Tax Problem Attorney Blog

Articles Posted in Tax Fraud

Small Business

Small business owners are the dedicated and hardworking individuals that make our economy strong and our country great. On the whole, many small business owners lack the resources or processes and procedures to ensure that they and their company remains fully compliant with all tax obligations. Unfortunately for owners of small businesses, the IRS is aware of this fact and pursues small businesses and small business owners for perceived tax obligation failures aggressively.

The best advice for small business owners is to be particularly meticulous regarding one’s tax filings and, if applicable, foreign account disclosures under FBAR and FATCA. However, the acts by some small business owners are so egregious as to necessitate tax enforcement actions that can result in enormous fines and a potential federal prison sentence.

From Respected Communications Industry CEO to Tax Fraud Felon
61-year-old Albert Hee, former CEO of Waimana Enterprises, Inc. was once considered a successful and respectable businessman. Mr. Hee’s various companies were in the business of building out and providing rural broadband access to people in the Hawaiian Islands. The companies were highly successful and did extensive business with the United States government including several particularly lucrative contracts.

However, Mr. Hee appears to have lost sight of the proper bounds between personal funds and money and assets that belong to the company. Perhaps motivated by loyalty or duty to his family or for other reasons, Mr. Hee treated his companies as if they were his personal expense account. Some of the actions by Mr. Hee alleged at trial included:

  • Mr. Hee paid his wife and children a full-time salary with benefits despite performing little to no work for or with the company. The compensation was worth greater than $1.67 million.
  • Mr. Hee purchased a $1.3 million home near a college campus with company funds. He allowed his children to use the home as a rental property while maintaining that the home would be used for business meetings and company retreats.
  • Mr. Hee used company funds to pay for his children’s college expenses.
  • Mr. Hee attended twice-weekly massages that he called “health consultation services” while running up a $96,000 bill.
  • Mr. Hee used company cash to pay personal credit cards.
  • Company money was used to pay for family trips and vacations. These expenses were concealed as business and stockholder meetings.

Mr. Hee’s acts involved the misuse of company money and then lying about the improper use. Mr. Hee failed to report the additional income from his company and did not pay tax on these funds.
Businessman Found Guilty on Tax Fraud Charges
After more than 9 years of litigation and proceedings regarding Mr. Hee’s tax filings, he was convicted on tax fraud and other charges in July. Mr. Hee was convicted of interference with the administration of the tax code and six counts of filing false returns. Mr. Hee was found guilty of having filed false tax returns for 2007 through 2012, and of obstructing the IRS from 2002 through 2012. While Hee’s lawyer attempted to shift blame for the payments to the accountants, the jury apparently did not find such an explanation plausible and returned their guilty verdict on the second day of deliberation. Mr. Hee now faces up to three years of imprisonment and up to $250,000 on each charge. Mr. Hee’s scheduled sentencing date is October 26, 2015.
Facing Tax Fraud Charges?
If you are facing tax fraud or other serious tax charges, the stakes are simply too high to face an experienced and aggressive prosecutor from the federal government alone. Working with a dedicated and strategic legal team, can help keep the prosecutor on his toes, and protect your procedural and substantive legal rights. To discuss how our experienced and aggressive tax professionals can provide options for you call the Brager Tax Law Group at 800-380-TAX-LITIGATOR or contact us online today.

Audit Character Meaning Validation Auditor Or Scrutiny

The U.S. Tax Code is, essentially, in a constant state of flux. While there are certain bedrock principles, such as the obligation to file and pay taxes, particularities regarding both substantive and procedural handling of tax issues can change with time. Decisions made by judges, changes to the Internal Revenue Code by acts of Congress, and IRS interpretations of the statutory law can all effect how the Code is administered. In some cases, some of these sources of guidance for the tax code may disagree resulting in uncertainty and confusion.

Taxpayers must remain aware of their ever-changing tax obligations and the consequences for their noncompliance. Taxpayers who fail to keep abreast of important changes in the tax code and its procedures risk subjecting themselves to significant tax penalties or even criminal tax charges.

How Long Does the IRS Typically Have to Conduct a Tax Audit?
The IRS is typically authorized to audit a taxpayer’s tax return filing for up to three years for its filing. However, it has long been held that the IRS may audit for up to six years in instances where a substantial understatement of income has been detected. A substantial understatement of income is defined as a taxpayer who fails to include more than 25 percent of his or her income. While this concept seems straightforward enough, what it means to omit a quarter or more of income, exactly, has been the subject of significant litigation and subsequent legislative action.

U.S. Supreme Court Restricted Some IRS Tax Audits to 3 Years in 2012
In U.S. v. Home Concrete & Supply, LLC the United States Supreme Court (USSC) significantly restricted the IRS’ ability under §6501(e)(1)(A) to audit for up to six years. This case concerned a taxpayer who “omit[ted] from gross income an amount properly includible therein which is in excess of 25 percent of the amount of gross income stated in the return.”

In Home Concrete, the taxpayer made overstatements regarding the basis of property that was sold. The overstatement of basis resulted in tax returns that understated the sale proceeds in an amount greater than 25 percent. The Fourth Circuit Court of Appeals held that the “taxpayers’ overstatements of basis, and resulting understatements of gross income, did not trigger the extended limitations period. “ Meaning that while the IRS would have been able to audit within the three-year period, it was not entitled to audit in these circumstances after that time had elapsed. The IRS appealed and the Supreme Court granted certiorari. The Supreme Court affirmed the lower court’s decision concluding that §6501(e)(1)(A) does not apply to an overstatement of basis that results in an understatement of income.

Congress Changes the Law Overruling the Supreme Court’s Decision
Since Congress retains the right to legislate when displeased by a court decision not based on Constitutional grounds, it sometimes attempts to change or otherwise alter the law so that Congress’ goal is accomplished. Following the decision in U.S. v. Home Concrete & Supply Congress changed the language in the Internal Revenue Code. The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 added the following language to the tax code: An understatement of gross income by reason of an overstatement of unrecovered cost or other basis is an omission from gross income.

This change in the U.S. Tax Code’s language applies to all returns filed after July 31, 2015. Additionally, previously filed tax returns for which the statute of limitations is still open under existing law is also subject to this change. Taxpayers who filed with a reliance on the old language regarding overstatements of basis resulting in an understatement of income of more than 25 percent are now be subject to an expanded audit window of up to six years. Furthermore, these taxpayers are likely subject to penalties due to the understatement.

Facing an IRS Tax Audit in Los Angeles or Elsewhere?
The tax law is in a perpetual state of flux. Seemingly small changes to language in the Code can have significant impacts on taxpayers. If you or your small business is facing a tax audit by the IRS or California state tax authorities, the stakes are too high to go it alone. Contact the experienced tax professionals of the Brager Tax Law Group by calling 800-380-TAX-LITIGATOR or contact us online today.

Handcuffs arrests dollar currency crime human hand

As many tax controversy attorneys can state, tax problems can lead to major issues including a tax audit and even criminal tax charges. Even though tax problems are typically serious matters there are certain tax crimes that stand out even among serious offenses. Tax Evasion and tax fraud involving the use of stolen identities and stolen personal information is not only one of those crimes that can be punished particularly severely, it is also a major enforcement focus for both the Department Of Justice and the IRS. Taxpayers facing tax fraud or tax evasion charges should consult a tax lawyer before admitting anything to federal agents or prior to taking any action on the tax problem.

Queen of Tax Fraud Likely to Spend Decades in Prison
In a widely-reported tax conviction, Rashia Wilson was sentenced to more than two decades in prison due to her part in an identity theft and tax fraud scheme. While tax sentences are often harsh, this sentence stood apart in severity perhaps due to her other weapons charges, and her apparent propensity to brag and challenge law enforcement officials over social media. In one online posting, Ms. Wilson wrote:

“I’M RASHIA, THE QUEEN OF IRS TAX FRAUD… I’m a millionaire for the record, so if U think indicting me will B easy it won’t, I promise you! U need more than black and white to hold me down N that’s to da rat who went N told, as if 1st lady don’t have da TPD under her spell. I run Tampa right now.”

However, law enforcement officials were undeterred by these remarks and as part of “Operation Rainmaker”, they identified, arrested and charged Ms. Wilson and others. Also contributing to Ms. Wilson’s harsh sentence was her more than 40 previous arrests. Ms. Wilson appealed her sentence of 21 years, but to no avail. Ms. Wilson is currently serving her time at the Aliceville Federal Correctional Institute in Alabama.

27 Year Tax Fraud Sentence Shows the Severe Consequences of a Tax Charge
Ms. Wilson is not alone in having received a harsh sentence. James Lee Cobb III, also engaged in a scheme in which he claimed income tax refunds intended for other taxpayers. Mr. Cobb pleaded guilty to collecting more than 7,000 Social Security numbers that he then used to fraudulently obtain tax refunds. In all, Mr. Cobb admitted to stealing at least $1.8 million in tax refunds. For his crimes Mr. Cobb was sentenced to 27 years in prison.

Stolen Identity Return Fraud is a Major Tax Enforcement Focus
Both of the individuals discussed about engaged in the same type of fraud: Stolen Identity Return Fraud (SIRF). SIRF is a major tax enforcement priority not only because it is a major crime engaged in by both petty crooks and international criminal organizations. Left unchecked, this problem has the potential to disrupt the orderly administration of the U.S. Tax Code. In its most basic permutation, SIRF crimes involve the use of stolen personal identifiers to obtain a fraudulent tax refund. Typically the perpetrator of the fraud will file the fraudulent return early in the tax season when there is a high likelihood that the real taxpayer has not yet filed. The perpetrator of the fraud then directs the refund to a mailbox he or she controls or can access. Alternatively, the individual may use an electronic funds transfer to another account.

SIRF is widespread. The Department of Justice believes that from May 2008 to May 2012, more than 550,000 taxpayers had their identity stolen for use in SIRF. However, the DOJ touts significant success in combating this problem. Aside from the convictions discussed above, the DOJ has also secured convictions or guilty pleas in recent tax matters including:

  • May 11, 2015– The DOJ issued a press release regarding the guilty plea of a Raleigh, South Carolina man who used others’ Social Security numbers along with false information to obtain tax refunds.
  • May 12, 2015– A D.C. man was sentenced to more than three years in prison for his role in a SIRF scheme. More than $1.1 million in fraudulent refunds were requested.
  • June 1, 2015– After federal agents charged Alabama woman Teresa Floyd, she admitted her guilt as part of a SIRF scheme. Floyd faces up to two years in prison for aggravated identity theft charges and up to 10 years for the conspiracy charges. She also faces significant monetary penalties.

SIRF may be a major problem, but federal investigators from the IRS and DOJ have taken notice and are cracking down. The Brager Tax Law Group is dedicated to assisting taxpayers facing serious tax problems and tax charges. We can provide strategic advocacy for taxpayers charged with serious tax crimes. To schedule a reduced-rate tax consultation call us at 800-380-TAX-LITIGATOR today or contact us online.

warning irs audit conceptual road sign over sky

The IRS and Department of Justice have cracked down on tax fraud and tax evasion regardless of its form. However, in recent announcements the Department of Justice has revealed its targeted enforcement focus on business payroll tax fraud, offshore tax fraud including non-compliance with FATCA & FBAR, Stolen Identity Tax Return Fraud (SIRF), and other forms of tax fraud. Beyond the enforcement focus, Acting Assistant Attorney General Caroline Ciraolo revealed that the Department of Justice’s Tax Division averages around 6,000 active matters. These cases are worked by approximately 340 attorneys, who are successful in more than 95 percent of the cases they prosecute.

In light of such odds, many taxpayers may hope that time alone will cure their tax problems. However betting on the statute of limitations is a risky proposition complicated by the fact that the actions you take can extend the time for charges to be brought by years. However knowing approximately how long you may be required to prove the source of income or the propriety of deductions can bring some peace of mind. However, no action can substitute for a conservative and meticulous handling of all your tax filing, payment, and disclosure obligations by a tax professional.

How Long Does the IRS Typically Have to Bring a Tax Audit?
The basic rule for the IRS’ ability to look back into the past and conduct a tax audit is that the agency has three years from your filing date to audit your tax filing for that year. However, taxpayers who fail to include all sources of their income may face a longer time period. That is, taxpayers who omit greater than 25 percent of their total income are subject to a six year lookback window. However, the foregoing is contingent on the taxpayer not voluntarily agreeing to an extension of time for the IRS to audit. The IRS may, and often does, request additional time to complete its audit. Because every tax situation is unique, if you find yourself the recipient of such a request it is wise to seek the advice of an experienced tax attorney.

Can Allegations of Serious Wrongdoing Affect the Time the IRS has to Investigate?
Unfortunately for taxpayers accused of engaging in tax fraud the time limit for how long the IRS has to assess additional taxes and penalties is unlimited – though it becomes increasingly less likely for the IRS to open as a civil tax audit as the allegedly wrongful acts become more remote in time. Under Section 6531(2) of the U.S. Tax Code, the IRS has six years from the time the tax return is filed or from the last willful act that prevented the filing of a tax return from bringing a criminal tax charges. However, it can be difficult to pinpoint when, exactly, the last willful act occurred. Furthermore, in criminal tax matters the statute of limitations will be tolled by one’s status as a fugitive or if the accused is outside of the United States.

The time the IRS has to assess a tax liability should not be confused with the time it has to collect a tax liability. Generally speaking the IRS has 10 years from the date of assessment to collect the liability. That 10 year period is subject to numerous circumstances which will cause the extension of the 10 year period including offers in compromise, requests for collection due process hearings, bankruptcy, and absence from the United States. In addition, if the IRS files suit to reduce the tax lien to judgment it can extend the time it has to collect. Indeed the IRS takes the position in the Internal Revenue Manual that it may collect against the taxpayer’s real or personal property indefinitely!

The Brager Tax Law Group is dedicated to providing strategic tax advice for serious tax problems. To schedule a tax consultation with one of our tax professionals call 800-380-TAX-LITIGATOR today or contact us online.

Innocent Spouse

Many married couples find it advantageous to file a joint tax return rather than filing separately. This comes as no surprise as the federal government has built a number of tax advantages for married couples filing jointly into the tax code. These benefits include:

  • Depending income distribution, a lower rate of taxation than they would face filing separately.
  • Increased limits for charitable deductions
  • IRA and retirement account benefits
  • Estate protection
  • Reduced tax administration expenses

However there are also drawbacks to filing jointly with your spouse – especially so if the relationship hits a rough patch or ends in divorce. This is because by filing jointly, you subject yourself to joint and individual liability for everything that appears on the tax return. In other words, absent an exception or relief both members of the couple are liable for everything that appears on the tax form regardless of who prepared it. If your spouse or former spouse made mistakes on the jointly filed taxes or took overly aggressive positions you could find yourself liable for underpayments, fines and penalties.

When is applying for innocent spouse relief appropriate?
The most common instance where issues of innocent spouse relief may come into play is where a couple is headed down the path to a divorce or has already divorced. Often, one of the partners in the marriage was responsible for handling the taxes and the other partner may have only had a limited role in preparing or overseeing the taxes. In the most extreme case, the other spouse may do little more than simply sign off on the return while trusting that his or her partner prepared the taxes thoroughly and accurately.

At some point, the spouse who participated only minimally in the tax preparation process may suspect that his or her spouse may have understated income, overstated deductions or exemptions, or otherwise violated the tax code or committed tax crimes. The innocent taxpayer does not want to remain liable for these outstanding tax debts and penalties because he or she did not create them or cause them. It may be appropriate for a spouse in a spouse in this or a similar position to file for innocent spouse relief.

To apply for innocent spouse relief a taxpayer must file Form 8857 with the IRS. The form must detail and explain why the taxpayer believes that he or she is entitled to such relief. By filing Form 8857 you are asking the IRS to establish a separate tax liability for you that is separate and apart from that of your current or soon-to-be former spouse, or ex-spouse. On the form you must provide information regarding your role in the tax preparation process, whether you were aware of the income, if you had reason to know about the inaccurate statements on the tax form. Depending upon the type of tax relief requested, the filing taxpayer may be required to prove that it would be unfair to hold him or her liable for the tax liability. Whether something is fair or unfair can be highly subjective, but the IRS has provided criteria to help in making this determination. Elements the IRS will examine to determine whether it would be fair to impose the tax against the spouse filing for relief include:

  • The nature of the erroneous item or items on the tax filing
  • The value of the erroneous item or items relative to the remaining items on the tax return
  • The level of participation by the filing taxpayer in the mistake or scheme
  • The filing spouse’s experience in business dealings
  • The filing spouse’s educational history
  • The financial circumstances of each spouse
  • Whether the filing party failed to ask reasonable questions about the return prior to authentication.
  • Is the understatement part of a recurring pattern or an isolated incident?

All of these items will be considered as part of the inquiry as to whether it would be fair to impose the tax liability and decline to provide relief. However other additional requirements apply. For instance, an application for relief must, generally, be filed within two years of the first collection action taken by the IRS, but there are exceptions.

Tax issues after a divorce?
While the standards to be granted innocent spouse status are high, taxpayers are entitled to appeal an IRS determination that is not in their favor to the United States Tax Court. The Brager Tax Law Group can assist you in filing either an initial application for innocent spouse status or in preparing an appeal. By securing this status you may be able to not only resolve the current debt, but will also bring most enforced collection activity to a halt. However, the extent of the relief even if granted can vary based upon the type of relief granted, the terms of the divorce decree, and even the timing of the divorce, and the division of assets. For a confidential tax consultation call our firm at 800-380-TAX-LITIGATOR today or contact us online.

Completion of tax form.

If you are living in the United States it can be difficult to miss the numerous announcements and pronouncements of the impending April 15th tax deadline. And yet, every year thousands of US taxpayers will fail to file and pay taxes.

There are a variety of reasons for this failure. These reasons can include situations where the taxpayer simply doesn’t want to pay tax and is concealing income. In other circumstances the taxpayer may know that he or she would be unable to pay and thought that concealing income by not filing would help their tax situation. In still other circumstances the taxpayer may be a young person who simply did not realize that he or she had a filing obligation or the severity of consequences that can follow a failure to report and pay taxes.

While taxpayers could have filed IRS form 4868 prior to the tax deadline to extend their filing deadline by 6 months to October 15, 2015, those who failed to file or extend by the original filing date no longer have this option. However there may be options to correct the tax problem and to come back into compliance with the tax system.

Who must file taxes every year?
To start with, if you would like to retain the possibility of receiving a tax refund, you must file a tax return. This is because only those who file their taxes are eligible to receive their income tax refund from the IRS. If you have overpaid your fair share of taxes, the only way to recover this money is to file your taxes.

Aside from those who would like to receive their income tax refund, your level of income determines whether you have an obligation to file taxes. While the filing threshold is adjusted annually, in 2014, all U.S. citizens, legal residents and others with sufficient connection to the United States who had $10,150 or more in income are required to file taxes with the IRS. If you are age 65 or older, you face similar tax reporting requirements, but the income threshold is greater. The threshold is also higher for married persons filing jointly, or for single persons filing as “head of household.” Those who are claimed as a dependent on another’s taxes face a lower reporting threshold because, as a dependent, the taxpayer is unable to claim their own exemption. Thus a dependent taxpayer must file if his or her earned income exceeds $6,200. However, if the dependent’s income is from interest, dividends or other unearned sources the reporting threshold is only $1,000. Those with net self-employment income of $400 or more must also file a tax return.

Expatriates living abroad must file and pay taxes or be subject to penalties and a potential “Customs hold”
The United States is one of two nations in the world that taxes on the basis of one’s citizenship. This means that U.S. taxpayers are obligated to report and pay tax on their worldwide income. This includes expatriates who are not currently living or working in the United States. However for many expats who are overseas and who are not immersed in the culture and information found in the U.S., complying with the numerous tax laws and foreign account disclosure requirements can be extremely difficult and burdensome. Nevertheless, expats must comply with their tax reporting, tax paying, FATCA, and FBAR obligations.

A “customs hold” is one tax enforcement procedure that targets expatriates who return to the United States either temporarily or permanently. A 2014 audit of the program by TIGTA revealed that the program is intended to target delinquent taxpayers who are living in foreign nations and jurisdictions. When the IRS says it is targeting delinquent taxpayers, this means that it is targeting taxpayers that the IRS has already assessed and found to be owning unpaid taxes. This may occur through an IRS correction to a taxpayer-filed tax return or through a non-filer return filed by the IRS on the behalf of the taxpayer. The common factor here is that the IRS has already assessed tax against the taxpayer and found unpaid tax to be due and owing.

If you have an unpaid tax obligation, the IRS many request a customs hold to be input into the Treasury Enforcement Communication System (TECS). Upon being added to this system, the taxpayer will be sent a letter indicating that a tax collection officer has advised the Department of Homeland Security regarding the taxpayer’s liability and that if the taxpayer attempts to enter the United States he or she will likely be interviewed by a customs officer. Typically the Customs and Border Agent will ask the taxpayer for the address that they will be staying at while they remain in the United States. An IRS agent will then likely make contact with you at some point during your stay about the tax liability.

Contacted by the IRS about unpaid tax?
Whether you are an expat or living in the U.S. and have been contacted by the IRS, the Brager Tax Law Group can help you resolve the issue and come back into compliance. To schedule a confidential tax consultation call 800-380-TAX-LITIGATOR or contact us online today.


Most accountants, CPAs, and certified tax preparers are honest, hardworking people who are dedicated to their profession. Most tax professionals simply want to secure the best possible tax deal for their clients while following all best practices regarding accuracy. However some tax professionals may over emphasize their ability secure favorable tax treatment for their clients and may cross the line into overly aggressive tax minimization strategies. Even more troubling, other tax preparers may be corrupted by greed and act dishonestly by improperly obtaining or using client tax refunds or other client funds.

If you are a tax professional, you already understand the devastating impact allegations of this type can have on your professional reputation and livelihood. Therefore any tax professional potentially facing an investigation or referral to the IRS Office of Professional Responsibility (OPR) should immediately retain tax counsel. However laypeople may not understand that mistakes or other improprieties found in tax filings are ultimately the responsibility of the filer.

#1 Tax Lady Indicted for Tax Fraud
Before proceeding any further, it is important to note that this is merely an indictment meaning that charges have been filed and have been presented to the defendant, but they have not yet been proven. The defendant is still innocent under the laws of the United States until prosecutors can prove otherwise. However, this brings us to another important point; the IRS times its announcements of indictments, convictions, and plea deals to coincide with tax time. This approach is intended to deter both tax professionals and taxpayers from taking overly aggressive positions or engaging in questionable tax acts. Furthermore it has the added benefit of making taxpayers more wary so that they are more likely to ask their tax professional tough questions if things don’t seem quite right.

However, according to a press release from the U.S. Department of Justice, this deterrent effect did not prevent a slew of tax crimes from a Kalamazoo, Michigan based business. Federal prosecutors allege that Fontrice Lenee Charles participated in a number of tax schemes while promoting herself as the #1 Tax Lady. The main allegations contained in counts 1 through 25 of the indictment allege that Ms. Charles provided false information to the IRS to ensure that her clients would receive large tax refunds. Prosecutors alleged that Ms. Charles provided false information on 482 tax returns that resulted in excessive deductions of about $2 million. If convicted, Ms. Charles could face up to 5 years in prison, among other consequences, for each of these charges.

Ms. Charles also faces charges for alleged improprieties on her own income tax filings for 2010 and 2011. Prosecutors have alleged that Ms. Charles did not report the income from her tax preparation business in these returns and that she claimed a deceased individual as a dependent. Upon conviction, filing a false return can be punished with a prison sentence of up to 3 years.

Tax filers are also impacted by return preparer fraud

For clients of an accountant, CPA, or other tax professional who is convicted of fraud, providing false information or other improprieties the consequences can be harsh. The taxpayer is responsible for the information he or she provides to the IRS. In fact, when a taxpayer signs or otherwise authenticates their tax return, they are certifying the information contained within the tax filing is true and correct under the penalty of perjury. Even if the taxpayer was legitimately fooled by the representations of the tax preparer, errors will have to be corrected. This may include paying additional tax, interest and penalties to correct an underpayment. If excessive deductions were taken, the money will have to be paid back and additional penalties may also apply. In short, failing to ask difficult questions and make sure what your tax preparer is telling you adds up can lead to significant tax problems that may take years to correct.

Rely on our experience when handling tax issues due to preparer errors
The tax attorneys of the Brager Tax Law Group can provide representation for tax preparers who have been accused of tax fraud, errors or other improprieties. Furthermore we can work with individual tax payers who are simply attempting to return to compliance after discovering a tax problem. To schedule a consultation, 800-380-TAX-LITIGATOR or contact us online.


The Wisconsin owner of several self-help and life development companies received a rather jarring wake-up call when he was convicted on tax crimes and sentenced to a year in federal prison. Eric T. Plantenberg had failed to file taxes for ten years from 2000 to 2010 after he began subscribing to the views of the Church of Compassionate Service. According to court documents the Church of Compassionate Service is a group that advances frivolous tax arguments, chiefly to individuals who are receptive to an anti-tax or anti-government message. Arguments related to and reminiscent of the group’s anti-tax position have been determined to be clearly frivolous by the courts since at least the early 1980s.

What did the tax scam consist of?
It is not uncommon for those promoting tax scams or frivolous tax arguments to associate their argument with a fundamental right and legitimate tax structures. Such an approach can give the frivolous tax argument an air of legitimacy by association and the strength of the fundamental right can cause a layperson to have questions about the extent of rights such as the freedom of speech or religion. In the case of the Church of Compassionate Service, their argument was that a taxpayer could take a religious oath of poverty and become “minister” in their organization. The minister’s income would then flow into the church, operating as a “corporation sole”, thereby relieving the “ministers” of any income, and thus, the obligation to pay or file taxes. The church would then return the money to the “ministers”. The church did not hold religious service or otherwise have any members beyond the “ministers”.

Can I stop filing taxes and paying taxes on religious grounds?
While an attorney or tax professional cannot offer tax advice regarding your specific circumstances without first scrutinizing your tax and financial records, the vast majority of people will not be able to successfully rely on a tax minimization argument like the one above. In fact, for nearly all taxpayers advancing an argument of this type would be considered frivolous. Advancing a frivolous tax argument can potentially be punished by a fine of $5,000, any other accuracy-based civil or criminal tax consequences, a penalty for an erroneous refund, and a civil fraud penalty.

There are extremely limited circumstances where a “corporation sole” argument could withstand scrutiny – chiefly when a bona fide religious leader holds property in the entity for the benefit of the religious organization. But, consider that as early as 1980, the courts had already announced that this type of tax scheme would not be applicable for the majority of filers. In United States v. Peister, the argument that a taxpayer was not liable to file or pay tax after taking an oath of poverty and becoming minister of a church of his own founding was rejected by the courts. In separate 1985 and 1986 cases criminal tax convictions were upheld against defendants who utilized religious entities to avoid tax obligations. In the 1987 case Svedahl v. Commissioner, a $5,000 penalty under § 6673 – Frivolous Tax Arguments – was imposed after defendants argued that purported church entities shielded their income from taxation. In the 2013 Berryman case it was noted that, “[c]ourts have repeatedly rejected similar [corporation sole] arguments as frivolous, imposed penalties for making such arguments, and upheld criminal tax evasion convictions against those making or promoting the use of such arguments.”

What violations and crimes are associated with the failure to file taxes?
Even without advancing a frivolous tax argument, failing to file taxes can constitute a crime or violation.. If this occurs you could be guilty of violating a number of provisions of the tax code including:

  • IRC 6651: It is a violation of the tax code to fail to file or pay taxes. Section (a)(1) discusses the failure to file which can be punished by a penalty of 5 percent, if the failure is for less than a month, or an additional 5 percent per a month thereafter – up to a 25 percent penalty in the aggregate.
  • IRC 6031: this section of the tax code makes it mandatory to file a partnership return. Failures to file these returns is addressed by IRC 6031.
  • IRC 6699: Addresses the failure to file for an S Corporation.

Failing to file taxes by itself, can lead to tax problems including fines and penalties. When those filing failures are further exacerbated by frivolous tax arguments and attempts to conceal the unfiled and unpaid taxes, facing criminal tax charges become increasingly likely. If you have failed to file taxes or are otherwise looking to correct past problems while minimizing the costs of coming back into compliance contact us online or call 800-380-TAX-LITIGATOR today.


Each and every year April 15th brings fear and dread for millions of Americans who fear that they will face a hefty tax liability. Some may even choose to put off the filing by requesting an extension prior to the filing deadline, but the fact remains that the tax will have to be reported and paid at some point. However, for some, their tax return may contain an unexpected surprise: a significant tax refund.

But, if you didn’t expect to receive anything back or if you expected to have to pay, proceed with caution. The refund may be the product on an IRS error. Although the original mistake may be the fault of the IRS, you can still face an audit and other serious tax consequences.

Why are tax refunds issued?
When tax payments are exceeded by the tax liabilities a refund is due. Sometimes a refund is caused by excessive tax withholding. According to the IRS, in 2004, 77% of filed returns triggered a refund. The average refund for that year was $2,100. However, some refunds were significantly higher than this amount. If you receive a refund that doesn’t match your tax return it may indicate that a mistake has been made by the IRS.

You should expect a notice from the IRS within a few days of receiving the refund. If the amount is out of line with what you expected, it is prudent to hold on to the funds and not to spend them until you receive this notice that should explain the refund. If the explanation does not match the refund, you may need to return some or all of the money to the IRS. If you fail to do so the IRS can pursue you for the inadvertently disbursed funds, with interest.

A Mistaken Tax Windfall Can Result in a Prison Sentence
Consider the infamous case of, a Laguna Beach, California man, Stephen McDow who was mistakenly issued an IRS tax refund of $110,000. Mr. McDow found the refund deposited in his Citibank account after the rightful recipient, 67 year old Michelle D., mistakenly provided the IRS with her former bank account number that had been closed in or about 2005. After Mr. McDow received the money, he claimed he thought it was an answered prayer and spent the money to resolve past debts including student loans and expenses from a foreclosure.

Mr. McDow was charged with one felony count of theft of lost property. The potential sentence for the crime was enhanced by the fact that the property was worth over $65,000. Despite the fact that Mr. McDow may not have thought he stole anything he faced a 4 year prison sentence. It pays to be cautious and to wait for an explanation prior to spending a larger than expected refund. In the end, Mr. McDow’s family loaned him the funds to pay back Michelle D, and he was sentenced to 60 days in jail, and 18 months of probation. However if these resources had not been available, the consequences could have been even more severe.

An audit often comes after the refund
This case is clearly an outlier but errors of this type can and do occur and taxpayers must be wary. This is because many people assume that the issuing of a refund indicates approval or, at least, some level of review by the IRS. In reality, the audit can often follow the refund. In fact, in most situations, the IRS has up to 3 years to audit your return. Even if your return has been reviewed and the IRS has corrected math errors, an audit can still occur.

Rely on our experience to resolve your tax problems
The Brager Tax Law group is dedicated to assisting individuals and business with serious tax problems including those caused by an erroneous refund. We can advocate on behalf of the taxpayer and negotiate with the IRS to resolve the issue. To schedule a confidential and initial consultation call 800-380 TAX LITIGATOR or contact us online today.


Temporary employment agencies have become a more prevalent part of the American work experience since the 2007 financial crisis and the difficult economic times that followed. While on one hand, temporary employment agencies can provide workers with an entry point into a new industry, on the other hand they require payment for their placement services that could otherwise be used to pay the worker a higher wage or to hire additional workers. Furthermore, when the temporary agency acts as the worker’s employer, certain duties and acts are required of the employer. Failure to satisfy these tax duties can lead to criminal prosecution and result in a prison sentence or significant monetary penalties.

How can an employer satisfy their obligation regarding business trust fund taxes?

Trust fund taxes are probably most familiar within the context of how a business withholds payroll tax from its employees’ paychecks every pay period. While the exact deductions on your paystub are likely to differ, commonly found ones include those for federal income tax, Social Security and Medicare taxes (FICA), state and local taxes, and voluntary deductions including an IRA or 401(k).

For the federal tax withholdings, the employer is acting as a trustee for the US government by holding these government-owned funds until it pays them over to the government. The important take-away here is that the money is not the employer’s – it belongs to the government. Other duties the employer may have include:

  • Maintaining compliance with workers’ compensation contributions and laws that may be applicable.
  • Providing, as per agreed-upon contractual terms, benefits and fringe benefits to which the employee is entitled. This can include sick pay, vacation pay, retirement plans, life insurance policies, and other benefits.
  • Collecting , accounting for and paying over of Social Security and Medicare taxes (FICA) and federal unemployment taxes (FUTA).
  • Filing quarterly payroll tax return with the IRS.

Can a business be penalized for failures to collect, account for and paying over trust fund taxes?
Yes, a business and its principals can face serious civil and criminal tax consequences for failing to satisfy their duties regarding payroll taxes. In fact, this is exactly what occurred to a family who ran two different temp agencies in Massachusetts. Each of the four family members were sentenced for their tax crimes. The sentences included:

  • Margaret Mathes — was sentenced to 80 months in prison and three years of supervised release.
  • Bosea Prum — The daughter of Ms. Mathes, Ms. Prum was sentenced to two years in prison and three years of supervised release.
  • Sam Pich — Bosea Prum’s brother-in-law was also sentenced to two years of prison and three years of supervised release.
  • Thaworn Promket — Ms. Prum’s husband faces one year and a day in prison and three years of supervised release.

All of the defendants pleaded guilty to conspiracy to defraud the IRS and mail fraud. They also pleaded guilty to structuring their monetary transactions solely for the purposed of avoiding tax reporting requirements. In addition to the charges that were common to all defendants, Ms. Prum also pled guilty to the filing of false employment tax returns and other offenses. Mr. Pich pled guilty to 17 counts of assisting in the filing of false employment tax returns. Pruomket pled guilty to an additional two counts of structuring and seven counts of filing false employment tax returns.

Aside from the prison sentences imposed, the defendants also owe more than $6 million in workers’ compensation fees and employment taxes. Ms. Mathes and Ms. Prum have been ordered to pay $100,000 within the next 45 days. Ms. Prum and Mr. Promket also ran into trouble with their personal taxes and have been ordered to pay back more than $500,000 to resolve underpayments of tax.

Rely on our experience resolving payroll tax issues
Problems with collecting, accounting for and paying over payroll trust fund taxes can lead to serious tax problems. The Brager Tax Law Group is dedicated to correcting Federal and California payroll tax issues and other serious tax concerns. To schedule a confidential consultation, call 800-380-TAX LITIGATOR or contact us online.