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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I’m no defense attorney but even I know that making threats to the prosecutor is never a good idea.
Jack Chang, a tax preparer and president of Unitax Planners in New York, is facing charges of stealing tax payments from his clients for personal use. He has pleaded not guilty.
But that seems to be the least of his worries. He’s now been arrested on new charges of threatening to kill the prosecutor on his case. The charges include coercion, placing a false bomb or hazardous substance, stalking, and aggravated harassment.
Chang is accused of sending at least two threatening letters to Gilda Mariani, a prosecutor in the tax crimes unit. Chang and Mariani had met before in 1995, when Mariani prosecuted Chang on a grand larceny indictment. In that case, also tax-related, Chang pleaded guilty to stealing nearly a million dollars from 30 of his tax clients. Chang was sentenced to jail time as a result of those charges but served less than half of his sentence and was released in 1996.
According to prosecutors, Chang continued to steal from his tax clients. Following the new charges, Chang sent Mariani two letters which contained foul language and referred to her as “evil.” Chang also specifically threatened Mariani, saying in one letter:
I finally got my 9 mil gun and I am insane, you are responsible for my insanity and I will make sure that you get at least one for each and every year I spent incarcerated. I could hire someone to do the job for me or have someone from the cartel come in from the outside to do the job and leave, but I want to have the pleasure of doing it myself and if I am caught to make headlines.
The letter also contained white powder, which was later determined to be corn starch.
Another threat warned that Mariani’s body would be dissolved in hydrochloric acid and a video of the event sent to her loved ones, according to prosecutors.
The fact that he’s clearly crazy aside, it boggles the mind that people would continue to use a tax preparer who had been jailed for stealing from his clients. He plead guilty to that offense – it wasn’t even a question. Kind of screams out in favor of regulating tax preparers, does it not?
Scranton is great, but New York is like Scranton on acid. No, on speed. Nah. On steroids.
- Michael Scott, The Office
The sleepy little town in the hills of Pennsylvania just got a hefty dose of publicity – the unwelcome kind. Known primarily as the fictional home Dunder Mifflin, the floundering paper company in NBC’s wildly popular (and one of my favorite shows) The Office, Scranton made national news, again, as the center of a judicial kickback scandal. Real life judges Mark A. Ciavarella Jr. and Michael T. Conahan made an appearance in Scranton’s federal court last week to plead guilty to wire fraud and income tax fraud in a scheme that has shocked the country. The two are accused of taking millions of dollars in financial kickbacks in exchange for sentencing teens to privately run youth detention centers. More than 5,000 teens were sentenced under Ciavarella during the scheme.
Under the plea agreement offered by Ciavarella and Conahan, each with serve 87 months in federal prison, a sentence that many believe isn’t long enough. Each has already been removed from their positions by the Pennsylvania Bar with a resulting loss of pension; they will be required to resign from the Pennsylvania bar.
Under the scheme, Conahan arranged contracts with two privately run detention centers to agree to accept the teens in exchange for kickbacks to the two judges; Ciavarella actually issued the sentencing to the teens. Payments for the contracts were made to a Florida company controlled by the two judges, to avoid suspicion. The source of the money was reportedly concealed as business expenses or rental payments.
The income, though gained illegally, was not reported properly on an income tax return and improper expenses were reportedly claimed for the years 2003 through 2006. According to the indictment (note that the link takes you to a pdf), the tax preparers for the judges were fed “material omissions and misclassifications” and have not been charged in the scandal. The plea agreement, which has not yet been accepted as filed, would not limit the IRS from collections activities in connection with the tax fraud.
The guilty pleas will perhaps mark an end to one of the most disturbing abuses of judicial power to surface in some time. An important part of our judicial system is a belief that the system works. Those who destroyed that belief have wronged more than those involved directly in the scheme: they have shattered the perception of a fair and just legal system. Hopefully, the families and courts of Luzerne County can find some peace with the understanding that those who broke that trust are being punished.
As for Ciavarella and Conahan? The two men, clearly hated (shouts of “Rot in hell!” resonated on the streets as they left the courthouse) remain free on bail until sentencing.
Image: Wikimedia, Creative Commons courtesy of Daniel Case
Melanie Taylor should feel comfortable behind bars: her participation in a tax fraud scheme with prisoners will likely land her in prison.
Taylor has pleaded guilty to conspiracy to tax fraud charges stemming from a scheme that she ran with inmates at the Maryland Department of Corrections and other prisons. The tax losses are said to have totaled more than $350,000.
From 2004 to 2007, Taylor received and mailed tax returns to the IRS on behalf of prison inmates. She made money for herself and the inmates by claiming refunds that were not actually due; those returns were directly deposited into her bank account. To make the scheme more viable, Taylor used a fake name to and received an Employee Identification Number (EIN) for a false construction company.
Taylor passed along some of the funds to the inmates in the form of cash or items for their use. She kept the remainder for herself.
Taylor will be sentenced in federal court in July. She faces a maximum sentence of 10 years in federal prison… but at least she’ll be somewhat familiar with life behind bars!
