Wilson Tax Law Group - The Newport Beach Tax Attorney Blog: Former San Bernardino Accountant Sentenced to Four...

Wilson Tax Law Group - The Newport Beach Tax Attorney Blog: Former San Bernardino Accountant Sentenced to Four...: The San Bernardino Superior Court ordered an Apple Valley woman to pay restitution of approximately $962,000 to her former employer and more...

Wilson Tax Law Group - The Newport Beach Tax Attorney Blog: Former San Bernardino Accountant Sentenced to Four...

Wilson Tax Law Group - The Newport Beach Tax Attorney Blog: Former San Bernardino Accountant Sentenced to Four...: The San Bernardino Superior Court ordered an Apple Valley woman to pay restitution of approximately $962,000 to her former employer and more...

Former San Bernardino Accountant Sentenced to Four Years in State Prison for Income Tax Evasion

The San Bernardino Superior Court ordered an Apple Valley woman to pay restitution of approximately $962,000 to her former employer and more than $162,000 to the state representing the unpaid tax, penalties, interest, and the cost of the investigation. All income is taxable even embezzlement income. Raeanne Lacasse, 59, was sentenced to four years in state prison for three felony counts, including state income tax evasion and embezzlement with white collar crime enhancement. A San Bernardino construction company employed Lacasse between 2000 and 2010. Lacasse embezzled more than $1.1 million from her employer between 2006 and 2010 by issuing company checks to various third-party vendors for personal expenses and then reclassifying those checks as construction expenses. In addition, she forged payroll checks and deposited them into her personal bank accounts. The majority of the funds went to Lacasse’s home, car, and personal credit cards. Lacasse filed false personal income tax returns for 2006 through 2010, and failed to report more than $780,000 in embezzled income. All income is taxable including income from illegal sources. State tax crimes are often prosecuted by the local district attorney's office. In this case, the San Bernardino County District Attorneys Office prosecuted this case. The San Bernardino County Sheriff’s Department jointly investigated the case with the San Bernardino County District Attorney’s Office and their Criminal Investigation Bureau. It is unclear whether the Franchise Tax Board aided in the investigation, but I would assume that they did. If you have questions about a state tax crime, please contact the Wilson Tax Law Group.

Former San Bernardino Accountant Sentenced to Four Years in State Prison for Income Tax Evasion

The San Bernardino Superior Court ordered an Apple Valley woman to pay restitution of approximately $962,000 to her former employer and more than $162,000 to the state representing the unpaid tax, penalties, interest, and the cost of the investigation. All income is taxable even embezzlement income. Raeanne Lacasse, 59, was sentenced to four years in state prison for three felony counts, including state income tax evasion and embezzlement with white collar crime enhancement. A San Bernardino construction company employed Lacasse between 2000 and 2010. Lacasse embezzled more than $1.1 million from her employer between 2006 and 2010 by issuing company checks to various third-party vendors for personal expenses and then reclassifying those checks as construction expenses. In addition, she forged payroll checks and deposited them into her personal bank accounts. The majority of the funds went to Lacasse’s home, car, and personal credit cards. Lacasse filed false personal income tax returns for 2006 through 2010, and failed to report more than $780,000 in embezzled income. All income is taxable including income from illegal sources. State tax crimes are often prosecuted by the local district attorney's office. In this case, the San Bernardino County District Attorneys Office prosecuted this case. The San Bernardino County Sheriff’s Department jointly investigated the case with the San Bernardino County District Attorney’s Office and their Criminal Investigation Bureau. It is unclear whether the Franchise Tax Board aided in the investigation, but I would assume that they did. If you have questions about a state tax crime, please contact the Wilson Tax Law Group.

Federal Judge Blasts IRS Over "Missing" Emails

As you may recall, in 2013, the United States Internal Revenue Service (IRS) revealed that it had selected political groups applying for tax-exempt status for intensive scrutiny based on their names or political themes. This led to wide condemnation of the agency and triggered several investigations, including a Federal Bureau of Investigation criminal probe ordered by United States Attorney General Eric Holder. Initial reports described the selections as nearly exclusively of conservative groups with terms such as "Tea Party" in their names. Lawmakers called for the resignation of Lois Lerner, who ran the IRS's section on tax-exempt organizations. When Lerner refused to resign, she was placed on administrative leave. She eventually resigned effective September 23, 2013. The investigation continued by Congress and others. Investigators demanded that the IRS produce her emails. The IRS refused to produce her emails and then claimed that they had lost all her emails. This only intensified the investigations. Accordingly, a federal judge on July 10 ordered the IRS to submit to the court a written declaration under oath in the next 30 days about what happened to former IRS employee Lois Lerner’s "lost" emails and any other computer records reportedly lost by the Service. The ruling follows a petition by Judicial Watch, a conservative, nonpartisan educational foundation, for a status conference to discuss the IRS’s failure to fulfill a Freedom of Information Act (FOIA) request for Lerner’s emails that the IRS says it lost (Judicial Watch v. IRS, No. 1:13-cv-1559). Lerner claimed that her emails were lost when her hard drive crashed on July 13, 2011, causing her to lose all her emails sent to recipients outside the IRS from mid-2009 to mid-2011. The emails sought by Judicial Watch cover portions of the same period for which the IRS on June 13, 2014, notified the House Committee on Ways and Means were lost or destroyed. In May 2013, Judicial Watch submitted four separate FOIA requests for IRS communications concerning the review process for organizations seeking tax-exempt status. One of the FOIA requests specifically sought Lerner’s communications with other IRS employees and with any government or private entity outside the IRS regarding the review and approval process for Code Sec. 501(c)(4) applicants from January 1, 2010, to the present. A second request sought communications for the same time-frame between the IRS and members of Congress and other government agencies, as well as any office of the Executive Branch. After the IRS failed to provide the information, Judicial Watch filed a FOIA lawsuit on October 9, 2013. Judge Emmet G. Sullivan also appointed Magistrate Judge John M. Facciola to manage and assist in discussions between Judicial Watch and the IRS about how to obtain any missing records from sources. Facciola is an expert in e-discovery. Sullivan also authorized Judicial Watch to submit a request for limited discovery into the missing IRS records after September 10. The Wilson Tax Law Group is following the investigations. If you have questions or concerns, please don't hesitate to contact us.

Federal Judge Blasts IRS Over "Missing" Emails

As you may recall, in 2013, the United States Internal Revenue Service (IRS) revealed that it had selected political groups applying for tax-exempt status for intensive scrutiny based on their names or political themes. This led to wide condemnation of the agency and triggered several investigations, including a Federal Bureau of Investigation criminal probe ordered by United States Attorney General Eric Holder. Initial reports described the selections as nearly exclusively of conservative groups with terms such as "Tea Party" in their names. Lawmakers called for the resignation of Lois Lerner, who ran the IRS's section on tax-exempt organizations. When Lerner refused to resign, she was placed on administrative leave. She eventually resigned effective September 23, 2013. The investigation continued by Congress and others. Investigators demanded that the IRS produce her emails. The IRS refused to produce her emails and then claimed that they had lost all her emails. This only intensified the investigations. Accordingly, a federal judge on July 10 ordered the IRS to submit to the court a written declaration under oath in the next 30 days about what happened to former IRS employee Lois Lerner’s "lost" emails and any other computer records reportedly lost by the Service. The ruling follows a petition by Judicial Watch, a conservative, nonpartisan educational foundation, for a status conference to discuss the IRS’s failure to fulfill a Freedom of Information Act (FOIA) request for Lerner’s emails that the IRS says it lost (Judicial Watch v. IRS, No. 1:13-cv-1559). Lerner claimed that her emails were lost when her hard drive crashed on July 13, 2011, causing her to lose all her emails sent to recipients outside the IRS from mid-2009 to mid-2011. The emails sought by Judicial Watch cover portions of the same period for which the IRS on June 13, 2014, notified the House Committee on Ways and Means were lost or destroyed. In May 2013, Judicial Watch submitted four separate FOIA requests for IRS communications concerning the review process for organizations seeking tax-exempt status. One of the FOIA requests specifically sought Lerner’s communications with other IRS employees and with any government or private entity outside the IRS regarding the review and approval process for Code Sec. 501(c)(4) applicants from January 1, 2010, to the present. A second request sought communications for the same time-frame between the IRS and members of Congress and other government agencies, as well as any office of the Executive Branch. After the IRS failed to provide the information, Judicial Watch filed a FOIA lawsuit on October 9, 2013. Judge Emmet G. Sullivan also appointed Magistrate Judge John M. Facciola to manage and assist in discussions between Judicial Watch and the IRS about how to obtain any missing records from sources. Facciola is an expert in e-discovery. Sullivan also authorized Judicial Watch to submit a request for limited discovery into the missing IRS records after September 10. The Wilson Tax Law Group is following the investigations. If you have questions or concerns, please don't hesitate to contact us.

Marijuana Dispensaries Who Pay Taxes in Cash Get Penalized

If you are a marijuana business, regardless of whether you are operating within state law, you have major tax and banking headaches.  Banking and most tax laws are governed by Federal law, which deems these activities illegal.  One challenge commonly faced by marijuana businesses is the lack of access to the banking system, because banks don't want to deal with businesses illegal under federal law.

Without banks, dispensaries pay the government in cash, but face a penalty for the cash payments.  This situation highlights the hypocrisy of the government's tax and drug policies, requiring payment on the one hand, punishing you for paying on the other.  A recent case filed in U.S. Tax Court by a Colorado dispensary, Allgreens LLC, is the most recent challenge to this Catch-22 created by the government. Unfortunately, the IRS is probably going to win because it is just following the letter of the law here - a change to the tax or the drug laws is necessary for a fix.

Financial institutions generally refuse to open accounts for marijuana businesses due to the intersection with federal law and, once the bank finds out a customer is involved in marijuana activities, will also drop accounts for the existing customers who have such businesses. 

Banks do not want to risk the FDIC revoking its deposit insurance and other federal agencies cracking down on them for knowingly depositing monies from businesses deemed illegal drug trafficking activities under federal law.

Without many banking options, marijuana businesses are forced to operate primarily in cash. As a result, these businesses may have little option other than to make their tax payments in cash.  This means they are unable to make their deposits through the Electronic Federal Tax Payment System.  The IRS penalizes businesses and people who pay their payroll taxes in cash.   The IRS is assessing a ten percent penalty on marijuana dispensaries for paying their federal employee the only way they can.  

The IRS cannot efficiently deal with large amounts of cash, so it imposes penalties in the payroll tax situation.  This is confounding because these businesses are simply paying their taxes using the same currency created by our federal government, which would be acceptable in other situations (e.g., auctions and individual income tax payments under IRM 21.3.4.7).   Dispensaries want to follow the law and pay over payroll taxes and, due to no fault on the part of the dispensaries, the IRS penalizes them an additional ten percent.  While the IRS has suggested alternative methods for paying their taxes, these are likely inconsistent with federal anti-money laundering laws, requiring the use of unnecessary third parties (the use of additional steps that mask the true nature of illegal income in certain situations can be considered money laundering).

Given these current challenges, the IRS should waive this ten percent penalty for marijuana businesses at least on a temporary basis until there is greater clarity whether a reasonable cause exception is available.  Unless and until these businesses have sufficient access to the banking system to meet their obligations under the Internal Revenue Code, the IRS's imposition of penalties is simply unfair.

If you have any questions, please do not hesitate to contact the Wilson Tax Law Group.

Marijuana Dispensaries Who Pay Taxes in Cash Get Penalized

If you are a marijuana business, regardless of whether you are operating within state law, you have major tax and banking headaches.  Banking and most tax laws are governed by Federal law, which deems these activities illegal.  One challenge commonly faced by marijuana businesses is the lack of access to the banking system, because banks don't want to deal with businesses illegal under federal law.

Without banks, dispensaries pay the government in cash, but face a penalty for the cash payments.  This situation highlights the hypocrisy of the government's tax and drug policies, requiring payment on the one hand, punishing you for paying on the other.  A recent case filed in U.S. Tax Court by a Colorado dispensary, Allgreens LLC, is the most recent challenge to this Catch-22 created by the government. Unfortunately, the IRS is probably going to win because it is just following the letter of the law here - a change to the tax or the drug laws is necessary for a fix.

Financial institutions generally refuse to open accounts for marijuana businesses due to the intersection with federal law and, once the bank finds out a customer is involved in marijuana activities, will also drop accounts for the existing customers who have such businesses. 

Banks do not want to risk the FDIC revoking its deposit insurance and other federal agencies cracking down on them for knowingly depositing monies from businesses deemed illegal drug trafficking activities under federal law.

Without many banking options, marijuana businesses are forced to operate primarily in cash. As a result, these businesses may have little option other than to make their tax payments in cash.  This means they are unable to make their deposits through the Electronic Federal Tax Payment System.  The IRS penalizes businesses and people who pay their payroll taxes in cash.   The IRS is assessing a ten percent penalty on marijuana dispensaries for paying their federal employee the only way they can.  

The IRS cannot efficiently deal with large amounts of cash, so it imposes penalties in the payroll tax situation.  This is confounding because these businesses are simply paying their taxes using the same currency created by our federal government, which would be acceptable in other situations (e.g., auctions and individual income tax payments under IRM 21.3.4.7).   Dispensaries want to follow the law and pay over payroll taxes and, due to no fault on the part of the dispensaries, the IRS penalizes them an additional ten percent.  While the IRS has suggested alternative methods for paying their taxes, these are likely inconsistent with federal anti-money laundering laws, requiring the use of unnecessary third parties (the use of additional steps that mask the true nature of illegal income in certain situations can be considered money laundering).

Given these current challenges, the IRS should waive this ten percent penalty for marijuana businesses at least on a temporary basis until there is greater clarity whether a reasonable cause exception is available.  Unless and until these businesses have sufficient access to the banking system to meet their obligations under the Internal Revenue Code, the IRS's imposition of penalties is simply unfair.

If you have any questions, please do not hesitate to contact the Wilson Tax Law Group.

Orange County's Tax Health - OC CEO's Speech in Newport Beach

The Daily Pilot, in an article by reporter Jill Cowen, covered an appearance by Orange County CEO Giancola in Newport Beach last Thursday in which he talked about the county's taxes.  Due to an improving real estate market, this year's assessment roll of property values up by 6.42% over last year.  The bad news is that Giancola believes the county is subject to some backlash from the state following a law suit the county lost to the state involving allocation of vehicle license fee funds.  As a result, and as a result of an unfair stereotype regarding the wealth of Orange County, Giancola believes Orange County is subject to unfair cuts.

If you need an attorney experienced in property tax issues, you can contact Wilson Tax Law Group.

Orange County's Tax Health - OC CEO's Speech in Newport Beach

The Daily Pilot, in an article by reporter Jill Cowen, covered an appearance by Orange County CEO Giancola in Newport Beach last Thursday in which he talked about the county's taxes.  Due to an improving real estate market, this year's assessment roll of property values up by 6.42% over last year.  The bad news is that Giancola believes the county is subject to some backlash from the state following a law suit the county lost to the state involving allocation of vehicle license fee funds.  As a result, and as a result of an unfair stereotype regarding the wealth of Orange County, Giancola believes Orange County is subject to unfair cuts.

If you need an attorney experienced in property tax issues, you can contact Wilson Tax Law Group.

California Medical Manufacturer Sentenced to Prison for Foreign Bank Accounts in India

A San Jose medical device manufacturer was sentenced yesterday in Federal Court to 6 months in jail, according to a DOJ press release today.  The IRS has also assessed a penalty against him in the amount of $14,229,744.

The sentence is actually relatively light considering the facts of his case, though.  Unlike many who keep accounts offshore for asset protection, Desai's accounts generated significant interest income, more than $1.2 million over 2007-2009.  Furthermore, this is not case of a strict FBAR violation because that interest income was not reported on his returns, causing an under reporting of taxes of about $350,000.

Even in tax cases where a taxpayer accepts responsibility and pleads guilty, an omission of $350,000 would generally fall under offense level 16 (18 under Table 4.1, -2 for acceptance), for a guidelines sentence of 2 years, give or take 3 months.  In this case, Desai went to trial and was convicted by a jury, and the guidelines advise judges to sentence between 2 years and 3 months to 2 years and 9 months.

This case, then, continues the pattern of judges giving relatively light sentences to FBAR offenders.

Wilson Tax Law Group handles criminal tax cases.  The firm also handles voluntary disclosures of foreign bank accounts with the IRS, which, if done early enough, can avoid criminal charges.

California Medical Manufacturer Sentenced to Prison for Foreign Bank Accounts in India

A San Jose medical device manufacturer was sentenced yesterday in Federal Court to 6 months in jail, according to a DOJ press release today.  The IRS has also assessed a penalty against him in the amount of $14,229,744.

The sentence is actually relatively light considering the facts of his case, though.  Unlike many who keep accounts offshore for asset protection, Desai's accounts generated significant interest income, more than $1.2 million over 2007-2009.  Furthermore, this is not case of a strict FBAR violation because that interest income was not reported on his returns, causing an under reporting of taxes of about $350,000.

Even in tax cases where a taxpayer accepts responsibility and pleads guilty, an omission of $350,000 would generally fall under offense level 16 (18 under Table 4.1, -2 for acceptance), for a guidelines sentence of 2 years, give or take 3 months.  In this case, Desai went to trial and was convicted by a jury, and the guidelines advise judges to sentence between 2 years and 3 months to 2 years and 9 months.

This case, then, continues the pattern of judges giving relatively light sentences to FBAR offenders.

Wilson Tax Law Group handles criminal tax cases.  The firm also handles voluntary disclosures of foreign bank accounts with the IRS, which, if done early enough, can avoid criminal charges.

2014 May Meeting of the California State Bar Tax Procedure and Litigation Committee

Joseph P. Wilson, current Vice Chair of the State Bar California Tax Procedure and Litigation Committee, hosted the most recent meeting of the members in Orange County, California.   Check out pictures from the meeting here: http://wilsontaxlaw.tumblr.com/.

2014 May Meeting of the California State Bar Tax Procedure and Litigation Committee

Joseph P. Wilson, current Vice Chair of the State Bar California Tax Procedure and Litigation Committee, hosted the most recent meeting of the members in Orange County, California.   Check out pictures from the meeting here: http://wilsontaxlaw.tumblr.com/.

How long should I keep my tax records?

Clients are always asking me how many years should they keep their tax records. This is a really great question and an important one that everyone should be aware of.   There is much confusion about the rule and it's because the rule is somewhat confusing.  The general rule about how long to keep tax records is that it depends.  No this isn't just another lawyer answer, it really does depend.  It depends on things like what type of record we are talking about.  It also depends on your personal tax situation - are you aggressive on your return or are you conservative on your tax return?  Maybe you fall somewhere in between.

Generally, one should keep their day-to-day tax records for at least 3 years.  Day-to-day tax records include things like DMV vehicle registration, annual medical expenses, annual mortgage interest payments, W-2 and 1099 statements, etc.

However, a client should keep records related to capital assets for the life of the asset. For example, if you own a home and make improvements to it, and have the house for 30 years before you sell it, you should keep records of the improvements, purchase agreement, closing agreement, for at least 33 years!  That's right, you need to keep those records for the entire time you owned the home plus at least 3 years after you disposed of it.

There are some more complicated rules that could apply if you take aggressive positions on your tax return.  For example, the IRS can audit you up to 6 years after you filed your tax return if you failed to report 25% of your gross income, which would constitute a "gross omission."   Also, if you are really aggressive the IRS could assert you committed fraud which would mean there is no time period limitation for the IRS to audit your tax return.  In which case the IRS could go back forever to audit your return.

In a recent case, the IRS applied the 6 year limitation period against an individual who failed to disclose income.   In this case, the individual did not disclose to the IRS a distribution he received from his employee stock ownership plan (ESOP), and so a six-year statute of limitations applied with regard to a deficiency notice sent more than three years, but less than six years, after the taxpayer filed his return.   I have several clients who have ESOPs, which is sometimes used as a tax saving tool for people who have too much income.

In the recent case, the ESOP distributed its assets to its participants’ individual retirement accounts (IRAs). The ESOP did not timely file a Form 5500, Annual Return/Report of Employee Benefit Plan, for any of the relevant years, and the taxpayer did not include the distribution in income on his return for the year he received it.

When the IRS opened an ESOP investigation several years later, the ESOP then filed a Form 5500. The IRS revoked the ESOP’s qualified status, so the distribution to the taxpayer’s IRA was not a tax-free rollover. Other documents filed by partnerships related to the ESOP did not inform the IRS of the distribution, so the income was omitted.  See T.J. Heckman, TC Memo. 2014-131.

 

This just goes to show that you need to be careful when you take positions on your tax return and also that you need to really understand the rules about how long you should keep tax records.  If you have questions or concerns about the contents of this blog, you can contact the Wilson Tax Law Group.   This is what we do for a living and we are more than happy to help you.

 

How long should I keep my tax records?

Clients are always asking me how many years should they keep their tax records. This is a really great question and an important one that everyone should be aware of.   There is much confusion about the rule and it's because the rule is somewhat confusing.  The general rule about how long to keep tax records is that it depends.  No this isn't just another lawyer answer, it really does depend.  It depends on things like what type of record we are talking about.  It also depends on your personal tax situation - are you aggressive on your return or are you conservative on your tax return?  Maybe you fall somewhere in between.

Generally, one should keep their day-to-day tax records for at least 3 years.  Day-to-day tax records include things like DMV vehicle registration, annual medical expenses, annual mortgage interest payments, W-2 and 1099 statements, etc.

However, a client should keep records related to capital assets for the life of the asset. For example, if you own a home and make improvements to it, and have the house for 30 years before you sell it, you should keep records of the improvements, purchase agreement, closing agreement, for at least 33 years!  That's right, you need to keep those records for the entire time you owned the home plus at least 3 years after you disposed of it.

There are some more complicated rules that could apply if you take aggressive positions on your tax return.  For example, the IRS can audit you up to 6 years after you filed your tax return if you failed to report 25% of your gross income, which would constitute a "gross omission."   Also, if you are really aggressive the IRS could assert you committed fraud which would mean there is no time period limitation for the IRS to audit your tax return.  In which case the IRS could go back forever to audit your return.

In a recent case, the IRS applied the 6 year limitation period against an individual who failed to disclose income.   In this case, the individual did not disclose to the IRS a distribution he received from his employee stock ownership plan (ESOP), and so a six-year statute of limitations applied with regard to a deficiency notice sent more than three years, but less than six years, after the taxpayer filed his return.   I have several clients who have ESOPs, which is sometimes used as a tax saving tool for people who have too much income.

In the recent case, the ESOP distributed its assets to its participants’ individual retirement accounts (IRAs). The ESOP did not timely file a Form 5500, Annual Return/Report of Employee Benefit Plan, for any of the relevant years, and the taxpayer did not include the distribution in income on his return for the year he received it.

When the IRS opened an ESOP investigation several years later, the ESOP then filed a Form 5500. The IRS revoked the ESOP’s qualified status, so the distribution to the taxpayer’s IRA was not a tax-free rollover. Other documents filed by partnerships related to the ESOP did not inform the IRS of the distribution, so the income was omitted.  See T.J. Heckman, TC Memo. 2014-131.

 

This just goes to show that you need to be careful when you take positions on your tax return and also that you need to really understand the rules about how long you should keep tax records.  If you have questions or concerns about the contents of this blog, you can contact the Wilson Tax Law Group.   This is what we do for a living and we are more than happy to help you.