William Meyers, 66, of Cottage Grove, Oregon, took the time to file more than 70 fake excise tax returns. He’ll now have 366 days in prison (and three years of supervised release, and 100 hours of community service) to mull over the consequences.
Meyers was sentenced in U.S. District Court, and ordered to pay more than $873,000 in restitution, for filing the false returns.
Oh, he was also operating an illegal still. Busy guy. You can find the whole story here, compliments of The Oregonian.
Does the IRS turn a laser-like eye on tax returns that claim large deductions for non-cash contributions to charity? You bet.
Will the Service disallow deductions for contributions when people don’t have all their paperwork in order? You double-bet.
The IRS and the U.S. Tax Court hammered this home in May 2012, when it disallowed an $18 million real estate contribution by a California philanthropist.
The taxpayer is a real estate developer, broker and appraiser. He donated a half-dozen properties to charity.
Now, get this:
Everyone agreed that the donations had been made.
Everyone agreed that the properties were worth millions of dollars.
However, Form 8283–which has to be used by anyone making more than $500 in non-cash contributions for the year–was filed without an independent appraisal, which is necessary for gifts of more than $5,000. (The taxpayer, being a real estate expert, figured he could value the property himself.)
Since there was no independent appraisal, there was nobody to sign the Declaration of Appraiser.
The return also didn’t have adequate information attached about how much had been paid for the properties, how they’d been acquired, and other details.
Form 8283 can be a time-consuming pill, and I’ll admit that every year I’ll have clients complain about all the information I need them to provide for taking deductions for non-cash contributions. (No, I don’t have any clients giving anything like $18 million to charity.) But this case brings home the fact that in the eyes of the IRS, you need more than just good intentions to take deductions.
If you want to read it and weep, you can go to a summary of the case here, or get The Wall Street Journal’s take on it. Or, you can read the entire 26-page decision of the U.S. Tax Court.
Ever want to help support your local fire department? Several taxpayers over the years have done just that, by allowing the fire department to use their house for training purposes, including–yes–burning down the house.
Why would someone do that? Well, for the tax benefit! No kidding. The idea is that you get to deduct the fair market value of the house as a charitable contribution. And, hey, if you’ve been planning on demolishing that structure so you can build something else, well, all the better–right?
Wrong, says the IRS. Several taxpayers have been unsuccessful in trying to claim this deduction, including the case earlier this summer of Upen and Avanti Patel, who claimed a $339,504 charitable contribution for letting the Fairfax, Virgina, fire department raze their house. The Patels bought the house planning to demolish it. The IRS’s successful stance was that the Patels did not give away the property; they only allowed the fire department to have use of the structure for training purposes, which was at best a license or a partial (nondeductible) gift.
You can read law professor Paul Caron’s tax blog summary if you’re getting your inner tax geek on.
One interesting note: The Tax Court’s decision was 9-8, indicating that someone trying this may not necessarily see their deduction goes up in flames (sorry!) In fact, former Oregon Republican gubernatorial nominee Chris Dudley got a lot of heat (double-sorry!!) when The Oregonian reported during his campaign that he’d reported a $350,000 charitable contribution after the local fire department burned down his house back in 2004. He replaced the house with an 8,500-square-foot mansion.
She could have been Turbotax‘s Poster Child For Getting Your Maximum Refund–”I used Turbotax and got a $2.1 million refund!”
The only problem is that there wasn’t much truthful about the Oregon tax return filed by Krystle Marie Reyes of Salem once you got to the lines below her name and the address where you could send her seven-figure refund.
The sentencing closes a case featuring someone who in recent years earned less than $15,000 annually, yet was able to get a refund of more than $2 million on a Visa debit card by filing a return showing more than $3 million in income. After she got the refund, she then reported losing the debit card twice, which finally got the attention of card issuer Intuit. (Hey, let’s put another link to our good friends at Turbotax right here.)
What’s still open, however, is how a return with such eye-popping numbers made it through the Oregon Department of Revenue. As Michelle Cole of The Oregonian, who has been all over this story, reported, four employees with the department were either demoted or subject to “disciplinary action” following an internal investigation. Names of the state employees involved were shielded under the rubric of “personnel” matters, and apparently no one is getting fired after the biggest tax fraud in state history.
Every year at least one or two taxpayers I work with get asked by the state of Oregon to send copies of W-2s to verify tax withholding after a return has been filed. I always figured that was just part of the state’s efficient system ensuring that people requesting refunds were entitled to the money. After all, sometimes these clients have refunds of more than $5,000 coming back to them.
So imagine my surprise when reading in The Oregonian that someone filed a tax return with a $2.1 million state refund , and the full refund was approved and sent to the filer on a prepaid Visa debit card.
The state says Krystle Marie Reyes of Salem filed a return showing $3 million of earnings and $2.1 million of tax overpayments. The return went through, Reyes got a debit card with $2.1 million on it, and then she spent more than $150,000 between February and April.
It’s be nice if I could say here that dedicated government gumshoes working on behalf of honest Oregonian taxpayers (that $2 million ultimately comes out of the pockets of taxpayers) uncovered the problem. Alas, news reports say that the alleged fraud was uncovered only after Reyes reported that her debit card had been stolen.
Whoa–who loses a debit card with $1.9 million on it? Who loses a debit card with $1.9 million of ill-gotten funds on it and then reports the card lost or stolen??
But wait, it gets better–or worse: After being booked into jail, Reyes was released for “capacity reasons”, and is now supposed to appear in court July 5.
So what kind of complicated, esoteric strategy does the state say was used to generate a tax return producing a $2.1 million refund that flew right into the filer’s hands? Well, the return was filed using Turbotax .
Hmmm…let’s see what that link does for the company’s sales.
