A special kind of stupid

[Demosthenes]

Tax Preparer Set up Fake ‘IRS’ Bank Account
By WebCPA
August 10, 2009

Tax preparer David Canales was arraigned in a San Diego federal court on an 18-count indictment charging him with mail fraud, wire fraud and tax evasion after he created checking accounts named after the IRS and the California Franchise Tax Board.

Canales, 53, was arrested Wednesday by agents from the IRS’s Criminal Investigation division and the Treasury Inspector General for Tax Administration. Between 2001 and 2008, he operated a tax preparation and bookkeeping management business in Chula Vista, Calif., called Executive Management Services. He also owned and controlled two bank accounts under the fictitious business names, “International Recovery Systems/IRS” and “Freight Transport Brokers/FTB.”

The indictment alleges that Canales directed his clients to write checks payable to the “IRS” and “FTB.” According to the indictment, his clients believed that they were paying the Internal Revenue Service and the California Franchise Tax Board for the tax they owed and that Canales would submit the checks along with their tax returns to the relevant taxing authorities. However, instead of forwarding his clients’ checks and the tax returns to the IRS and FTB, Canales allegedly deposited the checks into his own “IRS” and “FTB” bank accounts and either did not submit the clients’ returns to the relevant taxing authority or submitted different returns showing little or no tax due and owing.

The indictment also charges Canales with willfully evading taxes for the years 2003-2007. If convicted, he faces up to 45 years in prison and a fine of $600,000.

[Pottapaug1938]

This reminds me of Clifford Irving's phony biography of Howard Hughes, and the bank account in the name of "Helga R. Hughes" which was set up in the process.

[Nikki]

There is more than one ex-IRS employee who has served jail time for intercepting income tax payments, simply changing IRS to MRS, adding a last name and depositing it in their account.

That's one reason why the government requests that the checks be made payable to US Treasury.

[Joe Dirt]

This to me is beyond amazing... How many years ago was it that the "correct" payee for tax debts is "United States Treasury"?

[fortinbras]

There was a period, until about 20 or 25 years ago, that you could make your tax checks payable to "IRS" instead of to "US Dept of Treasury". The switchover happened because they found that one of the hundreds of people processing tax mail had swiped a bunch of checks, overwritten the IRS to make it look like MRS and added her name, so the checks looked to be made out to "MRS. SMITH" or some such. For thousands of dollars each. As proof of her criminal genius, even though she had enough money to skip to a foreign country, she was still working in the IRS mail room when they came to arrest her. Since then the govt wanted the checks made payable to something less easy to fudge.

[ASITStands]

There was a period, until about 20 or 25 years ago, that you could make your tax checks payable to "IRS" instead of to "US Dept of Treasury". The switchover happened because they found that one of the hundreds of people processing tax mail had swiped a bunch of checks, overwritten the IRS to make it look like MRS and added her name, so the checks looked to be made out to "MRS. SMITH" or some such. For thousands of dollars each. As proof of her criminal genius, even though she had enough money to skip to a foreign country, she was still working in the IRS mail room when they came to arrest her. Since then the govt wanted the checks made payable to something less easy to fudge.

There's an apocryphal story how a man took a "shirt off his back" and made it out to the "Internal Revenue Service," and the Treasury cashed it as a legitimate check.

I doubt that's true, but I don't doubt some IRS employee modified IRS to become MRS.

Was there any court case connected with the incident or was it just internal?

[Pantherphil]

I am reminded of a favorite short story:

Haddock v. Inland Revenue (from A.P. Herbert’s Uncommon Law)

A Summary of the Case (from Wikipedia)

The case involved a Mr. Albert Haddock, who was often an ever-ingenious litigant in Herbert's writing.

In this misleading case, Mr. Haddock had been in profound disagreement with the Collector of Taxes in relation to the size of his tax bill.

Mr Haddock complained that the sum demanded was excessive, particularly in view of the inadequate consideration which he believed that he received from that Government in terms of service. Eventually the Collector of Taxes demanded the sum of fifty seven pounds, ten shillings.

One morning shortly thereafter Mr. Haddock appeared at the offices of the Collector of Taxes, and delivered to him a large white cow "of malevolent aspect". On the cow was stencilled in red ink:
To the London and Literary Bank, Limited
Pay the Collector of Taxes, who is no gentleman, or Order, the sum of fifty seven pounds £57/0/0 (and may he rot!)
ALBERT HADDOCK

Mr. Haddock tendered the cow to the Collector in payment of his tax bill and promptly demanded a receipt.

During the "hearing", the fictitious judge, Sir Basil String, enquired whether stamp duty had been paid on the negotiable instrument. The fictitious prosecutor, Sir Joshua Hoot KC confirmed that a two-penny stamp was affixed to the dexter horn of the cow.

The Collector declined the cow, and had objected that it would be impossible to pay the cow into a bank account. Perhaps unhelpfully, Mr Haddock suggested that the Collector could endorse the cow to any third party to whom the Collector might owe money, adding that "there must be many persons in that position".

Sir Joshua gravely informed the court that the Collector did in fact endeavour to endorse the cheque on its back, which was to say, in this case, on the abdomen of the cow. However, Sir Joshua explained: "[t]he cow ... appeared to resent endorsement and adopted a menacing posture."

The Collector then abandoned the attempt, and declined to take the cheque. Mr Haddock then led the cow away and was subsequently arrested in Trafalgar Square for causing an obstruction, leading to the co-joined criminal case, R. v Haddock.

Mr. Haddock testified that he had tendered a cheque in payment of income tax. A cheque was only an order to a bank to pay money to the person in possession of the cheque or a person named on the cheque, and there was nothing in statute or customary law to say that that order must be written on a piece of paper of any specified dimensions.

A cheque, Mr. Haddock argued, could be written on a piece of notepaper. While admitting he did not consider a cheque legal tender, he testified that he himself had "drawn cheques on the backs of menus, on napkins, on handkerchiefs, on the labels of wine bottles; all these cheques had been duly honoured by his bank and passed through the Bankers’ Clearing House". He thought that there was no distinction in law between a cheque written on a napkin and a cheque written on a cow.

When asked as to motive, he said he had not a piece of paper to hand. Horses and other animals used to be seen frequently in the streets of London. He admitted on cross-examination that he may have had in his mind an idea to riducule the taxman. "But why not? There is no law against ridculing the income tax..

In relation to the criminal prosecution, Mr. Haddock said it was a nice thing if in the heart of the commercial capital of the world a man could not convey a negotiable instrument down the street without being arrested. If a disturbance was caused by a crowd, the policeman should arrest the crowd, not himself.

The judge, being heavily sympathetic to Mr. Haddock, found in his favour on both the tax claim and the prosecution for causing a disturbance. By tendering and being refused the cow, the other parties were estopped from then demanding it later.

[PangoPango]

Demosthenius - I need some input from you....please. At least tell me why not....

Pango

[webhick]

Demosthenius - I need some input from you....please. At least tell me why not....

Pango

Demo's out of the country at the moment and isn't checking in as often as she normally does, so it might take a little while for her to get back to you.

[bmielke]

NEWS RELEASE
OFFICE OF THE UNITED STATES ATTORNEY, SOUTHERN DISTRICT OF CALIFORNIA
San Diego, California
United States Attorney, Karen P. Hewitt
For Further Information, Contact: Assistant U. S. Attorney Faith A. Devine (619) 557-7173

For Immediate Release
TAX PREPARER PLEADS GUILTY TO FRAUD AND TAX EVASION
NEWS RELEASE SUMMARY - March 8, 2010
United States Attorney Karen Hewitt announced that today tax return preparer David Canales pled guilty before United States District Court Judge Thomas J. Whelan to one count of mail fraud, in violation of Title 18, United States Code, Section 1341 and one count of tax evasion, in violation of Title 26, United States Code, Section 7201 in connection with a scheme to defraud his clients out of more than $1 million.
According to the plea agreement, between 2001 and 2008, Canales operated a tax preparation and bookkeeping business in Chula Vista, California. Canales admitted that he controlled two bank accounts in the fictitious business names, “International Recovery Systems/IRS” and “Freight Transport Brokers/FTB.” Canales further admitted that he falsely represented to his clients that they owed substantial amounts of tax to the Internal Revenue Service and California Franchise Tax Board and directed his clients to write checks to “IRS” and “FTB.” In his plea, Canales admitted that instead of forwarding these checks and the tax returns to the IRS and FTB, Canales deposited the checks into his own “IRS” and “FTB” bank accounts and either did not submit the clients’ returns to the relevant taxing authority or submitted different returns showing little or no tax due and owing.
Canales admitted that he caused losses in excess of $1,000,000 and willfully evaded payment of income taxes on $457,653 in income he earned for the tax years 2003-2007.
United States Attorney Hewitt said, “Canales took advantage of his clients who thought they were hiring an honest tax specialist to assist them with complying with the United States tax laws. This case demonstrates just how careful the public must be when choosing a tax specialist.”
“Today's guilty plea is an example of IRS-Criminal Investigation's commitment to working together with the Inspector General's Office of Tax Administration to investigate those tax preparers who take advantage of the American public,” said Leslie P. DeMarco, Special Agent in Charge, IRS-Criminal Investigation in the Los Angeles Field Office. “Those individuals who choose to undermine the integrity of our tax system, risk prosecution.”
“Paid preparers are a critical component in our system of tax administration,” said J. Russell George, the Treasury Inspector General for Tax Administration. “When preparers violate the law, they harm their victims and severely damage the credibility and reputation of the tax preparation community.”
A sentencing hearing is scheduled for May 24, 2010 at 9:00 a.m., before Judge Whelan.
DEFENDANT Case Number: 09cr2946W
David Canales Age: 53 Chula Vista, California
SUMMARY OF CHARGES
Count 1: Title 18, United States Code, Section 1341 (Mail Fraud)
Maximum punishment of 20 years’ imprisonment, a fine of $250,000, and three years of supervised release.
Count 16: Title 26, United States Code, Section 7201 (Income Tax Evasion)
Maximum punishment of 5 years’ imprisonment, a fine of $100,000, and one year of supervised release.
AGENCIES
Internal Revenue Service - Criminal Investigation
U.S. Treasury – Inspector General for Tax Administration

I am on several e-mail lists and this just popped into my inbox, I remebered him from this topic thought I would update.

[Farmer Giles]

I am reminded of a favorite short story:

Haddock v. Inland Revenue (from A.P. Herbert’s Uncommon Law)

A Summary of the Case (from Wikipedia)

The case involved a Mr. Albert Haddock, who was often an ever-ingenious litigant in Herbert's writing.

In this misleading case, Mr. Haddock had been in profound disagreement with the Collector of Taxes in relation to the size of his tax bill.

Mr Haddock complained that the sum demanded was excessive, particularly in view of the inadequate consideration which he believed that he received from that Government in terms of service. Eventually the Collector of Taxes demanded the sum of fifty seven pounds, ten shillings.

One morning shortly thereafter Mr. Haddock appeared at the offices of the Collector of Taxes, and delivered to him a large white cow "of malevolent aspect". On the cow was stencilled in red ink:
To the London and Literary Bank, Limited
Pay the Collector of Taxes, who is no gentleman, or Order, the sum of fifty seven pounds £57/0/0 (and may he rot!)
ALBERT HADDOCK

Mr. Haddock tendered the cow to the Collector in payment of his tax bill and promptly demanded a receipt.

During the "hearing", the fictitious judge, Sir Basil String, enquired whether stamp duty had been paid on the negotiable instrument. The fictitious prosecutor, Sir Joshua Hoot KC confirmed that a two-penny stamp was affixed to the dexter horn of the cow.

The Collector declined the cow, and had objected that it would be impossible to pay the cow into a bank account. Perhaps unhelpfully, Mr Haddock suggested that the Collector could endorse the cow to any third party to whom the Collector might owe money, adding that "there must be many persons in that position".

Sir Joshua gravely informed the court that the Collector did in fact endeavour to endorse the cheque on its back, which was to say, in this case, on the abdomen of the cow. However, Sir Joshua explained: "[t]he cow ... appeared to resent endorsement and adopted a menacing posture."

The Collector then abandoned the attempt, and declined to take the cheque. Mr Haddock then led the cow away and was subsequently arrested in Trafalgar Square for causing an obstruction, leading to the co-joined criminal case, R. v Haddock.

Mr. Haddock testified that he had tendered a cheque in payment of income tax. A cheque was only an order to a bank to pay money to the person in possession of the cheque or a person named on the cheque, and there was nothing in statute or customary law to say that that order must be written on a piece of paper of any specified dimensions.

A cheque, Mr. Haddock argued, could be written on a piece of notepaper. While admitting he did not consider a cheque legal tender, he testified that he himself had "drawn cheques on the backs of menus, on napkins, on handkerchiefs, on the labels of wine bottles; all these cheques had been duly honoured by his bank and passed through the Bankers’ Clearing House". He thought that there was no distinction in law between a cheque written on a napkin and a cheque written on a cow.

When asked as to motive, he said he had not a piece of paper to hand. Horses and other animals used to be seen frequently in the streets of London. He admitted on cross-examination that he may have had in his mind an idea to riducule the taxman. "But why not? There is no law against ridculing the income tax..

In relation to the criminal prosecution, Mr. Haddock said it was a nice thing if in the heart of the commercial capital of the world a man could not convey a negotiable instrument down the street without being arrested. If a disturbance was caused by a crowd, the policeman should arrest the crowd, not himself.

The judge, being heavily sympathetic to Mr. Haddock, found in his favour on both the tax claim and the prosecution for causing a disturbance. By tendering and being refused the cow, the other parties were estopped from then demanding it later.

this one goes on the facebook...