Each week there are many blogs that detail some of the many frauds perpetrated against the income/payroll tax system. This week’s Tax Fraud Blotter provides these examples:
- International fugitive Anton Bogdanov, a Russian citizen, has been sentenced to five years in prison for wire fraud conspiracy and computer intrusions in connection with a scheme in which he and others hacked into tax preparation firms, stole personal information, used that information to file federal tax returns in the names of some of the firm’s clients, and fraudulently tried to obtain more than $1.5 million in refunds that the IRS robotically sent to prepaid debit cards.
- New York: Swiss Life Holding AG, Swiss Life (Liechtenstein) AG, Swiss Life (Singapore) Pte. Ltd., and Swiss Life (Luxembourg) S.A. have entered into a deferred prosecution agreement for criminal misconduct and agreed to pay more than $77 million in connection with an offshore insurance scheme. The Swiss Life entities were charged with conspiring with U.S. taxpayers and others to conceal more than $1.452 billion in offshore insurance policies from the IRS. The Swiss Life entities were engaged in “parking” funds in a Swiss Life policy until the clock ran out on the perceived statute of limitations for tax offenses.
- Albany, Georgia: Between 2012 and 2017, Candace Roberts worked as a preparer and manager at Rogers Tax Service. Over five years she inflated clients’ refunds by fraudulently claiming American Opportunity Credits, education credits and business income. In all, Roberts defrauded the IRS out of more than $700,000.
- Dix Hills, New York: Accountant James G. Guerra, 59, has been sentenced to three years of probation, the first two months of which he must spend in home confinement, for a felony tax offense. Guerra worked as an accountant for Bruno DiFabio, an owner of several pizza restaurants in Connecticut and New York. DiFabio and his businesses engaged in a practice whereby cash was removed from the cash registers and not deposited into the restaurants’ operating bank accounts. Guerra knew that DiFabio had a practice of paying his employees in cash. He also knew that DiFabio was not properly withholding taxes from his employees’ wages and remitting that money to the IRS. Still, Guerra routinely reviewed and approved DiFabio’s quarterly returns. DiFabio, Steven Cioffi (a partner in some of DiFabio’s restaurants) and bookkeeper Idalecia Lopes Santos all previously pleaded guilty and have been sentenced.
- Norwalk, Connecticut: Financial executive Robert T. Colgan has pleaded guilty to a federal tax offense. Colgan controlled a business known as Colgan Financial Group and employed a bookkeeper and a tax preparer to assist in preparing both the company’s corporate returns and his personal income tax returns. Colgan used business funds to pay personal expenses but directed his bookkeeper to record the payments as a loan in the company’s books. Colgan’s personal income tax returns for the 2013 through 2017 tax years underreported his income and resulted in a tax loss to the IRS of more than $250,000. He pled guilty to one count of filing a false tax return, which carries a maximum sentence of three years in prison.
- Wichita, Kansas: Tax preparer Sonia Hernandez-Smith, a.k.a. Sonia Raquel Vazquez, has been sentenced to 18 months in prison for defrauding the IRS out of more than $100,000, according to reports. She reportedly admitted that she prepared income tax returns that claimed credits for children even though her clients were ineligible.
- New Bern, North Carolina: Tax preparer Priscilla Evans, of Rocky Mount, North Carolina, has been sentenced to two years in prison and ordered to pay $229,000 in restitution for conspiring to prepare and file false returns. Evans conspired to file fraudulent returns for the 2011 through 2016 tax years for clients of Community Tax Services. Evans and her co-conspirators generated fraudulent refunds for their clients by falsely claiming education credits and other illegitimate items. The IRS said the fraud resulted in a loss of more than $2 million.
The list of abuses and fraud goes on and on. The sad fact is that only a small fraction of those who are cheating the system actually get caught. For years, the government tried to hide just how bad the problem is, but just recently, the IRS Commissioner finally admitted that fraud and evasion cost the IRS close to $1 trillion a year.
WHY KEEP THE INCOME/PAYROLL TAX SYSTEM THAT IS RELATIVELY EASY TO EVADE?
We all know why the Ruling Class and their minions in Congress reject all reasonable thinking and insist on keeping the income/payroll tax system. They know it’s corrupt. They know it’s ridiculously easy to evade and defraud. They know that it’s broken beyond repair. Still, they insist on keeping it because it gives them two things they crave—money and control over people’s lives.
We all know that lobbying firms are paid enormous amounts of money by special interests looking to buy tax breaks fully understanding that the rest of us have to pay for what they save with the purchased tax break. As we have noted in previous Chairman’s Reports, lobbyists in turn pass this money on to Members of Congress who are perpetually engaged in raising money for their campaign war chests. This corrupt system has become so entrenched that the people taking the money aren’t the least bit embarrassed by it. For them, it’s just business as usual. They don’t even try to hide it from the public.
Besides raising money from those who can afford to pay them, the Ruling Class uses the tax system to exert as much control over the rest of us as they can. This is less overt than their moneymaking scheme, but it’s just as real.
In the process of running their daily lives, people enter into many different contracts. The rules governing those contracts are usually quite clear. When you finance a car, you know how much your monthly payment is going to be and you know how many payments you must make in order to pay off the loan. You know that when you make your last payment, the car is yours.
A home mortgage works the same way.
However, the rules of contracts and keeping agreements don’t apply to most of the income/payroll tax laws. The “smart people” in DC have become so arrogant that they openly boast that they can do anything they want, any time they want.
Many people believe that they have earned their Social Security benefits and that their right to those benefits can’t be taken away. Unfortunately, this is not true.
Flemming vs. Nestor is a 1960 Supreme Court case. Ephram Nestor was an immigrant from Bulgaria. He had paid into Social Security for 19 years, but his benefits were cut off when he was deported for involvement in the Communist Party. He sued claiming that the government could not nullify his entitlement to benefits. The case eventually reached the Supreme Court where the Court ruled that there is no contractual right to receive benefits.
Because there is no contractual obligation to provide Social Security benefits to anyone, here is what the “smart people” tell us they can do if we don’t obey:
- If you are retired and receiving Social Security benefits but also have other income from savings or other retirement accounts, they can decide to reduce your Social Security benefits by the amount of the other income; or
- Create a means test under which people whose incomes are declared to be too high are ineligible to receive benefits even though they may have paid into the system for decades
The smart people in D.C. boast that they can change any part of the income/payroll tax rules at any time and even make the changes retroactive.
This seems very unfair to the rest of us. People who study our Constitution point out that ex post facto laws are prohibited by the Constitution.
An ex post facto law is a law that makes an act illegal that was legal when it was committed, increases the penalties for an infraction after it has been committed, or changes the rules of evidence to make conviction easier.
Ex post facto laws are expressly forbidden by the United States Constitution in Article 1, Section 9, Clause 3 (with respect to federal laws) and Article 1, Section 10 (with respect to state laws).
However, in United States v. Carlton, 512 U.S. 26 (1994) the Supreme Court held that the ex post facto law does not apply to income/payroll tax changes. The Court ruled,” The 1987 amendment's retroactive application to Carlton's 1986 transactions does not violate due process. Under the applicable standard, a tax statute's retroactive application must be supported by a legitimate legislative purpose furthered by rational means.”
Here are some examples of what can be done:
- If you bought a house but depend on the mortgage interest deduction to make your payments. You may lose the house if that deduction is suddenly taken away.
- They can decide that the earnings on a Roth IRA, which are currently not taxable, are retroactively taxable. This could substantially reduce the amount you have available for retirement.
- You buy some equipment for your business in December of 2020. At the time, you are entitled to a 100% deduction. However, in June of 2021, they can change the law to disallow the deduction.
The Ruling Class and their minions in D.C. have gotten away with bullying us for way too long. They have no incentive to ensure that we prosper. All that matters to them is that they and their friends prosper at our expense.
Isn’t it time that we demand that the smart people in D.C. start doing things that benefit us? Maybe it is time that we deal with these bullies by demanding that they do their jobs and put us, not themselves, first.
It is time that we set out some conditions if they want to retain their positions. This story about a father and his teenage son is quite instructive. The son wants his dad to get him a car and the father lays out the conditions.
"You bring your grades up from a C to a B average, study your Bible and get your hair cut. Then we'll talk about the car."
The boy thought about it for a moment and then agreed to his father’s terms.
After about six weeks his father said, "Son, you've brought your grades up and I've observed that you have been studying your Bible, but I'm disappointed you haven't gotten your hair cut."
The boy said, "You know, Dad, I've been thinking about that, and I've noticed in my studies of the Bible that Samson had long hair, John the Baptist had long hair, Moses had long hair, and there's even strong evidence that Jesus had long hair."
To which his dad replied, "Did you also notice they all walked everywhere they went?
It’s time that we the people laid down some conditions for the “smart people” in DC. If they want to stay in power, they don’t have to cut their hair, but they do need to put a stake in the heart of the income/payroll tax system and enact the FAIRtax.
Anything less is unacceptable. If we allow the Ruling Class and their minions to keep leading us down the path we’re currently on, the result is going to be an unmitigated disaster for us, our children and our grandchildren.
It is time that Americans take control of our country by eliminating the income/payroll tax system. No more games that profit only the Ruling Class and their D.C. minions.
ENACT THE FAIRTAX!
If you have friends who don’t know about the FAIRtax, send them to FAIRtax.org. Have them watch the white boards under “How It Works” and, if they agree, ask them to please join us.
Then contact your Members of Congress and the President and demand that Congress pass -the FAIRtax—the only fair tax.
Remember, if we don't continue to tell the truth and demand a change, then this quote from George Orwell's 1984 may foretell our children's future:
“If you want a picture of the future, imagine a boot stamping on a human face—forever.”
Is it hopeless? When confronted with a seemingly impossible problem, remember the statement attributed to the author George Bernard Shaw who wrote, You see things; and you say “Why?” But I dream things that never were; and I say “Why not?”
Isn’t it time for us to ask, “Why not?”