Latest News on Tax Scams

IRS offers to settle with insurance tax scammers

Since 2014, the list of Dirty Dozen Tax Scams has included “captive” insurance companies. Although the law allows companies to create captive insurance companies to insure against legitimate risk. In that case, the insured company can deduct the premiums it pays for the insurance.

“However, in some “micro-captive” structures, promoters, accountants or wealth planners persuade business owners to participate in scams that lack many of the attributes of insurance.”

The IRS has pursued hundreds of cases against such schemes in Tax Court after auditing the taxpayer companies.  After prevailing in three recent U.S. Tax Court cases, the IRS said it has decided to offer settlements to 200 taxpayers who are currently under exam. The IRS began mailing out time-limited settlement offers spell out specific settlement terms. Taxpayers who don’t receive a letter aren’t eligible for this resolution, the IRS pointed out.

“The IRS noted that it has consistently disallowed the tax benefits claimed by taxpayers in abusive micro-captive structures. While some taxpayers have challenged the IRS position in court, none have been successful to date. The IRS said it would continue to disallow the tax benefits claimed in abusive micro-captive transactions and continue to defend its position in court. The IRS has decided, though, to offer to resolve some of the cases.”

What this means is that there are probably 1000s of these situations out there, but that only a few of them have been audited. Still fewer have been taken to court.

The famous “Son of Boss” resulted in 1,165 tax cases. The IRS is apparently attempting to clear out the individual cases by offering deals. The real target of this effort is to find the advisrrs pushing the illegal schemes & prosecute them. In ‘Son of Boss’ tax fraud case, KPMG pled guilty to tax fraud.

Taxpayers are unlikely to go to prison, but their advisers are likely to.


Some tax scams:

KPMG partner David Middendorf

Three former KPMG partners

Son of Boss

IRS Dirty Dozen

CA reverses Tax Court’s decision to deny anonymity to serial whistleblower.

Whistle blower

Help them cheat, then turn them in?

I knew there was such a thing as an IRS whistle blower, but i didn’t know it was it’s own cottage industry. Which it apparently is. But I’m really having a hard time figuring out how it worked.

GINSBURGSenior Circuit Judge.

“The Appellant asked to proceed anonymously before the Tax Court when challenging the decision of the Internal Revenue Service (IRS) to deny his application for a whistleblower award. The Tax Court denied his request, concluding the balance of interests weighed against anonymity because the Appellant is a “serial filer” of whistleblower claims, which he bases upon publicly available information. The Tax Court’s rationale was that if it does not “identify serial filers by name, the public will be unable to judge accurately the extent to which the serial filer phenomenon has affected the work of the Tax Court.” Whistleblower 14377-16W v. Comm’r, 148 T.C. 510, 518-19 (2017).

Read more here.

My experience with cheating clients

If you’ve ever had clients tell you how to do your job, you can probably relate to this. Of course when it comes to taxation, it involves criminal charges with jail sentences. So I don’t go there. This year, I had a fairly successful client in the cannabis industry that tried to talk me into cheating in three different ways.

  1. First, he wanted to deduct ah investment he made in a company that was still operating and paying taxes. He claimed, probably correctly, he paid more than it was worth and wanted to deduct the difference. That would work for GAAP, but not for taxes. For tax, that’s a violation of law.
  2. Second he found a tax preparer who was willing to play loosey-goosey with 280(e), which limits the deductions that a cannabis business can deduct. He told me top notch cannabis preparers were paying less attention to 280(e). I checked around and some of the top people in cannabis taxation said it was bullshit, as I expected. It ‘s against the law to ignore 280(e). Of course you can do all kinds of things with 280(e), but you can’t just ignore what it says.
  3. Third, he wanted us to deduct accrued interest in a cash basis company. Accruals can only be deducted in an accrual basis company.

In everyone of those situations, I could lose my ticket. All of them involved thousands or hundreds of thousands of dollars in tax.

I refused, he got angry, left and started bad mouthing me.


If an accredited tax preparer helps a client cheat, they are both liable. The taxpayer for preparing a false return, and the taxpayer for providing false information.  If the client lies to the tax preparer and fails to product the documents, the tax preparer is still liable for not getting the documents. I see no way the tax preparer escapes unscathed.

How it should work

If someone goes to a tax preparer with the intention of cheating, it is the tax professional’s responsibility to tell the taxpayer(s) they could go to jail for cheating. If they persist, the tax preparers should resign from the engagement.

Something else that surprises me is this. The whistle blower bases his claims on “publicly available information.  I’m not sure what that means. Apparently this guy was a tax preparer and used publicly available information to turn in his clients for a reward.

This does not sound like the entire story. i’m guessing there is more here than meets the eye.

And why would the preparer want anonymity?

I have no inkling what the underlying facts are in the court case that started this blog post off. It raised some interesting issues that I don’t understand how the preparer got around. Of course, I’m not going to turn my client in, but I wouldn’t feel bad if someone else did.

One other thing.

I know a person who was very high profile in American politics that was convicted of tax fraud 15 years ago, and he is still in prison. He is likely to die there.

Don’t go there.

A better approach that I suspect is used from time to time, is to simply not pay your taxes. Wait a few years and settle for pennies on the dollar. I don’t ever advise that, but I know it happens.




Targeted Tax Preferences

A great way to save on taxes if you can find them.

When a Congressman wants something, all he has to offer in return is legislative favors. If he pays them outright for something, that would be bribery and he could go to prison. But if he passes legislation to fund a bridge or an airport that supporter wants, that’s perfectly legal. And of course, that happens. Remember the bridge to nowhere?

In other cases it turns out to be targeted tax breaks, which is apparently legal also, even though it probably shouldn’t be. In this situation, the Congressman or Senator sponsors a bill that gives a tax break targeted at the supporter’s profession or to his company specifically.

Consider Wall Street. Wall Street traders are the largest contributor to political campaigns, so they get a lot of these favors directed their way. Here are two examples of tax breaks targeted at Wall Street hedge funds.

These breaks cut tax rates in half for Hedge Funds and their owners, from 39.6% to 20%. In this case, the company involved took it even farther with tax havens, cutting their tax rate all the way down to 1%.  This is all perfectly legal. Some tax preferences are targeted at specific Wall Street traders, who shall remain nameless.

Obviously this stuff isn’t publicized, it’s hidden. But if we find it and meet the requirements, we can use it to the full extent of the law.

This isn’t anything new. It’s been around for a long time.

Here’s the reason for this post.

We’ve just found one of these. The language eliminating a tax break was published in the tax code. But the language that restored the tax break to a limited number of people was printed in another branch of the law. But it’s specifically a tax law.  It carries the full impact of a tax law.  Oddly enough, the requirements fit our purposes exactly. Someone up there is looking out for us.

Color me suspicious, but I don’t think that was a mistake. Those crafty devils in Congress did it on purpose.

This may seem awful, and it is, but thank God we found it. We use this stuff to save taxes for clients. If we can locate them, and if we meet the requirements, we can use them to the full extent of the law. This is what I describe as working in the seams of fully adjudicated tax law.  It’s like being bullet proof.

This is where our intellect prowess comes into play. When we look at these things, we see things that other people don’t see.


Politics & Hollywood

Catching up on my reading when I stumbled across this doozy on Blog Maverick for 3/19.

” In Hollywood every one will talk and listen to you about your project.  But while they are standing there, right in front of you, they are not looking at you. They are looking past you to the next project where they can raise/sell more.  Where they can be a bigger star. There is always a bigger fish. Who ever is standing in front of them is hopefully just the bait. “

In my ’tilting at windmills’ era, I was a pretty big player in politics. I even ran for Congress on a tax reform ticket but lost. Campaigning was great. When I walked into a room, everyone would stop what they were doing to cheer and clap. That kind of stuff can get in your blood. Unfortunately it can also go to your head.

When I was running for Congress, I flipped over a few too many rocks to see what lived underneath them. The comment bolded above was something I heard more often than not. I particularly remember this particular statement about a governor candidate. “While I was shaking his hand and trying to carry on a conversation, he was looking over my shoulder to see if there was anyone more important behind me.”

I can see that. Politics and Hollywood have more than that in common.

Holy Cow Said the Deaf Man

Tesco Faces U.K. Criminal Investigation of Accounting Practices

U.K. prosecutors open investigation into grocery chain’s $424 million profit-guidance overstatement, the first sign the accounting problems are being considered a criminal matter.

Well, it’s time to start worrying if your in house accountants are up to the task. We have numerous clients who would fare much better if they outsourced their accounting function to us. However, our entreaties fall upon deaf ears.

Inversion Heaven or Hell

Big Deal Inversion

This could blow the lid off.

Burger King.

What more iconic American company is there? Coca Cola? Too late. They probably already inverted.

Burger King bought a Canadian company and plans to do some things to cut their American income tax. Burger King is owned by 3G Capital and the Brazilian trio. Very, very smart people who turn around every company they buy. I’m a big fan of these people. And what they’re doing is completely ethical, (Judge Learned Hand said so. Google it up) legal and dictated by economics.

They’d be idiots if they didn’t invert. Their investors would run them down and string them up. (Although I think they’re probably too smart to deal with actual stockholders. I doubt if they have any of those.)

Inversion is the practice of buying a foreign subsidiary and moving their tax base to the foreign company, thereby skirting some income tax.

But from my understanding, Burger King intends to do something that may eliminate all U.S. income tax. This is how it’s probably going to work. The following may not be in accordance with the article or the video or public pronouncements. But it’s what I hear is going on.

From what I understand, they are going to refinance all their corporate debt by borrowing from Warren Buffet’s company, Berkshire Hathaway. (They have a lot of debt from the original acquisition.) The loan will be made to the Canadian company who will loan it to the American company, charging enough interest to wipe out all American income, there by diverting all American income to Canada. This isn’t even a sophisticated technique. This is a bottom shelf, plebian, ordinary tax strategy that any yo-yo could have dreamed up. But it’s simple, and the Brazilian Trio believes simple is better. And I would tend to agree. After all, MPAI.

The deal is what it is. It could have long term ramifications on the government. Those people with their noses stuck in the air can’t continue to ignore everything they don’t like, as though this were a fairy tale. This stuff could tear our country apart.

But that being what it is, that’s not the reason I wrote this. I wrote this to take a dig at Warren Buffet. Bill Gates’ pal. (Gates’ claim to fame is he knew Steve Jobs.) Some background. Warren shot to fame as the guy standing behind the President nodding like a puppet when the President told us why we needed to pay more income tax.  He’s the same guy who famously said, “The rich should pay more tax.” He’s the guy the President hung a medal on (see link below). Buffet’s in bed with the Brazilian trio on other investments (Heinz Ketchup). Which is damned smart and damned lucky of him. Can’t fault him or them on this. This is the guy (I assume.) who is going to loan the money to the Canadian company to loan it to the American company to gouge it on interest to transfer all American profits to Canada. (It’s really not an investment (wink, wink) but I’ll bet it’s a convertible note, or I’ll bet it gets converted at some time.)

All of this would be perfectly OK if he didn’t shill for tax increases. But he did and it’s not OK to switch horses in the middle of the stream. I’m sure you all know that.

This is the same Warren Buffet that doesn’t pay his own taxes.

So the guy who said we should pay more tax does avoid taxes himself and is going to avoid them even more in the future. That’s all well and good, but he doesn’t think we should. And he loves it when he’s on TV and the President is blowing sweet nothings in his ear.

Veracity apparently means nothing to this guy.

IRS scandal getting deeper

IRS ethics lawyer facing disbarment, accused of lying.

Par for the course. An ethics lawyer facing disbarment because of lying. This is typical of government, especially this administration. But don’t believe for a minute I let the loyal opposition off the hook. They are just as bad. Or worse.

There’s something lyrical & poetic about this statement … IRS ethics lawyer facing disbarment over lying. This is the perfect storm of “I can’t believe what just happened.”

IRS = government … should be trustworthy but isn’t
Ethics = moral principles … should be trustworthy but isn’t

I mean, if you can’t trust an IRS ethics lawyer, and you can’t trust Santa Claus or the Easter Bunny, who can you trust?  It may be a misnomer, but IRS ethics lawyers aren’t imaginary characters. They actually exist.

I’ll tell you something else. When you’re in a hearing or a court case and you hear someone start lying, and you know they’re lying, it drives you nuts.  You know this little dweeb is lying but everyone acts like he’s the salt of the earth. That’s when the lawyer leans over and says … “Don’t worry, the wheels of justice grind slowly, but they grind excessively fine.” I hope he’s right, but I never had the patience to hang around and find out.

I suspect that doesn’t work in politics. (I ran for Congress once and met everyone who’s anyone. And I noticed a lot of shady characters. Some of them are well known to this day.)