Ex IRS employee Thomas Richardson gets 9 years

[Judge Roy Bean]

http://blogs.star-telegram.com/crime_ti ... turns.html

A former IRS employee accused of filing nearly $8 million in fraudulent tax returns was sentenced Thursday to 105 months in federal prison after pleading guilty to theft.

[Number Six]

That fraudster was operating out of Texas. Lots of former government employees are able to take their government credentials to try to make big bucks, some by doing things that are legal but unethical as lobbyists, others by both breaking the law and all the rules of civilization. We will be seeing the usual drumbeat of tax convictions in the next two months or so. It looks like the government has new and powerful tools to do their jobs based on today's New York Times:

http://www.nytimes.com/2012/02/12/busin ... ers&st=cse

"Sidney Kess, a certified public accountant and tax lawyer at Kostelanetz & Fink in New York, says the I.R.S. now has an easier task in detecting delinquent taxpayers because it receives electronic reports of far more kinds of income than it did several years ago."

[Famspear]

"Sidney Kess, a certified public accountant and tax lawyer at Kostelanetz & Fink in New York, says the I.R.S. now has an easier task in detecting delinquent taxpayers because it receives electronic reports of far more kinds of income than it did several years ago."

Sidney Kess has been around a long time. My very first continuing education seminar -- just a few weeks right out of college over 30 years ago -- was a federal tax seminar in Houston presented by Sidney Kess.

[Number Six]

Also from the article:

"The I.R.S. investigates about a million “nonfiler situations” a year, Mr. Burke said. But it does not prepare a substitute return for everyone that it believes failed to file. People in the underground economy do not leave a trail that can contribute to such a return, tax experts said. If those people are caught, they may not get an official printout in the mail. A visit from someone who dangles handcuffs from a belt is more likely."

So presumably the "underground economy" they are talking about is illegal activity, i.e. drugs, extortion, rackets, etc.. Unlikely a non-filer without any other illegal tie-ins will get a visit from C.I.D..

[The Observer]

So presumably the "underground economy" they are talking about is illegal activity, i.e. drugs, extortion, rackets, etc.. Unlikely a non-filer without any other illegal tie-ins will get a visit from C.I.D..

The underground economy typically includes illegal activity, but can also include activities that are cash-based and do not get reported to the IRS through the usual W-2, 1099 or 1098 series of forms. So those who clean pools, do lawn and yard maintenance, "handyman" work, etc can fall off the radar unless they do things with their money that would indicate that they have income: own real estate, make interest payments, take expensive trips, have expensive assets (vehicles, boats, etc.), or unexplained investments.

The likelihood of a CI visit (the operating unit division dropped the "D" a while back) has little to do with whether the activity is criminal; the very act of tax evasion is a crime in of itself. .
But the key is whether there is enough evidence to prove beyond a reasonable doubt that the defendant committed a crime with affirmative acts and willfulness. Given the fact that the DOJ budget for tax crimes is about 5%, it means that IRS has to pick its targets carefully. Going after the pool cleaner who has not paid $10,000 in taxes for the last 15 years and is living in a rented mobile home is not as likely to reach conviction as opposed to a Leona Helmsley situation.

CI during the 80's got distracted by involving themselves in drug investigations which were glamorous and easier to investigate and get convictions. This has given the impression that CI only gets involved in chasing down organized criminal activity, but that is not always the case.

[.]

Mr. Donnelly recalled the case of a client whose sale of hundreds of thousands of dollars’ worth of stock was reported to the I.R.S. The agency sought tax on that amount on a substitute return, having no way to know that the client earned almost no profit on the sale.

Reminiscent of "gottago's" unreported stock-basis problem, apparently resolved after she provided the information on the net trading loss. But that will always be a problem if you don't file accurately, or at all.

So presumably the "underground economy" they are talking about is illegal activity, i.e. drugs, extortion, rackets, etc.. Unlikely a non-filer without any other illegal tie-ins will get a visit from C.I.D..

Not at all.

When Kess says "it [the IRS] receives electronic reports of far more kinds of income than it did several years ago" he is also quite likely referring to the new 1099-K, required beginning for tax year '11. That would be as in reports of payments from merchant credit card accounts, PayPal, Google, and other on-line payment services.

Which will catch literally tens of thousands of people who thought that they were "underground" and operating under the radar, selling perfectly legal stuff which has nothing to do with any illegal activity at all. The only illegality which might arise would be from a failure to report the activity and any profit on a tax return.

If they fail to respond to the usual inquiries, they might eventually get a visit from CI, although the IRS people and tax practitioners around here would know much better than I about how that scenario might evolve.

My opinion is that the 1099-K requirement of 200 transactions and 20K of gross proceeds is WAY too high. There's no reason it shouldn't be the same as the 1099-MISC reporting requirement of $600 of business payments for services (including materials) to a non-corporate entity, or something in the same general range.

Maybe $2-3K or something like that, to eliminate the equivalent of "yard-sale" sellers, but with no minimum number of transactions requirement, just gross proceeds.

From what I can tell, half of the "underground" non-reporters (and they're all so smug) who would be affected by it aren't even aware of the new requirements for '11. If the 1099-K requirement was in line with 1099-MISC, the new revenue (or at least the new deficiency notices) would set some sort of record. There may be a good bit of chaff, but there's a hell of a lot of wheat out there, too.