Dirty Money

Let's say you need someone to help you do something really important. Would you settle for someone who just Googled it? Would you look for someone with the right professional license? Or would you hold out for the guy who literally wrote the book on whatever it is you need to do? Expertise doesn't guarantee success: great surgeons still lose patients; great lawyers still lose cases; and Super Bowl-winning quarterbacks still throw into double coverage all the time. But sometimes professional prowess is well worth the extra cost.

This week's search for expertise takes us to the University of Miami in sunny Coral Gables, Florida. Bruce Bagley, 73, is a rumpled, jowly professor of International Relations. His field is Latin America, which seems appropriate for a university in a city that feels more like part of Latin America than the United States. His specialty is money laundering. And he's a card-carrying expert — in fact, he wrote the go-to book on the subject, Drug Trafficking, Organized Crime, and Violence in the Americas Today. He's even testified on it before Congress.

Back in 2016, some shady characters in Venezuela found themselves with some dirty money. They looked around for the guy who wrote the book, and they found Bagley. Maybe he wanted a little adventure that day. Maybe he'd just finished binge-watching Ozark. (If so, he really missed the point.) Maybe surrounding himself with all that criminality just eroded his moral compass. As Nietzsche said, "Beware that, when fighting monsters, you yourself do not become a monster. And if you gaze long into the abyss, the abyss gazes also into you."

Whatever the reason, Bagley found himself with a new side gig running a specialized sort of laundromat. It's an easy business to start — you don't need a website, or business cards, or slick brochures. He probably thought he was downright brilliant. What better way to disguise your money laundering business than by being a professor of money laundering? We can just picture him sitting by the phone, waiting for the MacArthur Foundation people to call him with his Genius Grant. Unfortunately, someone else came calling.

Last month, the Department of Justice unsealed an indictment alleging Bagley had opened bank accounts to launder cash from bribes and embezzling. Those accounts received $200,000 in monthly deposits from overseas accounts owned by a Colombian national located in Switzerland and the United Arab Emirates. He passed 90% of the deposits on to a mysterious "Individual-1." Then he wired the remaining 10% into his personal account, which seems a fairly typical commission for fluffing and folding that sort of cash. That 10% added up to almost $300,000 over the course of the scheme.

Bagley may have made a bad choice — but it makes for a great final exam question: "You've been indicted on two counts of money laundering and one count of conspiring to commit money laundering. Each count carries possible tenure of 20 years in a federal facility where most of the laundry consists of orange jumpsuits. What do you do now?" Get your blue books and pens ready!

Although to date the IRS isn't involved in Bagley's case, money laundering often involves tax fraud, too — so the IRS Criminal Investigation unit routinely pursues money laundering crimes. (And what are the odds Bagley reported his side gig, anyway?) Now, we don't have any expertise in that area. We had to Google that 10% commission, honest! But if you're looking for legitimate ways to pay less tax in 2020, you've come to the experts. So call us, and see how much we can save! 

No Business Like Shvo Business

 The lights of Broadway have long shone bright as the show business capital of the United States. (Hollywood may have the movies, but it's just not the same. And Vegas? Puh-leaze.) New York theatres attract millions of visitors and billions of dollars every year. Naturally, sharp New Yorkers have co-opted show business tactics to promote all sorts of unrelated businesses. So now, we have fashion-as-theatre, restaurants-as-theatre, and even real-estate-as-theatre.

Michael Shvo may be the most theatrical real estate guy of all. He started out as a brash Manhattan broker, squiring buyers in a chauffeur-driven limo and trademarking the slogan, "Let's Shvo." He enlisted celebrity designers like Giorgio Armani and musicians like John Legend to help sell showy condos to showy buyers. Now he's reinvented himself as a developer, with current projects designed to make everyone else's projects look like college dormitories, or maybe Soviet-bloc worker collectives.

Shvo is also a noted art collector who favors paintings by Andy Warhol and sculptures by Francoise-Xavier and Claude Lalanne. He paid $14 million to combine two 68th floor condos overlooking Central Park, then stuffed the resulting 4100 square feet full of treasures. (The living room rug is beaver fur.) He dropped another $6 million on an all-white Hamptons house to stuff with more treasures that wouldn't fit in the Manhattan pad. And he's currently developing a 50-acre private island resort in the Bahamas.

So we know that Shvo likes buying showy stuff. It turns out, though, that he doesn't like paying tax on it. Back in 2016, Manhattan District Attorney Cyrus Vance, Jr. indicted Shvo on 28 counts of criminal sales tax fraud. And on April 26, he plead guilty to two of those counts. "Michael Shvo's brand of tax evasion was an art form unto itself," said Vance. "Through ornate ruses — like creating a sham Montana corporation to avoid taxes on a Ferrari — the defendant dodged more than a million dollars in state and local taxes."

Shvo's favorite ornate ruse involved a Cayman Islands company called Shvo Art, Ltd. He told the galleries and auctioneers who sold him art, furniture, and jewelry that he was shipping his purchases to the Caymans, where there would be no tax. Instead, he sent them instead to his Fifth Avenue office or one of his homes.

As for the Ferrari — a 458 Spider that stickers at $230,000 — Shvo set up a Montana LLC to buy it and register it. But he actually drove it in New York, which made it subject to the Empire State's use tax. (Montana has no sales tax and lets LLCs register vehicles, which makes the "Montana license plate scam" a favorite for high-end vehicle buyers. Of course, the rest of the states generally fail to see the humor in that move — California even has a special website for ratting out vehicles with out-of-state plates.)

The guilty plea calls for Shvo to pay $3.5 million in taxes, penalties, and interest. But something tells us he's not particularly worried about his sentencing, scheduled for June 7. After copping his plea, Shvo and his wife, a Turkish actress and model known for her vast collection of one-of-a-kind Barbie dolls (including one dressed by designer Christian Louboutin), left court in a $400,000 Rolls-Royce.

We tell quite a few stories here about celebrities who don't seem to understand the difference between a "tax plan" and a "felony." Sadly, the moral is always the same: you don't have to cheat to pay less. You just have to call us. So what are you waiting for? The curtain is ready to rise on real savings! 

Fast Track to the Presidency

Last week, we talked about the IRS Criminal Investigation unit's Fiscal 2013 annual report. We told you about four of the 2,812 offenders who drew prison sentences for their efforts: the drag racer who applied for $83 million in fraudulent gas tax refunds, the surgeon who "operated" on his tax bill using foreign trusts and shell companies, the Japanese restaurant owner who hid receipts in boxes marked "seasoned octopus," and the prisoner who filed false tax returns for his fellow inmates and sent the refund checks to his mother. But the IRS report detailed over 100 such stories — so, at the risk of beating a dead horse, we couldn't resist sharing just a few more:

• They say everything is bigger in Texas. Apparently that includes public corruption, which is an IRS priority. Abel Limas was a former police officer and state judge in Brownsville who discovered he could supplement his government salary by turning his office into "a criminal enterprise to enrich himself and others through extortion." In 2008, Limas issued a series of pretrial rulings in a case involving a helicopter crash. Later that year, he joined a law firm working on behalf of victims in that same crash. It turns out the law firm had promised him a cool hundred grand, plus a share of their fees, in exchange for those rulings. Now Limas is spending six years in a federal prison camp.

• Whitney Houston once sang that she believed "the children" are our future. But some people believe the children are just another meal ticket. Take Nehemiah Muzamhindo, for example. Customs officials were searching the Zimbabwe native's house for evidence of passport fraud when they discovered he had scammed one of the world's largest children's charities out of $800,000. You think he remembered to pay tax on that money? Special Agent in Charge Erick Martinez, who picked up the case for the IRS, said that Muzamhindo's crime was worse than the usual fraud because "he diverted money intended for children for his own greedy purposes." Now he'll spend six years in federal prison. Even worse, according to Muzamhindo's lawyer, the case has brought him "a great deal of shame"!

• You've heard that the family that plays together, stays together. But some families take that advice a little too far. Angela Myers operated Angie's Tax Service in Baton Rouge, Louisiana. She used her daughter's preparer identification number to file false returns using names and social security numbers stolen from a nearby nursing home. Apparently, she needed the money to pay for a sweet RV. Now she's spending 11 years, not traveling in the RV, but in a prison in Alabama where she won't even need a driver's license. But wait (as they say in the TV infomercials) . . . there's more! The IRS is also investigating Angie's son for threatening a witness in the case!

• Lots of Americans grow up wanting to be President. The usual path is to spend years working your way up the political ladder, then run for the office. But who has time for all that? Alabama's Tim Turner declared that our current government is an illegitimate sham, then proclaimed himself President of the Republic for the united States of America (RuSA). Next, he started teaching fellow citizens how to pay their taxes with fake bonds. (Apparently, special paper stock, financial terminology, and elaborate borders help make them at least look legit.) Oh, and when one of his followers asked what really happened when that spaceship crashed near Roswell back in 1947, he let the cat out of the bag that every industrialized nation on earth has a treaty with the aliens! Now he'll have 18 years to negotiate his own agreement with the little green men.

We realize people are willing to go a long way to pay less tax. But you don't have to set up your own government! There are hundreds of legitimate ways to work within the system we've already got. You just need a plan. So call us for your plan, before the aliens come and take over for good!

Seasoned Octopus

Most of the Internal Revenue Service's 90,000 employees are financial bureaucrats, working to collect the taxes that finance our government. But the Criminal Investigations unit, or IRS-CI, is an elite division of 3,700 financial crimefighters dedicated to protecting those taxes. Last month, they released their Fiscal 2013 annual report. And business sure is booming! In 2013, IRS special agents initiated 5,314 investigations (up 3.7% from 5,125 in 2012) and recommended 4,364 prosecutions (up 17.9% from 3,710 in 2012). There were 3,865 indictments and 3,311 convictions (the IRS doesn't take someone to criminal court unless they're pretty sure they can win). And 2,812 miscreants won themselves the proverbial "three hots and a cot" for terms averaging 25 months.

Most of IRS-CI's targets are plain old crooks. But some of them are just so awkwardly entertaining, we had to share their stories:

• Every time you pump a gallon of gas, you pay 18.3 cents in tax to build and repair federal roads. But there's a little-known exemption that lets off-road users like drag racers apply for a refund. Evan Knoll, the "King of Drag Racing" and owner of Torco Racing Fuels in Grand Rapids, Michigan, saw that exemption and smelled opportunity. (Maybe it was something in the fumes?) Knoll claimed $83 million in refunds over nine years from 1999-2008 before pleading guilty to nine counts of fraud and drawing a 14-year sentence. Now that's some high-octane cheating!

• Edward Picardi was a surgeon in South Dakota, who spent way too much time performing liposuction on his tax bill. First, he ran his income through a series of entities organized in Ireland, Hungary, Cyprus, the Isle of Man, Jersey, and Guernsey. (Really? Hungary? Were the Cayman Islands just too obvious?) Then he deposited it into various foreign accounts he controlled through a New Zealand trust, in the name of one last corporation established on the delightfully sunny island of Nevis. After several weeks in trial, the judge in Picardi's trial surgically removed five years of freedom from the good doctor's future. Without anesthesia. Ouch.

• Michael Chen owned the Fune Ya Japanese Restaurant in Richmond, California, just north of Berkeley. (Apparently the fried banana dessert was a hit.) Chen kept detailed records of his daily sales in 26 boxes marked "Seasoned Octopus." But he never reported his cash sales to the IRS. Oops. He also paid his employees $548,919 in cash without sending the IRS any payroll tax on their income. Another mistake. Now the long tentacle of the law has got him for 33 months, enjoying his meals in a place where they don't serve octopus at all.

• You might think that if you're already stuck in jail, you can't commit tax fraud. Well, you would be wrong. Michael Joseph III was feeling "underemployed" at the Apalachee Correctional Institution in the Florida panhandle when he hit upon one of those brilliant ideas we all wish we had thought of. Why not while away those idle hours filing false tax returns using other inmates' names and social security numbers? Yeah! And while we're at it, why not have the IRS mail the refunds to momma's house? Unfortunately for our enterprising would-be accountant, prison officials discovered the scheme during a routine mail search. Joseph pled guilty to 41 various offenses and drew another 63 months behind bars. At least now he's doing time in a classy federal joint instead of some loser state can.

We all know taxes have gone up this past year, and we all know nobody enjoys paying. That's the bad news. The good news is you don't have to risk a visit from the tax cops to pay less. You just need a plan. There's no shortage of court-tested, IRS-approved strategies for paying less. So if you're still worried about April 15, and you haven't asked us about our planning service, what are you waiting for?

Story Problems for Grownups

Back in grade school, you did all sorts of math problems. You started out with drills to learn your basic addition, subtraction, and multiplication. You learned long division (ugh). You moved on to fractions. And all along the way, as part of your teachers' efforts to convince you that it all matters here in the "real world," you did "story problems." Remember those?

Well, now you're all grown up, so here's a grownup story problem to ponder:

You're an IRS auditor, toiling away to protect the government's revenue base. Then you decide to leave "the dark side" and start your own practice. Things start off great, but you want more. So you mock up some fake tax returns, tell some clients they owe $11 million, and have them make payments into a bogus "trust account." Then you take the money for yourself, make some home improvements, buy a beach house in Mexico, pay to use a private plane, pay $2 million on your personal credit cards and loans, and make some investments. It's good to be rich, isn't it? But now there's a teensy-weensy little problem. The IRS is on to you, your clients are hopping mad, and two of them are scheduled to testify against you! What do you do?

Well, if you're Steven Martinez of Ramona, California, you send your limousine driver (!) to offer a hit man $100,000 to take out the clients. But you don't just whisper some names in his ear and slink back home. Oh, no. Because you're an accountant, you're thorough. Right? So you surveil the victims and watch them to document their habits. You give the hit man packets with photos of the victims and their homes and detailed instructions and information about them. (How else do you think an accountant would go about whacking his clients?)

Unfortunately, Martinez should have followed his hit man, too. Then Martinez would have seen him scurrying straight to the FBI. (Oops.) It's tough to deny the charges when the Feds have you on video, "cool and calculating," telling your killer to buy two guns — and a silencer! (Try explaining that when it hits Youtube and goes viral!)

Last year, Martinez pled guilty to charges including murder-for-hire, witness tampering involving attempted murder, solicitation of a crime of violence, mail fraud, filing false returns, Social Security fraud, aggravated identity theft, and money laundering. (You've got to wonder, if he had jaywalked to meet with the hit man, would they have charged him with that, too?) On April 12, 2013, District Court Judge William Q. Hayes pretty much threw the book at him, sentencing him to 286 months in prison (plus five years supervised release if he ever makes it out) and ordering him to pay more than $14 million in restitution. Let's see what sort of "home improvements" Martinez can make with the 11 cents/hour he makes stamping license plates!

As tax professionals ourselves, we're appalled at how Steven Martinez betrayed his clients. We're proud to affirm our commitment to helping you save tax within the bounds of the law — because we know just how many legitimate opportunities there are to save. We're pleased to offer you the plan that helps you save taxes and sleep soundly at night. So call us for that plan!

photo courtesy salon.com

Hit 'Em Where It Hurts

When people misbehave — badly enough — they go to jail. But when corporations misbehave, they can't go to jail. So they pay fines instead. Recent years have brought a wave of enforcement actions for various corporate offenses, from banks ripping off customers, to investment managers trading on inside information, to drug companies poisoning patients, to energy producers polluting public waters.

Corporations usually find a little bit of silver lining in those monster settlements. They get to deduct the payments on their taxes! You like that? You and I get to help pay the freight for their cheating!

Now, Section 162(f) of the Internal Revenue Code states that "no deduction shall be allowed . . . for any fine or similar penalty paid to a government for the violation of any law." But defining a "fine or penalty" isn't as obvious as you might think (and it gives corporate tax lawyers the chance to bill a lot of hours arguing about it). Few of those settlements, especially in the Wall Street arena, require offenders to admit wrongdoing, and most include some form of restitution or disgorgement of profit. Those amounts aren't considered a fine or penalty, so they remain deductible.

What does that mean for our friends at the IRS? Well, when Exxon-Mobil paid $1.1 billion to settle claims over an oil spill in Alaska, it actually cost them just $524 million after tax. When Bank of America agreed to pay $335 million to settle charges that they had discriminated against black and hispanic borrowers, they got back up to $117 million of it in tax savings. Similarly, when credit card giant Capital One paid $210 million to resolve charges that they had duped customers into paying for credit monitoring and other add-on services, they saved millions in tax.

But now it looks like Uncle Sam is getting fed up with subsidizing the settlements by cutting off those juicy tax breaks. Now he's working to hit 'em where it really hurts!

• Back in November, oil producer BP agreed to pay $4 billion to settle the Deepwater Horizon spill. Ordinarily, that might have meant a fat tax deduction to cushion the blow. But no such luck this time — the settlement included language explicitly defining the damages as "punitive," which prohibits BP from deducting any of that amount from their U.S. taxes.

• Earlier this month, Swiss bank UBS paid $500 million to settle charges they manipulated the "LIBOR" interest-rate benchmark. Again, that settlement prevents UBS from deducting the penalty on their taxes.

• Most recently, hedge fund manager Philip Falcone agreed to admit wrongdoing, accept a five-year ban from the securities industry, and pay an $18 million nondeductible penalty. Denying a tax deduction seems especially appropriate in Falcone's case, since federal regulators said his actions "read like the final exam in a graduate school course in how to operate a hedge fund unlawfully."

Tax policy questions like these can sometimes sound boring and pointless. But this one has real consequences. On the one hand, some experts argue that letting miscreants deduct settlements on their taxes encourages companies to settle out of court and avoids ongoing litigation. On the other hand, consumer advocates respond that tax-deductible settlements are a slap in the face to taxpayers, who wind up footing 35% of the tab. What do you think? Do the tax deductions still serve a legitimate purpose? Or should Washington keep up the new hard line?

Photo coutersy treehugger.com

What's Not to "Like"?

Let's imagine, just for a minute, that you decided on a new line of work: ripping off the IRS. How do you think you  so if U think indicting me will B easy it won't, I promise you!

Wilson is a 27-year-old mother of three in Tampa, a seventh-grade dropout with 40 previous arrests under her belt. She recruited friends and family to steal Social Security numbers and file false tax returns, directing the very real refunds to reloadable debit cards. She stole so much that authorities dubbed their investigation "Operation Rain Maker" because of all the cash raining down on the suspects' mailboxes. Even more incredibly, they first caught wind of her scam in 2010 when they noticed a drop in illegal drug dealing in the area. Their theory, which proved correct, was that Wilson's henchmen had abandoned their previous careers trading agricultural commodities and switched to an easier and more lucrative enterprise. (And really, who wouldn't want to trade standing on a hot Tampa street corner for a cushy, air-conditioned indoor gig?)

Wilson treated herself to just the sort of lavish lifestyle you'd expect from the queen of tax fraud. She spent $30,000 on a party to celebrate her son's first birthday (including carnival rides for guests to play on). She spent $90,000 for an Audi A8L sedan. And she filled her house with pricey purses, shoes, and flat-screen TVs.

But the party came to an end at the hands of a joint task force involving the Tampa Police Department, IRS Criminal Investigations unit, the U.S. Secret Service, the U.S. Postal Inspectors, and the Hillsborough County Sheriff's Office. In April, Wilson pled guilty to wire fraud and aggravated identity theft. Last week, a federal judge sentenced her to 21 years in prison and ordered her to pay $3.1 million in restitution. But authorities believe she and her gang actually stole more than $20 million in all.

We can all assume that since Wilson made her money stealing from the IRS (and, by extension, from you and me), she wasn't reporting her income to the IRS. Fortunately, our proactive planning service lets you beat the IRS without risking 21 years behind bars. And we're so proud of the work we do, we love when you brag about it on Facebook. So if we've done a plan for you, why not go and tell your friends about it now? And if not, what are you waiting for — call us now and let's set it up!

Who's Afraid of the Big Bad Wolf?

Our federal government devotes millions of man-hours and billions of dollars each year to law enforcement. The FBI, DEA, and Bureau of Alcohol, Tobacco, and Firearms, along with lesser-known agencies like the U.S. FDA's Office of Criminal Investigations (pursuing criminal violations of food and drug laws), the Department of Commerce's Office of Export Enforcement (responsible for keeping dangerous technology out of the wrong hands), and NOAA's Fisheries Office for Law Enforcement (charged with protecting the ecosystem and marine life) all strike fear in at least somebody's heart.

But there's one agency that has an almost mythical power in most minds, and that's the IRS. The tax cops put Pete Rose and Wesley Snipes in jail. They put Al Capone in jail, for pete's sake! We'd all better watch out, right? Well, you be the judge. Last week, the IRS Criminal Investigation unit released their Fiscal 2012 annual report -- and the findings might surprise you. Here are some of the highlights:

• Investigators cover a wide variety of tax-related crimes beyond the garden-variety tax fraud and celebrity "failure to file" cases that command the biggest headlines. Their work also includes identity theft, offshore tax evasion, tax treaty cases, tax protestors, money laundering, terrorist financing, public corruption, and drug enforcement cases.

• Business is booming -- but numbers are still relatively small considering the 100 million+ returns the IRS collects every year. For Fiscal 2012, the Service initiated just 5,125 investigations, up from 4,720 in 2011. Out of those 5,125 investigations, they recommended 3,710 prosecutions (IRS investigators don't actually prosecute offenders themselves; they turn that job over to the Department of Justice.) There were 3,390 indictments and 2,634 convictions -- the Feds generally don't take you to court if they're not already sure they can win. 2,466 lucky winners drew all-expense-paid trips to "Club Fed."

• Investigators spend a lot of time chasing down crooked tax preparers. For 2012, they investigated 443 suspicious-looking characters, recommended 276 prosecutions, and won 178 convictions. The average convicted preparer earns 29 months in jail, up from 25 months in 2011.

• The IRS continues to uncover people who really just ought to know better. Take Jimmy Dimora, for example, a former Cuyahoga County (Ohio) Commissioner, who found himself looking for ways to supplement his county pay. Dimora took more than $166,000 in bribes to steer contracts to allies, get jobs and raises for associates, intercede with judges on pending cases, and generally abuse his office. Naturally, he forgot to pay tax on those bribes. Jimmy wound up drawing a 336 month sentence for his sideline business. (For those of you who try not to use math on a daily basis, that's 28 years behind bars.)

Do any of these points strike a chord with you? Of course they don't. The average American has nothing to fear from the Criminal Investigations unit. As far as most of us are concerned, the IRS is just the federal government's collection agency, nothing scarier. You've got to do something really outrageous to draw one of those 5,000 case investigations.

We all know taxes are going up this year, and we all know nobody wants to pay. That's the bad news. The good news is you don't have to flirt with IRS Criminal Investigations to pay less. You just need a plan. There's no shortage of court-tested, IRS-approved strategies for minimizing your tax. So if you're still smarting from April 15, and you haven't asked us about our planning service, what are you waiting for?