With a more or less self-governing tax system, there are always going to be opportunities for fraud. New deductions and expenses create an environment that can make cheating tempting – and the new first time homebuyer’s credit is no exception. However, the IRS is warning taxpayers that they are serious about investigating and pursuing fraud. Last week, the IRS announced its first successful prosecution related to fraud involving the first-time homebuyer credit. Eileen Mayer, Chief, IRS Criminal Investigation, warned: “We will vigorously pursue anyone who falsely tries to claim this or any other tax credit or deduction.”
And the IRS now has a winning streak, of sorts. On Thursday July 23, 2009, James Otto Price III, a tax preparer in Florida pleaded guilty to preparing a client tax return where he improperly claiming the first-time homebuyer credit. He faces up to three years in jail, a $250,000 fine, or both.
There are more cases in the pipeline. As of last week, the IRS has 24 open criminal investigations involving the homebuyer’s credit. To combat fraudulent homebuyer’s credit, the IRS has cautioned that they are using a variety of screening tools, including computer software to determine inconsistencies in returns. The clear message that they hope to send: don’t even think about cheating.
I know it’s tempting. Times are tough and this is a huge credit. It’s also confusing enough that I think it lends itself to people looking for wiggle room. I just counted and there are 53 questions in my inbox related to the homebuyer’s credit (I’ll be posting answers to a few this week). Many of them are fair questions of the “do I qualify?” type. A few are walking the line of “how can I change the situation to qualify?” type. And a couple are “how would the IRS know if I cheated?” type.
If you have questions about the credit, make sure you find the answers before you act. You can either ask the taxgirl, consult with your own tax pro or call the IRS at 1.800.829.1040.
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He was the “expert in civil rights legislation” (according to his own web site who was convicted of federal tax evasion, money laundering and bankruptcy fraud charges.
Yagman’s hearing for sentencing was earlier this week. He has asked the court to spare him jail time based on his health and the potential for personal harm during his sentence. Prosecutors are asking for at least nine years in prison.
Apparently UCLA is betting on things going Yagman’s way: if he avoids prison time, he has been asked to teach a course on “law, morality and social justice.” Interesting definition of morality for those Bruins, no?
Are good works enough to mitigate jail time? Is a nice resume an excuse to skip prison? Probably not. The 3rd U.S. Circuit Court of Appeals has ruled, in United States v. Tomko, that a sentence given to William Tomko which did not include prison time was not appropriate considering his crime. The case illustrates continuing confusion about federal sentencing guidelines now that the U.S. Supreme Court has ruled that they are merely “advisory.”
William Tomko Jr., the owner of a construction company, pleaded guilty to tax evasion charges for persuading the contractors who built his luxurious new home to send their bills to his company, W.G. Tomko & Sons, Inc., a la Leona Helmsley. He also allegedly wrote off expenses for other luxury items, like his Rolls Royce and his custom motorcycle, as company expenditures. This was allegedly easy for Tomko because many of his company’s projects were otherwise linked to big ticket expenditures for schools and government.
As a result, Tomko illegally defrauded the government of almost a quarter million dollars in taxes. Federal sentencing guidelines called for a prison term in the range of 12 to 18 months – Helmsley served similar time, remember?
But Tomko had the kind of lawyers that could get him out of such a pickle. They argued that putting Tomko in jail would be harmful to his employees and, after all, he was really a good guy. They cited his “exceptional” charitable and community activities. And for some reason, the judge bit, sentencing Tomko to three years of probation, including one year of house arrest (in the $5 million mansion that he built for himself and billed to his company), 28 days of in-house treatment for alcohol abuse, 250 hours of community service and a $250,000 fine. The judge ruled that the offense was nonviolent, not ongoing in nature, not part of a larger pattern of criminal activity, and that there were no identifiable victims of the offense (er, other than taxpayers who do pay their taxes and therefore supplement Tomko’s ongoing lifestyle, but who’s counting them?). The judge also noted Tomko’s “good family history, educational attainment, gainful employment and negligible criminal history” (hmm… what’s negligible these days?) and claimed that Tomko could benefit from treatment for his drinking problem.
Hmm. I really don’t want to make this into a class war… but let’s make this into a class war. Is the judge saying that because Tomko was rich, well-educated and from a good family that jail wasn’t fair? Is jail only for the under-educated and poor? That’s sure what it sounds like. And I, for one, find that offensive.
The 3rd Circuit has agreed that the failure to include at least some prison time in his sentence was unreasonable (though I’m not sure that they agree with my logic).
Judges writing for the majority opinion stated:
“Tomko’s sentence of probation included home confinement in the very mansion built through the fraudulent tax evasion scheme at issue in this case — an 8,000-square-foot house on approximately eight acres, with a home theater, an outdoor pool and sauna, a full bar, $1,843,500 in household furnishings, and $81,000 in fine art. The perverse irony of this gilded-cage confinement was not lost on the government, it is not lost on us, and it would not be lost on any reasonable public observer of these proceedings, including those would-be offenders who may be contemplating the risks associated with willful tax evasion.”
Adding to the reasoning for a reduction in Tomko’s sentences was evidence of Tomko’s charitable acts. However, the 3rd Circuit was not impressed by character references and what one judge referred to as Tomko’s “well-timed interest in Habitat for Humanity.”
The case now goes back to the District Court for sentencing.
What do you think? Should white collar criminals escape jail time if they are rich, educated and a source of income for others? Is a history of charity activities sufficient evidence of good character to merit merely house arrest and probation?
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September 11, 2001 has been linked to a number of criminal activities and now we can add tax fraud to the list.
The Internal Revenue Service has announced that Robert Coplan, a former IRS lawyer, and Martin Nissenbaum, Richard Shapiro, and Brian Vaughn, partners in the accounting firm of Ernst & Young, have been charged with conspiracy to defraud the IRS, tax evasion, making false statements, impeding the IRS and related offenses. Prosecutors allege that the four defrauded the IRS over a period of six years with the use of tax shelters which they created and marketed as a method to hide money.
The indictments allege that the four defendants created documents containing false and fraudulent descriptions of the clients’ motivations for entering into the transactions, which were reportedly created by the defendants to avoid paying taxes. Coplan is alleged to have argued that the crux of the plan, marketed to legal and investment professionals for their wealthy clients, was to “make our strategies appear to be investment techniques that have advantageous tax consequences.” He further urged clients to attribute their decision to discontinue trading partnerships after receiving favorable tax treatment to the September 11, 2001, terrorist attacks and to “possible economic repercussions resulting from such attacks” as a reason for their activities.
Not surprisingly, all of the defendants have pleaded not guilty.
And if you’re getting deja vu all over again, it might be a result of the investigation into suspected wrongdoing at Jenkens Gilchrist. Ernst & Young has been named in several suits involving tax shelter advice brought against Jenkens. Robert Coplan is one of the folks who ratted Paul Daugerdas out, claiming that Daugerdas masterminded the sales of the tax shelters for which Jenkens performed the legal work.
If your head is spinning from all of the tax shelter rumblings, it should be. Prosecutors allege that activities such as those that Coplan and his partners have been accused of have been ongoing since the mid-1990s. In one year alone, the IRS believes that these shelters have cost the federal government between $14 and $18 billion (with a b) in lost revenue.
