Gilmartin took various steps to evade his tax obligations and obstruct the IRS’s ability to collect back taxes, including:

  • Submitting IRS forms to certain employers in which he falsely and fraudulently claimed to be exempt from taxes, in order to cause the employers not to withhold taxes;
  • Providing someone else’s Social Security number to his employer and representing that it was his;
  • Refusing to provide an employer with his Social Security number, citing a purported “religious objection,” in an attempt to prevent the employer from withholding taxes;
  • Causing checks paid to him as compensation to be made payable to a finance company, in order to pay down a personal line of credit and to prevent the IRS from seizing, pursuant to bank levies, the funds paid to him as compensation;
  • Causing checks that were paid to him as compensation to be cashed against a personal bank account rather than be deposited; and
  • Causing checks paid to him as compensation to be endorsed directly to a bank rather than deposited in a personal bank account, in order to pay outstanding balances on his credit card with that bank and to prevent the IRS from seizing, pursuant to bank levies, the funds paid to him as compensation.

Of course, Mr. Gilmartin is presumed innocent unless proven guilty. You may view the indictment detailing the charges here.

The indictment alleges Gilmartin refused to provide an employer his social security number, citing a purported “religious objection.” We may have a tax protester before us. Cases involving tax protesters do not end in the taxpayers’ favor.

Hat tip: TaxProf Blog

Former Seminole Council Member Guilty of Tax Fraud

April 14th, 2012 No comments

The Seminole Tribe of Florida is one of three federally recognized Seminole entities in the U.S. The tribe has four reservations, one of which is the Big Cypress Reservation.

From 1987 to 2010, David Cypress served as an elected representative for the Big Cypress Reservation to the Tribal Council, which is the governing body of the tribe. One of Cypress’s responsibilities was to handle monetary distributions to tribal members.

Reported by the Sun Sentinel, Mr. Cypress pleaded guilty on Friday to filing a false 2007 income tax return for underreporting income, and agreed to pay $5.46 million in restitution to the IRS. The restitution covers tax, interest, and penalties owed from 2003 through 2009. He faces up to three years in prison.

According to the IRS, much of the underreported income was distributed by Cypress to other tribal members from his discretionary council fund. Although a federally recognized tribe as a sovereign nation is not subject to federal income taxes, individual members of the tribe do not fall under the exemption.

A Sun Sentinel investigation revealed that Cypress distributed more than $160 million in tribal funds between 1999 and 2007. Considering $160 million was more than the distributions of the other four council members combined during that time, it’s no surprise federal authorities suspected wrongdoing.

Cypress is due to be sentenced on August 9.

A Pure Celebration

March 27th, 2012 1 comment

Just over a year ago, I wrote about Ali Olyaie. Mr. Olyaie was a “VIP host” at the popular Las Vegas nightclub Pure. He pleaded guilty to failing to report income earned while working at the popular club in 2006.

Mr. Olyaie is not the only Pure employee who pleaded guilty to a tax crime. Today we add Steve Davidovici and Mikel Hasen to the list.

Steve Davidovici used to be a part-owner and manager of Pure. Mike Hasen used to be the head doorman at Pure. Earlier today they both pleaded guilty to one count of filing a false federal income tax return for the 2006 year. From the U.S. Department of Justice press release:

[D]uring the years 2005, 2006 and 2007, in addition to fees charged for admission to the nightclub, some of Pure’s patrons made cash payments to Pure door personnel and “VIP hosts” to bypass the general admissions line and to obtain more desirable seating. This money was collected, pooled and generally distributed on a weekly basis to the door personnel and VIP hosts, as well as to managers of Pure such as Davidovici and Hasen. In Hasen’s case, distributions from this “tip pool” comprised the bulk of his compensation during the time he worked at Pure. Davidovici and Hasen each concealed large amounts of this income from the IRS.

Davidovici’s and Hasen’s sentencings are set for June 27, 2012, at 9 a.m.

You would think the club may crumble as a result.

You thought wrong.

In just a couple of hours, Pure is throwing a party to celebrate its 7th birthday. Of course, patrons will continue to pay large sums of cash to bypass the admissions line and land a comfortable spot to hang out.

Let’s hope Pure personnel who take home the cash learn from the mistakes of their predecessors.

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