A double-Header of Canadian tax dodgers

[Burnaby49]

The two cases I'm covering have nothing directly in common except, of the three tax decisions released by my Canadian tax reporting service today, two are tax protester/freemen/don't want to pay/whatever types.

The first is Haynes, citation:

http://decision.tcc-cci.gc.ca/en/2013/2 ... cc229.html

The appellant was out of time on filing an appeal for his tax assessments and gross negligence penalties and requested that the court give him an extension of time. Denied. As I stated in an e-mail I sent on this case, I'd argue that it is not necessarily the best defense to be represented by your father who argues that the Income Tax Act is not validly enacted, demand that the court prove the tax act is valid legislation, then boast that his tax knowledge, and approach to tax law, is equivalent to those of the Fiscal Arbitrators.

For you non-Canadians the Fiscal Arbitrators is a group (see link below) who:

Fiscal Arbitrators (“FA”) persuaded many Canadians to file tax returns or adjustments to previous year’s returns in order to deduct fabricated business expenses. Essentially, FA convinces taxpayers that claiming personal expenses against a fictional business will lead to legitimate tax refunds.

Canada Revenue Agency’s (“CRA”) response has been to audit the taxation years at issue, deny the deductions and levy gross negligence penalties pursuant to subsection 163(2) of the Federal Income Tax Act.

http://taxjurisprudence.ca/wp/?p=8

Based on this I'm assuming that Mr. Haynes filed business losses based on his own personal expenses and was penalized for it.

Case Number two is a lower-level Alberta public school employee who tried to claim, relative to her income, huge fictitious business losses.

http://decision.tcc-cci.gc.ca/en/2013/2 ... cc228.html

She was guided in this endeavor by some outfit called Amed Solutions who prepared her 2009 income tax return. Her first line of defense when contacted by the CRA was to tell them that her income and expenses were none of their damned business!

[8] Some of submissions by Amed Solutions are pure nonsense. The paragraph below is an excerpt from the first response given to the CRA auditor.

The terms of the private contract of agency between the free will man commonly called Colleen, of the McLeod family, who is the principal, the contributing beneficiary and the true party of interest for the fictional entity/person/trust called COLLEEN MCLEOD, which, by necessity, has become the agent in commerce for the principal; is not subject to the scrutiny of a third party entity, and therefore; any private dealings between the principal and the agent cannot be released to the CANADA REVENUE AGENCY.

When that didn't fly she fell back on her next line of defense which was that she really didn't have any intent to file false expenses but Amed Solutions said it was ok and Amed was recommended by some solid tax experts:

(c) Ms. McLeod relied on the advice of two friends (Rebecca and Darcy) in deciding to trust Amed Solutions.

Unfortunately for Ms. McLeod she did not get a sympathetic judge:

[31] I am not persuaded by an argument based on sympathy. I accept that the penalty is higher in this case than it would be in others, but the participation of Ms. McLeod in this scheme is reprehensible. The victims in this case are Canadian taxpayers – not Ms. McLeod.

[notorial dissent]

Her first line of defense when contacted by the CRA was to tell them that her income and expenses were none of their damned business!

I'm not sure if that counts as novel, but I think it is the first time I've actually heard it used in a tax case. Otherwise, sounds a lot like a group we had down here, Tax Reliance, or some such, who got some piss poor idiot of a lawyer to issue a tax letter saying they weren't liable for the tax, and then claiming that they were relying on that letter for their actions. You can guess as to how well that worked.

Gee, I can't for the life of me imagine why the judge might be unsympathetic.

[Hilfskreuzer Möwe]

The two cases I'm covering have nothing directly in common except, of the three tax decisions released by my Canadian tax reporting service today, two are tax protester/freemen/don't want to pay/whatever types.

Oh hell - there's more of them. Burnaby49, I think we are looking at the front end of a wave. Porisky Ausf. B?

Bhatti v. The Queen, 2013 TCC 143 (http://canlii.ca/t/fxg04)

[1] "I got greedy" – so acknowledged Mr. Bhatti in explaining how he could file a return claiming a $31,000 refund, an amount promised by a nefarious organization that prepared returns based on fictitious business losses. How often this Court suspects what Mr. Bhatti has blurted outright – greed can all too often be an unfortunate motivator.

Well, at least he was somewhat honest, after the fact.

And it's our friends "Fiscal Arbitrators" again.

[11] ... Mr. Bhatti and his co-workers were drawn to a poster by an organization known as Fiscal Arbitrators, a poster that had been displayed at their workplace. One of Mr. Bhatti’s co-workers, Mr. Bal, confirmed the poster and its appeal to their co‑workers, which led to several of them meeting with Fiscal Arbitrators. This meeting was with Mr. John Gillespie who was later joined by Mr. Larry Watts, who explained that expenses could be claimed to obtain significant tax refunds. Mr. Gillespie and Mr. Watts appeared professional to Mr. Bal and Mr. Bhatti as well as being knowledgeable, one of them even claiming to have worked for some period of time for the Canada Revenue Agency ("CRA"). Mr. Bhatti and his co‑workers were advised by Fiscal Arbitrators to obtain assessments going back 10 years from the CRA. Mr. Bhatti proceeded to do this and took that information to Mr. John Gillespie with Fiscal Arbitrators. Mr. Bhatti was advised that he would get a refund of all of his 2008 taxes that had been remitted through his employment (some $31,000). At some later point, Fiscal Arbitrators provided Mr. Bhatti with a schedule indicating that losses could be used to offset prior years’ taxes to the tune of approximately $103,000. Mr. Bhatti was also advised that he would have to pay $500 for the initial preparation of his return if he wanted to proceed, and ultimately he would have to pay 20% of any refund he received from the CRA to Fiscal Arbitrators, but that the $500 would be taken off that 20% amount. Mr. Bhatti did in fact pay 20% of his $31,000 refund to Fiscal Arbitrators less the $500.

[12] Mr. Bhatti did not sign up right away with Fiscal Arbitrators, but received calls from Mr. John Gillespie pressuring him to do so. He discussed this with both his wife and his accountant, Mr. Sidhu, who both advised against it. At his examination for discovery, Mr. Bhatti acknowledged that both his wife and accountant suggested he would be engaging in fraud: Mr. Bhatti did not have such a clear memory of that at trial.

[13] Mr. Bhatti ignored his wife and accountant and advised Mr. Sidhu not to prepare his 2008 return, and instead he proceeded to have the return prepared by Fiscal Arbitrators. He was sent his tax return by Fiscal Arbitrators, which had yellow stickers where he was supposed to sign. The package included instructions that he was to write "per" before his signature. The return included a "statement of agent activity" showing money "collected as agent for principals" of approximately $1,000,000 with costs of goods sold and expenses of Jivu Construction of $744,000 plus $612,000 for "amount to principal in exchange for labour", leaving a loss of some $477,000. This was sheer nonsense.

[14] Mr. Bhatti forthrightly acknowledged these were all simply made up numbers. He had no idea what they meant and he certainly knew they did not pertain to any of his business or employment income: in fact, he had no idea what it meant other than it would result in a significant return. As he said, "all I was happy about was getting my money". At the time, he paid little attention to the numbers.

[15] Mr. Bhatti signed the return. He never called CRA, a tax lawyer or any other accountant. He maintains he was brainwashed by Fiscal Arbitrators.

Burnaby49, do you happen to know what this "General Procedure" is?

[25] I understand there have been a handful of Fiscal Arbitrators related penalty appeals, all of which have been dismissed, though this is the first such case heard under the General Procedure. No doubt others who have let greed get the better of them share Mr. Bhatti’s concern that the Fiscal Arbitrators principals are truly the ones to blame. Sadly, they were the ones that led the horses to water, that Mr. Bhatti was all too keen to drink.

And the CRA is successful.

Chénard v. The Queen, 2012 TCC 211 (http://canlii.ca/t/fs8np)

Fiscal Arbitrators again. The taxpayer claims he was naive, was not fluent in English, the language used in the promotion, did not understand tax processes because, essentially, he is dim. Nevertheless, gross negligence penalties are appropriate.

Janovsky v. The Queen, 2013 TCC 140 (http://canlii.ca/t/fxg03)

Jazz musician is hosed by ... Fiscal Arbitators!

[6] In 2009, he learned about an organization called the Fiscal Arbitrators (“FA”) from his girlfriend’s father, Martin Whitaker. He and Mr. Whitaker attended a meeting in Edmonton sponsored by the FA where he was told that the FA would get him the highest refund possible. There he learned that a natural person did not have to pay taxes and that the fictional person could claim expenses on behalf of the natural person. The “agent” is the natural and the fictional person. According to the Appellant, he was told by a Mr. Larry Watts that what the FA did was legal and was based on their understanding and interpretation of the law.

[7] The Appellant understood that Mr. Watts is an accountant and had worked for the Canada revenue Agency (“CRA”). He described Mr. Watts as a legal expert.

[8] The Appellant paid FA $500 to prepare his 2009 income tax return and promised them 20% of any amount he received from CRA. The FA prepared the Appellant’s return and gave it to him to review, sign and file with the CRA.

[9] The Appellant testified that he didn’t understand that he had claimed a loss of $29,157 or that he had applied for a loss carryback to the 2006 and 2007 taxation years.

[10] He stated that after he was reassessed he tried to contact Mr. Watts but he did not respond. Instead, Alexander Di Mauro, who I gather is also associated with the FA, agreed to help the Appellant with this appeal for a fee of $1,000. Because he did not pay the fee, no help was forthcoming.

[11] In response to a question from me concerning the calculation of expenses which he claimed in his income tax return, the Appellant stated that he did not know how the expenses were calculated and he didn’t ask. He also did not understand what the notation “amt to principal fr agent” meant. He later testified that the amount of expenses consisted of all amounts he had spent for his music business and all of the expenses which he incurred as a student. He did not submit any documents to support his evidence.

[12] It was the Appellant’s position that he trusted the FA and they owed him a duty of care. He has always paid his taxes and he gave the FA all of his documents as he did with H & R Block in prior years. He believed that the representatives of FA were legal tax experts. He was referred to the FA by his girlfriend’s father who is both wealthy and knowledgeable.

But that's not enough to escape gross negligence penalities.

[22] The Appellant said he reviewed his return before he signed it and he did not ask any questions. He stated that he placed his trust in FA as they were tax experts. I find this statement to be implausible. He attended one meeting with the FA in 2009. He had never heard of them before and yet between his meeting with them and his filing his return in June 2010, he made no enquiries about the FA. He did not question their credentials or their claims. In his desire to receive a large refund, the Appellant did not try to educate himself about the FA.

[23] Considering the Appellant’s education and the magnitude of the false statement he reported in his 2009 return, it is my view that the Appellant knew that the amounts reported in his return were fake.

[24] If I am incorrect and the Appellant did not knowingly make the false statement, then I find that he was wilfully blind. If he indeed did not understand the terminology used by FA in his return and if he did not understand how FA calculated his expnses, then he had a duty to ask others aside from FA. In a self-assessing system such as ours, the Appellant had a duty to ensure that his income and expenses were correctly reported. Our system of taxation is both self-reporting and self-assessing and it depends on the honesty and integrity of the taxpayers for its success: R v McKinlay Transport Ltd., 1990 CanLII 137 (SCC), [1990] 1 SCR 627. The Appellant’s cavalier attitude demonstrated such a high degree of negligence of wilful blindness that it qualified as gross negligence: Chenard v The Queen, 2012 TCC 211 (CanLII), 2012 TCC 211.

[25] The Appellant relied on the fact that FA had a duty of care to him. I explained to him that this court does not have jurisdiction with respect to this issue.

R. v. Fischer, 2013 BCPC 154 - see viewtopic.php?f=46&t=9396

[48] As was evident in the Crown’s Exhibit Index, Ms. Rahier organized the material into various categories so that it was apparent where the documents were seized, what the documents were, and what tax year the documents related to. Other sundry documents included seized bank records, documents linking Mr. Fischer to the Paradigm Education Group and Fiscal Arbitrators, both well known tax protestor groups, Mr. Fischer’s identification records, and various corporate and title records. [Emphasis added.]

Well, at least Fischer took the common-sense route and ... uh ... opted for the Sovereign Squamish Government route instead?

Some public reporting on the con (http://www.dioguardi.ca/blog/tax-traito ... y-cra.html). At least the ringleaders are in detention.

And a relates scam, "DSC Lifestyle Service":

http://blogs.windsorstar.com/2013/02/21 ... cial-ruin/

http://www2.canada.com/windsorstar/news ... 7393673e48

http://victomsofdsc.blogspot.ca/

That last resource links this scheme to "DeMara Consulting" and our dear friend ... Donna Marie Stancer: viewtopic.php?f=47&t=9136&p=155902

Yes, I think we shall see more of these.

SMS Möwe

[Burnaby49]

So now Möwe is stepping into tax, my territory, and as the guy being muscled out I regret to say he is doing a damn good job of it. These young know-it-all punks!

General procedure relates to the Tax Court of Canada rules. The Tax Court hears all appeals from income tax assessments, from pocket change issues like Möwe's Mr. Janovsky and his $18,000 gross income to huge complex cases with hundreds of millions of dollars at stake. If you want to while away an idle hour or two try reading this one at coffee break.

2008 TCC 324
2010 FCA 201
2012 SCC 52

The Glaxosmithkline case cited above is an excellent example of how tax cases can proceed in Canada. This was a massive big-money case originally heard at Tax Court. Glaxos lost and appealed to the Federal Court of Appeals. That decision made both sides unhappy so both appealed to the Supreme Court of Canada. The Supreme Court accepted it and ruled against the government but it is not over yet because the Supreme Court sent it back to the Tax Court for a reconsideration of its finding of fact on the value of a drug.

OK, back on topic. There are two types of income tax appeal hearings at Tax Court, informal procedure and general procedure. Same court, same judges, the only difference is the court rules and procedures. General procedure is the standard formal court. The main issues are strict rules of evidence and the appellant must be represented by a lawyer. The informal procedure is much more relaxed. Lax rules of evidence and the appellant can represent himself or designate a non-lawyer agent. Appellants at informal often have an accountant represent them but one of Möwe's sovereign nutcases could conceivably be designated. Husbands sometimes represent wives, that kind of thing. However general procedure must be used when there is more than $12,000 of tax at issue. Taxpayers often forgo their right to judgments in excess of the $12,000 limit in order to be heard at informal. That happened at a case I was involved in last September. If the taxpayer won he would have been refunded more than $12,000 of tax which made it general procedure. He voluntarily waived any right to a refund in excess of $12,000 to allow it to be heard at informal, I assume so he would not have to pay a lawyer. He was instead represented by an ex-accountant who had been expelled from his own professional organization which worked out about as well as you'd expect.

In the cases Möwe cited Janovsky went informal and represented himself. Mr. Bhatti was general, I assume because there was more than $12,000 tax involved. The Sovereign type appellants often chose to go informal procedure so they can self-represent to show the court their genius at tax law or because they can't get a lawyer to stand in front of the court and support their BS theories.

For nit-picker who love going through the minutia of court rules and procedures here is how the Tax Court explains informal and general.

Informal Procedure

http://laws-lois.justice.gc.ca/eng/regu ... OR-90-688b


General Procedure

http://laws-lois.justice.gc.ca/eng/regu ... R-90-688a/

Time for bed, I have to get up early and it's already past midnight.

[Burnaby49]

Another very important distinction between general and informal procedure I forgot to mention. In Canada courts can, and generally do, award costs against the losing party. This is a reimbursement of at least some of the winners legal fees. General procedure judges can award costs but costs are not awarded in informal procedure.

[KickahaOta]

Burnaby, are there any differences between general and informal procedures in terms of what sort of appeals are allowed from the resulting decision? That's one of the key differences in the US Tax Court system between normal tax cases and small tax cases. It sounds like in general the parallels are pretty close. Small tax cases have a dollar cap of $50000 and use simplified procedures. But the result of a small tax case cannot be appealed by either the taxpayer or the IRS, whereas the result of a regular tax case can be appealed to one of the federal Courts of Appeals in the usual way.

[Burnaby49]

Burnaby, are there any differences between general and informal procedures in terms of what sort of appeals are allowed from the resulting decision? That's one of the key differences in the US Tax Court system between normal tax cases and small tax cases. It sounds like in general the parallels are pretty close. Small tax cases have a dollar cap of $50000 and use simplified procedures. But the result of a small tax case cannot be appealed by either the taxpayer or the IRS, whereas the result of a regular tax case can be appealed to one of the federal Courts of Appeals in the usual way.

No restrictions on appeals from either procedure. Either side can appeal both a general or an informal procedure hearing to the Federal Court of Appeal. At that level the taxpayer gets no breaks on procedure, the Federal Court of Appeal is a formal lawyers only court with strict rules of evidence and it awards costs. Generally the Crown doesn't bother appealing an informal procedure decision because, with a maximum of $12,000 tax at stake, it isn't worth the trouble and informal decisions aren't considered precedents.

[Burnaby49]

And another Fiscal Arbitrator case from the Tax Court.

http://decision.tcc-cci.gc.ca/en/2013/2 ... cc235.html

Taxpayers lost badly as always. What I find of interest is that the Brissons agreed to pay Fiscal Arbitrators 60% of any tax refund they got from filing fake losses.

I may have been incorrect in my prior posting where I said that General Procedure rules require taxpayers be represented by a lawyer. This was a General Procedure case and the taxpayers represented themselves.

[Burnaby49]

Almost two years ago I said, in a prior posting in this discussion that;

Another very important distinction between general and informal procedure I forgot to mention. In Canada courts can, and generally do, award costs against the losing party. This is a reimbursement of at least some of the winners legal fees. General procedure judges can award costs but costs are not awarded in informal procedure.

Well I was wrong.

There are two levels of Tax Court in Canada, informal and general. Informal is exactly that, rules of evidence are relaxed, taxpayer doesn't need a lawyer, essentially a streamlined process. Informal can only be used if the amount of tax at issue does not exceed $12,000. Taxpayers who are assessed and are disputing more than this amount often agree that if they win the court will allow them, at most, the $12,000 maximum. If the taxpayer agrees to this limit the case can be heard at informal.

General procedure is a regular court with full court rules. it was my understanding that while the Tax Court can, and does, impose costs against the losing side in general procedure hearings it does not do so in informal hearings. It turns out that it is up to the discretion of the judge and costs can be imposed if the judge gets annoyed enough at the taxpayer's stupidity;

[9] For these reasons, I will be dismissing the appeal. Under the Rules of the Court, in an informal case, I am able to award costs payable against an unsuccessful taxpayer if the appellant has unduly delayed the prompt and effective resolution of the appeal. In addition to my view that continuing to pursue these arguments, many, many Canadians are abusing the process of the Court, I am also satisfied that today Mr. Davis, simply by bringing these arguments forward once again with no prospect for success, unduly delayed the prompt and effective resolution of his appeal. Therefore, I am awarding costs against him in the amount of $1,185, which is the aggregate of the amounts in Rule 11 for preparing for the hearing, filing the pleadings, and the conduct of a day’s hearings.

http://decision.tcc-cci.gc.ca/tcc-cci/d ... 0/index.do