May 2008 Archives

IRS Tax Fraud Charges Upheld

May 30, 2008,

The 7th Circuit Court of Appeals refused to dismiss tax fraud charges leveled by the Internal Revenue Service (IRS) at the owner of a small business. United States v. Greve, 490 F.3d 566 (7th Cir. 2007). The case illustrates the perils of representing yourself in a civil tax audit involving significant omissions of income because one never knows when a civil tax audit can turn into a criminal tax problem. The facts were that Mr. Greve operated a snow plow business, and prepared his own tax returns. In preparing those tax returns he omitted a portion of his income. When the tax audit began he proceeded to confess his sins to the IRS tax auditor, but at the same time withheld significant information from her. In addition, he apparently provided false documents to the IRS in the course of the tax audit. To top it off he transferred his home into a trust shortly before the tax audit began.

After the tax audit was part-way done Greve got around to hiring a tax lawyer. The court’s opinion does not disclose whether the tax attorney had experience handling criminal tax problems. The tax attorney met with the IRS agent, and apparently received assurances that the tax audit would be “wrapped up pretty quickly” once certain requested documents were turned over. Behind the scenes, however, the IRS agent was meeting with the Tax Fraud Coordinator, and plotting a criminal tax case. After he was indicted, Greve attempted to have evidence supressed on the theory that his cooperation had been induced by false promises that if he cooperated the matter would be resolved without a referal to the IRS’ Criminal Investigation Divsion (CID). The Court did not see it that way. Although the IRS agent failed to inform Greve that she was considering referring the case for referral to CID the Court held she was not required to do so.

The Greve case illustrates a classic eggshell tax audit, and how treachorous the waters are for those who have omitted signficant income from their tax returns who are picked for a tax audit. For anyone in that situation representation by a skilled tax lawyer is critical.

If you have been picked by the IRS for a tax audit contact the tax lawyers at Brager Tax Law Group, a P.C.

Southern California Tax Return Preparer Convicted of Tax Fraud

May 16, 2008,

A Southern California tax return preparer, Matthew Carl Berry, was convicted of one count of conspiracy to defraud the IRS pursuant to 18 U.S.C 371, and three counts of filing false federal income tax returns. According to the indictment among other things Berry prepared false documents to be used in IRS tax audits. According to the press release issued by the Department of Justice Tax Division’s criminal tax attorneys, Berry prepared fraudulent tax returns by claiming mortgage interest deductions for taxpayers who did not own homes. Berry faces up to 5 years imprisonment, and a fine of up to $250,000 for the conspiracy conviction, and another three years for the criminal tax convictions for filing false income tax returns. Berry could also be subject to civil tax preparer penalties pursuant to Internal Revenue Code § 6694.

If you have concerns about exposure to criminal tax fraud penalties or civil tax fraud penalties contact the tax dispute lawyers at Brager Tax Law Group, A P.C.

Innocent Spouse Relief Not Permitted by Ninth Circuit

May 15, 2008,

The Ninth Circuit Court of Appeals in California upheld a decision of the United States Tax Court (Tax Court) denying innocent spouse relief pursuant to Internal Revenue Code § 6015. Generally spouses filing joint income tax returns are both liable for any taxes due. In certain circumstances, however, one spouse may be entitled to so-called innocent spouse relief. One of the keys to obtaining innocent spouse relief, however, is making the request in a timely manner. There are a number of different deadlines which must be met, or else innocent spouse relief will be lost. In Huynh v. Commissioner, T.C. Memo 2006-180 the taxpayer ran afoul of Internal Revenue Code § 6015(g)(2) . Not surprisingly the tax law requires that if a taxpayer wishes to claim innocent spouse relief it must be asserted in the same Tax Court case in which the taxpayer is disputing an income tax deficiency. However, Internal Revenue Code § 6015(g)(2) creates an exception if the innocent spouse claim was not an issue in the Tax Court proceeding. The exception to the exception, however, is that if the putative innocent spouse “participated meaningfully” in the proceeding than she can not later claim innocent spouse status.

The Tax Court noted that Mrs. Huynh participated in the prior tax deficiency proceeding by among other things, being present at meetings with the IRS’ Appeals Office, as well participating in pre-trial preparations, and settlement negotiations. Under these circumstances the Tax Court refines to allow Mrs. Huynh to later claim innocent spouse relief. Ms. Huynh was not represented by a tax attorney in either the first or second proceeding. Had she been properly advised by a tax attorney she would have raised her innocent spouse claim in the first proceeding.

If you believe you may be entitled to innocent spouse relief, contact California State Bar Certified Tax Specialist Dennis Brager, Esq.

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Criminal Tax Problems for Ex-New York Yankee

May 14, 2008,

David Szen, the former traveling secretary for the New York Yankees, was sentenced on April 4, 2008 to 2 years probation for tax crimes. Szen was also ordered to pay a tax debt of approximately $10,285 in taxes, plus tax penalties and interest, as well as a fine in the amount of $7,500. Szen had waived his right to indictment and plead guilty to one count of filing a false tax return pursuant to Internal Revenue Code § 7206(1). It is likely that Szen will have additional civil tax debts.

According to the IRS, Szen while an employee of the New York Yankees, failed to report tip income of approximately $53,350 on his individual income tax returns for the tax periods 2001 through 2005. The tips came from unidentified players and coaches ranging from a few hundred to $10,000.

Sven took a leave of absence from the Yankees in July of 2007 pending the investigation by the Internal Revenue Service (IRS) Criminal Investigation Division and was later fired by the Yankees after pleading guilty.

According to the New York Post, the IRS has been investigating possible tax evasion by Major League Baseball clubhouse employees who pocket large, under-the-table tips from players for doing various nonbaseball related errands. The investigation took full swing after investigators noticed a large discrepancy in the amount of tips to clubhouse workers players claimed as tax deductions versus the amount of tip income clubhouse workers reported. The gap between deductions and nonreported tips ranges from around $100,000 to over $1 million per team.

If you have been accused by the IRS of tax fraud or tax evasion contact the Southern California tax lawyers at Brager Tax Law Group, A P.C.

Tax Fraud Involves NFL Players

May 8, 2008,

Tax lawyers from the Department of Justice are seeking to enjoin two tax return preparers from representing anyone before the Internal Revenue Service (IRS) , acting as tax preparers or engaging in any other tax related conduct. The IRS complaint also seeks an injunction barring the tax preparers from engaging in conduct which is subject to the tax preparer penalties of Internal Revenue Code § 6694. The injunction was requested pursuant to Internal Revenue Code § 7407 and Internal Revenue Code § 7408.

According to the IRS complaint the tax return preparers committed tax fraud by filing fraudulent tax returns, and fraudulent amended tax returns claiming deductions for bogus mining development costs. Interestingly the IRS complaint alleges that 7 of the customers who had fraudulent tax returns prepared were NFL football players. The IRS complaint does not reveal the names of the players, and there is no indication in the complaint that the players knew that tax fraud had been committed.

If you are a tax preparer who has been accused by the IRS of tax fraud, tax evasion or violation of the tax return preparer penalty rules under Internal Revenue Code § 6694 contact the Southern California tax lawyers at Brager Tax Law Group, A P.C. Our tax lawyers represent clients throughout California, including Orange County, the Inland Empire, San Bernardino County, and Riverside County including the cities of Newport Beach, Laguna Beach, San Juan Capistrano, San Clemente, Mission Viejo, Laguna Niguel, Laguna Hills, Dana Point, Huntington Beach, Long Beach, Costa Mesa, Anaheim and Santa Ana.

Trust Fund Recovery Penalty (TFRP) Upheld Against Both CFO and CEO

May 2, 2008,

Internal Revenue Code § 6672 provides that so-called responsible persons who willfully fail to pay corporate payroll taxes may be held personally responsible for the payment of the trust fund portion of these taxes. Internal Revenue Code § 6672 is sometimes referred to as the trust fund recovery penalty (TFRP). Who is a responsible person? As the court in Horovitz v. United States (WD PA 2008) explained: “responsibility is a matter of status, duty or authority.” The definition of responsible person is not limited to the person with the final say on which bills get paid, but includes others as well.

Horovitz illustrates the principle that more than one person can have liability for the trust fund recovery penalty. The CFO was deemed to be a responsible person since he had the full authority to sign checks, could hire and fire employees, signed payroll tax returns, was a corporate officer, and a 20% owner. The CEO was also held liable for the trust fund recovery penalty since he invested several million dollars in the business, owned 80% of the stock, had unlimited hiring and firing ability and check writing authority, and served as the CEO with day to day involvement in the business.

If you have payroll tax problems, and the IRS is threatening to impose the trust fund recovery penalty contact the Los Angeles, California tax litigation lawyers at Brager Tax Law Group, A P.C.

Tax Court Collection Due Process Case Dismissed

May 2, 2008,

In Kennedy v. Commissioner, T.C. Memo 2008-33, the United States Tax Court determined that the Internal Revenue Service (IRS) could not serve a tax levy on the taxpayer’s assets since it failed to send the collection due process (CDP) notice to the taxpayer’s last know address. Generally in order for the IRS to issue a tax levy it must first mail a Notice of Intent to Levy, and Right to Request Hearing, commonly referred to as a CDP Notice, pursuant to Internal Revenue Code § 6330. In Kennedy, the IRS mailed its notices to two different addresses. However, Mr. Kennedy never received them. Apparently this was because both addresses were incorrect. In fact the way Mr. Kennedy found out about the collection due process notice was when the IRS served a tax levy on his bank.

The Tax Court pointed out that Internal Revenue Code § 6330(a)(2) provides that the CDP notice must either be given in person, left at the person’s dwelling or usual place of business, or sent by certified or registered mail to the person’s last known address. Since the IRS failed to send the CDP notice to Mr. Kennedy’s last known address the CDP notice was invalid. By the time the case got to the Tax Court the IRS realizing this and had refunded the money seized by the tax levy. That, however, was not sufficient. In order for the IRS to serve any additional tax levies the Tax Court required that the IRS issue a new CDP notice, and give Mr. Kennedy an opportunity for a hearing first in the IRS’ Appeals Division, and then if Mr. Kennedy was not satisfied with the result he would be entitled to a brand new hearing in the Tax Court.

If you have received a tax levy, have tax debts, or other tax problems call the tax controversy lawyers at Brager Tax Law Group, A P.C.