Disgraced former New York City Police Commissioner Bernard Kerik, once hailed as a hero in New York, was finally sentenced after a lengthy investigation. Surprisingly, Kerik received more than the maximum sentence and will spend four years in federal prison as a result of a plea bargain. Kerik pleaded guilty to eight of the fifteen charges related to preparing false tax returns and lying to the IRS; he was expected to spend between two and three years in prison under the plea.

Kerik made headlines for his calm demeanor and leadership following the 9/11 attacks. He was praised by his friend, Mayor Giuliani, for his actions and appeared with Giuliani in a number of public appearances after the tragedy.

Two and half years later, Kerik testified before the 9/11 Commission in New York City, outlining his recommendations for the future based on what he had learned in the aftermath of the attacks. He publicly endorsed President Bush at the 2004 Republican National Convention. President Bush, in turn, tapped Kerik to lead the revamped Department of Homeland Security. During the vetting process, it was revealed that Kerik failed to pay payroll taxes for his “undocumented” nanny and his nomination was thrown out. But the vetting process had opened the door to what prosecutors painted was a life of entitlement as the chief law enforcement officer for the nation’s largest city.

In 2006, Kerik pleaded guilty to ethics violations and was ordered to pay $221,000 in fines. The charges were related to accepting gifts from members of organized crime.

Kerik has since admitted that he accepted “free” renovations from Interstate Industrial Corp, a waste management company that was hoping to get contracts with the City of New York worth tens of millions of dollars. The company was later found to have ties to the Gambino mob family and was barred from contracting with the City. Despite questions about his involvement, Kerik was named Commissioner by Giuliani in 2000 – without so much as completing a background check.

Those renovations – and other issues – led to charges of lying to the White House and the IRS about his financial situation and the sources of his revenue. Eventually, more information about Kerik’s dicey finances came to light including tens of thousands of dollars taken as a charitable deduction for speaking fees related to his post 9/11 appearances. District Judge Stephen Robinson said about Kerik’s actions that the fact that he “would use that event for personal gain and aggrandizement is a dark place in the soul for me.” Robinson also noted that some of Kerik’s crimes were committed while Kerik was “the chief law enforcement officer for the biggest and grandest city this nation has.”

Kerik apologized for his actions but said that he had learned from his mistakes and hoped that he would be judged not on these actions but “for 30 years of service I’ve given to the country and the city of New York.” Robinson was apparently not impressed, sentencing Kerik to more than the recommended sentence.

Reportedly, Kerik made an appeal to President Bush for clemency in 2008; the appeal was not successful. In addition to prison time, Kerik must pay $188,000 in restitution and outstanding taxes, penalties and interest on six years of tax returns. His lawyer has said that they will appeal.Similar Posts:

None Found

The Philadelphia Inquirer is reporting that Jonathan P. Wiktorchik, a Bucks County chiropractor, has been charged with lying to the IRS and arson yesterday in a March 2008 fire. The fire destroyed his office and neighboring businesses.

At the time of the fire, Wiktorchik implicated a gang. He said that he was attacked by Spanish-speaking gang members shouting “Viva trece!” which means, “Long live thirteen!”

Wiktorchik had previously pleaded guilty to insurance fraud and lost his chiropractic license. In that instance, Wiktorchik was charged in 2007 with submitting about $90,000 of insurance claims for phantom visits billed under the name of several of his patients. Those claims represented about 1,800 procedures that were never done. Wiktorchik was eventually sentenced to serve 6 to 23 months in prison, 3 years probation and ordered to pay $50,000 in restitution and all court costs.

Wiktorchik also is charged with lying to the IRS. At the time of the fire, he was under investigation from the IRS for the tax year 2005. Wiktorchik claimed that his 2005 business tax records were destroyed in the fire but those records were actually in his home, and not at his office. There is no word on the amount of income in question or whether the audit will be extended to subsequent years.

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Update: We have a winner! It’s Marc! For the answer, see the comments!

It’s our last tax trivia question for the giveaway! Thanks to CCH Complete Tax for the free software!

For the chance to win the last prize, answer the following question:

Everybody knows that the feds finally got Al Capone for tax evasion. He was convicted and spent more than 7 years in prison. He also paid nearly $300,000 in back taxes, fines and costs (in today’s dollars, that’s more than $4.2 million). In addition to getting Capone off of the streets, what collateral benefit did the high profile conviction provide?

The first correct answer wins free CCH tax prep software. I’m looking for a specific answer on this one: my answer is final.

Remember that you have to comment on the actual post, not on email, Twitter or Facebook, in order to win (though feel free to comment that way for fun). You can read the rules for the giveaway and more about the prizes here.

What’s your guess?

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The massive tax shelter schemes orchestrated by four ex-partners at the accounting firm of Ernst & Young continue to make news, long after their convictions. In fact, one of the questions that I see most at “ask the taxgirl” is whether I’ve heard any news about those who were convicted last May. My answer, some of you will be pleased to know, is now yes. Last week, sentences were handed out for four of the partners involved a series of tax shelter schemes found to be illegal.

Richard Shapiro and Brian Vaughn were sentenced last Friday. Shapiro received a prison term of two years and four months. Vaughn will do a little less, with a year and eight month sentence.

The day before the sentencing of Shapiro and Vaughn, another defendant, Robert Coplan, was fined $75,000 and sentenced to three years in prison. A fourth defendant, Martin Nissenbaum, was sentenced to two and half years in prison and a $100,000 fine. Both men were also ordered to perform 120 hours of community service annually for three years. At least half of that service is to counsel tax professionals about their experiences – you know, what not to do.

None of the defendants remains employed by Ernst & Young – no surprise there. The company has distanced itself from the four, though the judge noted that they likely didn’t act alone. “I understand there was pressure coming from higher-ups at Ernst & Young,” U.S. District Judge Sidney Stein told Coplan. In the end, though, it was not an excuse for the behavior which is estimated to have cost taxpayers billions of dollars.Similar Posts:

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Today, we celebrate the life of Martin Luther King, Jr. I’m working on a post about service. But in the meantime, I am reposting something that I wrote around this time last year. It remains one of my favorite posts. Enjoy!

—

I’ll be frank. I don’t always love being a lawyer.

When I was a little girl, I used to watch Perry Mason with my grandfather on TBS. That constituted my entire legal experience before entering law school. And it was flawed.

You see, on TV, none of the lawyers lied to Perry Mason over the phone about being amenable to a continuance and then told the Clerk of Court differently. Nobody faxed Perry Mason a witness list the day before a hearing along with evidence that they “forgot” to send prior. A lawyer didn’t claim proper service on Perry Mason and then fail to deliver the notices to his law offices. You never saw a lawyer represent clients who had sent Perry Mason death threats via email attempt to assert that Mr. Mason was the one being unreasonable. You didn’t see cases drag on for years and years (yes, plural) because counsel just couldn’t get it together enough to resolve the matter. On TV, no matter how dire, how dramatic, there was ultimately justice.

The law is supposed to be about justice, about finding the truth. And increasingly it feels like it’s not. It’s more about touting your wares, putting yourself on commercials during daytime television standing in front of legal books shouting about maximizing money, about doing anything to get paid. And that is sad.

A few months ago, I attended a hearing that made me question my role in the law. You’re probably assuming that the hearing somehow didn’t go well. That isn’t true. It went remarkably well. Our client was an excellent witness. The judge was fair and very accommodating. We walked out of the hearing knowing that we had done a good job. The thing was, I felt relieved that it was over. I was happy for my clients. But I wasn’t happy for me. Truth be told, I hated every minute of preparing for the case. Well, not every minute. The theory, the strategy? That I didn’t mind. Our strategy was simply to tell our story. And we somehow felt that should be enough. In the end, I think it was.

But the getting there? The games? The complete lack of professionalism exhibited by opposing counsel? Lying about continuances? Surprise witnesses? Last minute evidence? Maybe that seems exciting on TV but in real life, it’s not exciting. It’s sickening. It’s stressful. It’s not fair to good lawyers who spend their time crafting a case. It’s not fair to clients who don’t know what to expect in the court room. And yet somehow, month after month, this behavior doesn’t seem so unusual.

And as opposing counsel sat at her chair in her too tight blouse with the clickety-click of her little heels on the floor, the same counsel who called my clients’ claims frivolous, the same counsel whose supervising partner at Big Law Firm once commented to me that she didn’t understand why a small firm like mine would go up against a big firm like hers, I thought about why we were all at that place, how it all happened that we were in the same room believing two different versions of the truth. I couldn’t explain it.

Later that same day, while reaching for my Moscow Mule (yes, my favorite cocktail du jour, even before Rachael Ray put it in her magazine last month – grr) at the Union League, I understood why the partner at my former firm kept a bottle of wine in his desk: the pressure of being a lawyer, the pressure of having to win, it’s a lot to take in. And while other professions can often look to each other for reassurance, we don’t really have that in the legal profession with few exceptions. It is, by its very nature, adversarial. It is competitive. It is cut throat. And me? I am not. Of course, I like to win. I like to think that I am good at it. And then maybe I think that’s not something to be particularly proud of.

So, over the past few weeks, which have been professionally difficult, I have tried to remember why it is exactly that I became a lawyer – and what about it I used to love. And I was reminded of my favorite scene in the movie Philadelphia. The one where Andrew Beckett sums up what’s actually good about the law:

Joe Miller: What do you love about the law, Andrew?

Andrew Beckett: I… many things… uh… uh… What I love the most about the law?

Joe Miller: Yeah.

Andrew Beckett: It’s that every now and again – not often, but occasionally – you get to be a part of justice being done. That really is quite a thrill when that happens.

And so I tried to think of when that happened last – when justice was actually done. Not when I won a case or when I got a client out of trouble – that happens often enough. But remember, winning and justice aren’t the same thing. I had to think for awhile.

Later, I was preparing to write post about Martin Luther King, Jr. Day. I figured I’d just put up a copy of his famous “I Have A Dream” speech and call it a day. But as I researched, I found part of his autobiography which, I will confess, I have never read in full. And I saw something interesting: I knew that Dr. King had been arrested several times for various accusations, but I didn’t realize that he had been on trial for tax evasion.

Yep. On February 17, 1960, a warrant was issued for the arrest of civil rights leader Dr. Martin Luther King Jr. on charges of tax evasion. He was accused of allegedly falsifying his Alabama income tax returns for the years 1956 and 1958; he was the only person ever prosecuted under the state’s income tax perjury statute. It seemed like an inevitable victory for the government.

In his autobiography, Dr. King described the trial like this:

This case was tried before an all-white Southern jury. All of the State’s witnesses were white. The judge and the prosecutor were white. The courtroom was segregated. Passions were inflamed. Feelings ran high. The press and other communications media were hostile. Defeat seemed certain, and we in the freedom struggle braced ourselves for the inevitable. There were two men among us who persevered with the conviction that it was possible, in this context, to marshal facts and law and thus win vindication. These men were our lawyers-Negro lawyers from the North: William Ming of Chicago and Hubert Delaney from New York.

And something quite remarkable happened. On May 28, 1960, only after a few hours, Dr. King was acquitted by an all white jury in Montgomery, Alabama.

Dr. King said about his trial:

I am frank to confess that on this occasion I learned that truth and conviction in the hands of a skillful advocate could make what started out as a bigoted, prejudiced jury, choose the path of justice. I cannot help but wish in my heart that the same kind of skill and devotion which Bill Ming and Hubert Delaney accorded to me could be available to thousands of civil rights workers, to thousands of ordinary Negroes, who are every day facing prejudiced courtrooms.

And it dawned on me: no matter how many slick-haired, silver-tongued attorneys do their best to make a quick buck at the expense of the reputation of the profession, you can’t dispute that justice is attainable. And justice is good. And justice is important. And even if it is infrequent, it’s worth it when it happens.Similar Posts:

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This tax season, Penny Lea Jones won’t be preparing tax returns if the feds have their way. U.S. District Judge Edward J. Lodge has issued a preliminary injunction barring Jones from preparing federal income tax returns for taxpayers while a lawsuit against her proceeds. The lawsuit is one of seven such actions filed by the Justice Department in October 2009 against tax preparers promoting what’s known as a “redemption scheme.”

I’ll be honest: I’d never heard of the scheme before. The ever-fabulous Kay Bell pointed out that it’s been on the IRS’ radar for a bit now. I guess I need to brush up on my tax scams.

Here’s how the redemption scheme works: tax “professionals” (and I use the term loosely) file a series of false tax forms in an effort to garner large fraudulent tax refunds. Promoters of the scheme tell customers that the federal government maintains “secret” accounts of money for its citizens. Taxpayers are advised that they can gain access to the funds – and discharge their debts – by issuing forms 1099-OID to their creditors. It’s like magic! And maybe that’s why I haven’t heard of this scheme. Who believes this?

Apparently, a bunch of people. Jones managed to convince enough taxpayers that the scheme existed to file 333 income tax returns in 2008 and 2009 claiming more than $93 million in fraudulent refunds. Of those, just $4.3 million in refunds were issued.

The redemption scheme is much bigger than Jones – or the pending seven lawsuits against similar defendants. According to the IRS, the scheme overall is so big that participants have requested a total of $3.3 trillion in fraudulent refunds. To put that into perspective, it’s about 6 times the entire 2010 Budget for the Department of Defense or 20 times the entire budget of the state of Texas.

Fortunately, the IRS catches most of the fraud before they issue any refunds. But still it persists. In the last 10 years, the Justice Department’s Tax Division has obtained more than 435 injunctions against various promoters of the scheme.

The injunction against Jones is effective immediately (you can read it here, downloadable as a pdf). In addition to being barred from preparing returns, she has to advise her customers of the injunction and provide the feds with a list that identifies by name, social security number, address, email address, and telephone number, all of those folks for whom she prepared federal tax returns.

The IRS and the Justice Department have vowed to continue to crack down on these schemes. I can’t stress enough: if it sounds too good to be true (much like fat free doughnuts), it probably is.
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A federal judge has declined Bradley Birkenfeld’s request for leniency. Birkenfeld must report to prison on Friday, January 8, as scheduled, to serve his 40-month prison term.

Birkenfeld pleaded guilty last year to helping many of his clients, including billionaire Igor Olenicoff, evade taxes. Olenicoff pleaded guilty in 2007 to filing a false tax return; he got two years probation and paid $52 million in back taxes, fines and penalties. Olenicoff is said to be worth a whopping $1.6 billion.

Birkenfeld claims that the IRS would have never gotten Birkenfeld – or any other UBS clients – without him. On Sunday, he appeared on CBS’ 60 Minutes, claiming, “I gave them the biggest tax fraud case in the world. I exposed 19,000 international criminals. And I’m going to jail for that?”

Well maybe he did a little more than that. Here’s a bit of his interview:

For his trouble, he’s looking for 30% of the take from the IRS. Who says that crime doesn’t pay?Similar Posts:

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Taxpayer asks:

First, what is the next step after a Lien has been placed on someone and second is there somewhere that you can see if someone is being indicted?

Thank you in advance..

Taxgirl says:

Your question is really two separate questions, so I’ll answer them separately.

With respect to a tax lien, I’m assuming that the “someone” is someone else? If so, there’s nothing that you can do about that: it’s between the IRS and the taxpayer. But if you’re the “someone”, the quick answer is that the lien hangs around until you resolve your outstanding tax obligation.

As to an indictment, a federal indictment is usually a matter of public record (assuming it’s not sealed). If it’s a big enough fish, the Department of Justice will make an announcement like this one. And if it’s of public interest, it will usually make it into the press. Of course, if it’s you, you’ll know soon enough (indictments rarely sneak up on you).

Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Have a question? Ask the taxgirl! – Now on Facebook at http://www.facebook.com/taxgirlSimilar Posts:

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Taxpayer asks:

3 years ago I worked for a company and was W2′d, I quit after 3 months. And just yesterday the IRS sent me a notice tht I owed them $4200. I have never owed $ to anyone or have been late on anything in my life so I was shocked, I called them and they went down a list of my income for the year, everything matched except for 1, the company it was issued from I recalled the name as my x bosses personal company, he 1099 me $10620 on money I never made, I didn’t receive any funds at all and I am 100% sure this is fraud. The IRS put a lien on me, even though I find out abt this yesterday for the first time. I tried contacting my x boss but he wasn’t cooperative. What should I do?? My perfect 800 fico is now ruined, and I am stuck with a 4200 bill…pls give me some advice. I appreciate your help.

Taxgirl says:

Hmm. This is puzzling. For one, it’s odd that you’ve not received a notice before you were liened. The IRS doesn’t work that way. So either something got lost in translation or perhaps the IRS has some incorrect information for you (old address, perhaps?). I would definitely call the IRS and get that sorted out.

As to the bigger question regarding what you perceive to be fraud on behalf of your former employer, there are a couple of things I’d recommend. First and foremost, get an attorney. This sounds bigger than something you can take care of on your own. Next, you would need to contact the company and ask for an explanation of the 1099, noting that you didn’t receive one (or the money associated with it); again, since you indicated that the boss was not cooperative, this is best handled by an attorney. If there isn’t a good explanation from the boss, I’d notify the IRS that the 1099 was not correct and they will likely conduct an investigation if you have sufficient information.

I don’t know that I would label this as fraud until you have some better information as to what exactly happened. In other words, while it feels like they’ve done something awful, let a professional sort it out. Don’t report the company for tax fraud (it will appear malicious) and don’t try taking the law into your own hands. (This is where you’re probably all hearing someone say “Take ‘em to court” in the back of your mind a la the old Wapner days on The People’s Court.)

Good luck.

Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

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Taxpayer asks:

How does someone turn someone else in to the IRS for tax evasion?

Taxgirl says:

There must be something in the water. I’ve received a couple of these types of inquiries lately, so I’m planning to answer a few of them over the next few days. You’re up first.

Reporting tax fraud is actually pretty easy (why would the IRS make this one hard?). Simply fill out a federal form 3949-A (downloadable here as a pdf).

The form asks for identifying information about the taxpayer as well as the alleged violation. There’s a whole slew of fraudulent behaviors to choose from including False Exemption and False Deductions, as well as my favorites: Organized Crime; Kickbacks and Public/Political Corruption.

The IRS asks you to reveal how you know about the fraud and asks about your identity. Failure to provide details about who you are isn’t required but the IRS seems to think it’s helpful. Your information can be kept confidential.

Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

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