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Think That Your Asset Manager Has Your Back? Think Again.

Think That Your Asset Manager Has Your Back? Think Again.

| Apr 18 | Criminal Tax Representation, Tax Law Blog | No Comments
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Federal authorities have taken another step in attempting to show the American people that they will use any and all laws of the United States to punish those who try to evade federal income taxes through overseas banking schemes. On April 15th, the United States filed a forfeiture action in New York targeting over $12 million that they allege was transferred into the U.S. from a overseas bank account and that the funds were proceeds of a complex tax evasion scheme spread across several nations.

According to the filing in the federal court in Manhattan, the Swiss account that the money was transferred from was set up by Swiss attorney Edgar Paltzer. If you have been following our blog, you will remember that Edger Paltzer recently pleaded guilty to federal charges in New York relating to his role in the construction of tax evasion schemes. As Edgar Paltzer has agreed to cooperate with federal officials, this is at least the second action that has been commenced with his help. In February, tax evasion charges were filed against another former client of Paltzer.

According to Paltzer and the filing, the funds in question were stored in two bank accounts at an unnamed bank in Switzerland. The plan also included the shifting of funds between the Swiss bank accounts and sham entities in the British Virgin Islands, Lichtenstein and Panama. Portions of the funds that are not involved in the proceedings were used to purchase property in the Bahamas.

The power to initiate forfeiture proceedings lies within mail and wire fraud laws of the United States. Because money is usually wired from one account to another in the course of tax evasion schemes, the activity can be considered violate of such wire fraud laws and trigger the government’s ability to seize the funds.

It has not been commonplace for the Justice Department to attempt to seize funds involved in tax evasion cases. Generally, the government will initiate forfeiture proceedings when the crime committed in connection with the funds is especially egregious. Though, this may be an attempt at a show-of-force by the feds to further impress on the American people that tax evasion through overseas schemes will not be tolerated.

If you have assets that are overseas that have not been reported to the IRS or are involved in a plan to avoid U.S. taxes through entities set up outside of the country, we strongly urge you to contact us for an evaluation of your situation. If you believe that your foreign bank, asset manager or any other person is going to have your best interests in mind when the feds come knocking, you should remember the taxpayers affected by Edgar Paltzer’s agreement with the government to cooperate.

You can take the first step to make your situation better. The Offshore Voluntary Disclosure Initiative can help you avoid criminal penalties including federal prison time. But time is of the essence, the terms of the voluntary program are changing and the deal being offered by the federal government won’t be on the table for much longer. Don’t wait to become another Department of Justice press release, contact our office now for an evaluation of your situation.

Small Business Owners Arrested For Tax Evasion

Small Business Owners Arrested For Tax Evasion

| Apr 08 | Criminal Tax Representation, Tax Law Blog | No Comments
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A couple from Somers Point, New Jersey was arrested last week and charged with federal tax evasion among other charges relating to the financial activity of their pizza shop on the Ocean City Boardwalk.

The U.S. Attorney’s Office said in a release that IRS Criminal Investigation agents arrested Charles and Mary Bangle at their home on April 3rd. Charges ranged from tax evasion, conspiracy and for making false statements to the IRS during the course of their investigation.

The Bangle’s own and operate five Manco and Manco pizza shops throughout New Jersey. They are a strictly cash-based business and the IRS estimates that they earn about 4.5 million dollars per year. It is also alleged that the Bangle’s underreported the earnings of the business to the tune of $981,000. The U.S. Attorney’s Office asserts that the husband and wife team would take portions of the cash earnings of the pizza shops and deposit them into their personal account. The Indictment also indicates that the Bangle’s used the cash from the business to pay for personal expenses. The arrest came as a shock to Charles Bangle’s attorney. He said that his client had been cooperating the IRS for the past two years.

The lesson that the Bangle’s are learning the hard way is that even if you are cooperating with the IRS, you aren’t immune from arrest. Whether you own a business or not, if you find out that you are being audited or being investigated by the Criminal Investigation Division of the IRS, you should contact an experienced tax attorney who can help make sure that you don’t end up behind bars.

If you own a business, no matter the size, we can work with you to stay compliant to ensure that you are not getting yourself into a position that would warrant a full criminal investigation like the Bangle’s did. The wise do not wait to get caught up in a mess with the IRS before they seek help. But if you find yourself in a bad situation with the government regarding your taxes, all hope is not lost.

Whether you are being audited by the IRS, are facing a full blown of criminal investigation or are somewhere in between, we can help you every step of the way. Don’t assume that because you are nice with the government, that they will do the same in return. A criminal investigation is very different from an audit. The government is building a criminal case against you and their goal will always be to put you in a federal prison. Don’t let them get the best of you. Contact our offices today.

Luxembourg Signs Model 1 FATCA Agreement – Do You Think You Can Get Away With Moving Your Money Before FATCA Kicks In to avoid detection?

Luxembourg Signs Model 1 FATCA Agreement – Do You Think You Can Get Away With Moving Your Money Before FATCA Kicks In to avoid detection?

| Apr 07 | FBAR Compliance and Disclosure, Tax Law Blog | No Comments
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Luxembourg, a wealthy country in the European Union with a population of slightly under 550,000, has had a reputation as a tax haven for decades. The Tax Justice Network even ranked Luxembourg the country with the second highest financial security.1 However, tax havens such as Luxembourg are no longer quite so secretive due to the worldwide movement for financial transparency.

Congress created the necessary leverage to persuade financially secretive countries to increase their financial transparency with the United States when it enacted the Foreign Account Tax Compliance Act (FATCA). The purpose of FATCA is to expose U.S. taxpayers guilty of tax evasion and who failed to file Report of Foreign Bank and Financial Accounts (FBAR) forms for their offshore financial accounts. FATCA requires foreign financial institutions to report to the IRS all accounts in excess of $50,000 that belong to U.S. citizens and green card holders, regardless of whether they live in the U.S. or abroad. Any financial institutions that do not comply with FATCA will incur a 30% gross withholding tax on all financial transactions. U.S. taxpayers are required to file an FBAR form (TDF 90-22.1) for every offshore financial account with a balance of $10,000 or more at any time during the calendar year.

In 2013, after several years of resistance, Prime Minister Jean-Claude Juncker finally stated that Luxembourg would join the movement toward financial transparency.2 These words turned into action last week when Luxembourg signed a Model 1 FATCA agreement with the United States.3

So, what does this mean to those of you with financial account(s) in Luxembourg?

The only course of action you can take right now to limit your civil liability and avoid serving jail time is to make a voluntary disclosure. Click here for reasons why you should not do nothing, file the correct FBARs prospectively, or make a quiet disclosure. In short, these options will not protect you from a serving jail time or civil penalties.

However, the worst course of action you could take would be to attempt to physically move your funds out of Luxembourg by stuffing cash into a suitcase or strapping it to your person. Not only will customs U.S. customs confiscate your funds from you, the IRS will consider the act of moving your money an additional badge of fraud if they pursue a criminal case against you. Additionally moving your offshore funds from a bank under criminal investigation to an offshore bank not under criminal investigation could be viewed as an additional badge of fraud as well especially where you are a dual national and make the subsequent deposit under your foreign passport.

Willfully failing to file an FBAR may subject you to three to five year jail sentence per violation. In addition, the most severe civil penalty, 31 USC 5321(a)(5), charges willful violators of the FBAR statute 50% of the balance of the undisclosed account for each year of willful non-compliance. Thus if you have had a foreign account for a multiple of years, you may end up owing several times the balance of your undisclosed foreign account in penalties.

Example:

Assume you have an undisclosed foreign account, with a balance of $1,000,000 in it. Under the FBAR statute, the IRS can charge you $500,000 per year on this account for the willful nondisclosure. If you have held this account for the past six years, the IRS could conceivably charge you a total penalty of $3,000,000 ($500,000 x 6 years).

The most troubling part of analyzing a client’s exposure to civil and criminal penalties related to a foreign account under FACTA is that the IRS has yet to report the number of years they will look back under FACTA reporting. Many experienced tax attorneys, myself included, believe the IRS typically looks back 8 years such that an account transferred as far back as 2006 could potential still show up under FACTA reporting via information sharing agreements between the U.S. and foreign jurisdictions that have signed one such as Luxemburg.

 We can help you make a voluntary disclosure under the 2011 Offshore Voluntary Disclosure Initiative (OVDI) before it’s too late. Our competitive advantage is that we are a law firm with all of the functionality of a certified public accounting firm in the tax arena and thus we are a one stop shop for making offshore voluntary disclosures. We have over five years and over 100 voluntary disclosure scenarios under our belt and have a national reputation for excellence in this practice area.

Time is running low before FACTA kicks in in July of 2014. You will no longer be eligible for the 2012 OVDI program once the IRS audits or criminally investigates you which is very likely to occur if a foreign bank reports an undisclosed account to the IRS under FACTA. For more information about the Tax Law Offices of David W. Klasing, P.C., click here.

1 Tax Justice Network, Financial Secrecy Index – 2013 Results, http://www.financialsecrecyindex.com/introduction/fsi-2013-results

2 Andrew Higgins, New York Times, Europe Pushes to Shed Stigma of a Tax Haven (May 22, 2013), http://www.nytimes.com/2013/05/23/world/europe/europe-pushes-to-shed-stigma-of-tax-haven-with-end-to-bank-secrecy.html?pagewanted=all&_r=0

3 TMF Group, Mondaq, Luxembourg: Luxembourg US Intergovernmental FATCA Agreement Signed (April 4, 2014), http://www.mondaq.com/x/304486/tax+authorities/Luxembourg+US+Intergovermental+FATCA+Agreement+Signed

Ohio Man Charged with Tax Fraud, Other Crimes for Defrauding Employer

Ohio Man Charged with Tax Fraud, Other Crimes for Defrauding Employer

| Mar 31 | Criminal Tax Representation, Tax Law Blog | No Comments
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A resident of Solon, Ohio was charged with 15 counts of crimes relating to tax and mail fraud, among others for his role in defrauding his employer. John Miller, a 25-year employee of the Parker Hannifin Corporation is accused of orchestrating an elaborate scheme to steal over $1 million dollars from his company and if convicted, could face serious time in a federal prison.

The Federal Bureau of Investigation, who spearheaded the investigation against Mr. Miller, says that in his capacity at Parker Hannifin, John Miller was able to structure agreements with outside contractors that were doing work for Parker Hannifin to funnel money into his own pocket. Mr. Miller achieved this by approaching various individuals, including his neighbor, and offering a contract for services provided to Parker Hannifin by companies that were either set up for the purposes of this scheme or ones that already were in existence.

Once services were being provided, Miller had invoices submitted to Parker Hannifin that were far in excess of work that was actually done by the outside companies that were granted contracts. Miller submitted invoices on behalf of his own wife and child representing that they were subcontractors of his neighbors company that was established for the purposes of this scheme.

Miller’s neighbor, Nancy Seaman, would receive the payments made by Parker Hannifin and subsequently pay them to Miller in cash less a 30 percent cut for her cooperation in the scheme. Seaman was aware of the plan to defraud Miller’s employer and recently plead guilty in Federal District Court to conspiring with Miller. She is currently awaiting sentencing.

Not only is Mr. Miller being charged with the theft of money from his employer, he is also being charged with tax fraud for not including the money that he stole on his tax return. Miller faces years in a federal prison if he is found guilty of the crimes of which he is accused.

If you find yourself in a bind with the Criminal Investigations Division of the IRS or the Department of Justice relating to violating criminal tax laws, including but certainly not limited to tax evasion or tax fraud, do not hesitate to contact the Tax Law Offices of David W. Klasing.

U.S. Government Evidences Global Regulation of Banks

U.S. Government Evidences Global Regulation of Banks

| Mar 31 | OVDI Program, Tax Law Blog | No Comments
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Last week, the United States Federal Reserve showed the world that they have the power to not only regulate banks inside the U.S., but nearly any bank that does business with Americans domestically, even if the banks are headquartered on another continent. The power that the Fed is wielding should be of concern to U.S. taxpayers who have monies at any bank overseas.

The Federal Reserve will occasionally put U.S. banks through a “stress test” to determine if it would be able to survive a severe economic collapse. The Fed sets standards and evaluates whether the subject of the test would be able to meet or exceed those standards by reviewing the bank’s capital plan. The plans that are reviewed should show that the bank has enough capital assets to survive a major downturn in the economy.

Although two U.S.-based banks were identified by the Fed as needing to revise their capital plan, three foreign banks were also included in the findings of the governmental agency. The foreign institutions were HSBC, which is based in London, Banco Santander and Royal Bank of Scotland Group, based in Spain and Scotland, respectively. The actions by the Fed with regard to the foreign entities only affect the U.S. entities of the foreign banks and prevent payments of dividends that exceed last year’s levels until their capital plan is revised and is found satisfactory by the U.S. government.

Though this news may not be immediately alarming to taxpayers living the United States, upon closer examination of the situation, it can be observed that the government has been able to successfully regulate banks that are controlled in countries that are thousands of miles away from the United States. Even European regulators have become concerned with the regulation muscle that the U.S. is trying to flex. They believe that the regulating bodies in Europe and beyond should be responsible for regulating their banks and subsidiaries.

If you are a taxpayer and have assets in overseas accounts that you have not disclosed to the IRS, it seems that it is only a matter of time until the government of the United States finds a way to regulate the bank that holds your money. And with regulation comes discovery of account information. We have seen very recently that even banks without ties to the United States are caving to the pressures put on them by the Department of Justice. If you think that your secret is safe overseas, it may be time to start thinking again.

The Offshore Voluntary Disclosure Program gives taxpayers a way out when they feel like there is none. If you are worried about spending time in federal prison because of your failure to report overseas assets, contact us today. There is no need for you to lose any more sleep or helplessly worrying about being put behind bars. To speak confidentially with an experienced tax attorney regarding the OVDI Program and voluntary offshore disclosure, call the Tax Law Offices of David W. Klasing at (800) 861-1295.

 

Will your estate be subject to estate taxes?

Will your estate be subject to estate taxes?

| Mar 27 | Tax Law Blog, Wills and Trusts | No Comments
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Date: 02/09/12

Topic: Wills and Trusts

“Nothing is certain,” it’s said, other than “death and taxes.” While that may be so, it’s less clear how the near future will treat the nature of the taxes upon one’s death. The so-called “death tax” is the tax that must be paid by a decedent’s estate for privilege of passing the property he held at death on to one’s heirs. More exactly, as 26 USC 2033 reads:

“The value of the gross estate shall include the value of all property to the extent of the interest therein of the decedent at the time of his death.”

In very general terms, if a decedent owned it at death, it’s part of his or her gross estate. Absent an exclusion amount, it will currently be taxed at 35%.

Thankfully, most taxpayers have an estate that is smaller than the “exclusion amount” — the amount that is excluded from being taxed on death. Presently, that amount is 5.12 million, as adjusted for inflation. This means that one dying with assets valued at less than that are not required to pay estate tax.

However, unless Congress agrees to change the existing law within the next year, the exclusion amount will drop from 5.12 million to 1 million. Consequently, many more Americans could be become subject to an estate tax liability. For those in southern California, where the fair market value of one’s home starts at around $400K and rapidly moves upwards, half or more of their exclusion amount will be used up just trying to pass the house to the kids.

The current uncertainty in the estate tax arena surrounds Congress’ perceived unpredictability. It’s not known whether it will extend the 5 million exclusion amount, decrease it or, as some recent candidates have mentioned, repeal the entire estate tax. This is a class warfare issue and many republicans and democrats have polar opposite views in this area.

There are a multitude of lawful strategies for avoiding or minimizing estate taxes, however, and that’s something our office may be able to help with.

 

Proposed Guidelines to Ease Restrictions on Innocent Spouse Relief

Proposed Guidelines to Ease Restrictions on Innocent Spouse Relief

| Mar 27 | Innocent Spouse Relief, Tax Law Blog | No Comments
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The Internal Revenue Service released proposed guidelines which would officially give spouses filing for equitable innocent spouse relief more time to do so.

Currently, innocent spouse protection is available to spouses who filed a joint-return during the tax year in question. Innocent spouse relief may be appropriate if one spouse, who is typically “in charge” of the family’s finances, omits income or overstates deductions on the tax return filed jointly between the two spouses. The innocent spouse must show that they did not know or have any reason to question the validity of the tax return.

Sections 6015(a)-(c) of the Internal Revenue Code provide requirements which must be met in order to be granted innocent spouse relief. Among other requirements, in order to be statutorily granted relief, a innocent spouse must request such relief within 2 years of the first collection activity by the IRS.

If a taxpayer does not meet one of the requirements of the statutory relief, they can request equitable relief under Section 6015(f). Until recently, the IRS took the position that because the statute of limitations for statutory relief was 2 years, a taxpayer requesting equitable relief must file within the same time-frame.

Under REG-132251-11, innocent spouses would have the full ten-year collection period to file for equitable relief. This shift in procedure at the IRS further demonstrates a more accommodating stance for innocent spouses.

GET HELP WITH YOUR CLAIM FOR INNOCENT SPOUSE RELIEF

The law and regulations concerning innocent spouse relief can be complex and difficult to decipher. Seek experienced representation in order to avoid being left on the hook for your spouse’s tax liabilities. At the Tax Law Offices of David W. Klasing, we have the knowledge and experience to best represent your interests before the IRS.

To learn more about the various types of innocent spouse protection and the requirements that must be met in order to qualify, please contact us today.

 

Recent Revenue Procedures Create Streamlined Procedure for Equitable Innocent Spouse Relief

Recent Revenue Procedures Create Streamlined Procedure for Equitable Innocent Spouse Relief

| Mar 27 | Innocent Spouse Relief, Tax Law Blog | No Comments
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This week, a new Revenue Procedure was released which makes the process for filing for equitable innocent spouse relief even easier. The new procedure deals with the equitable relief available to taxpayers under IRC §6015(f) and §66(c). Rev. Proc. 2013-34 changes innocent spouse procedures in three key aspects.

First, the Rev. Proc. creates a streamlined process for taxpayers to utilize when requesting innocent spouse relief. The streamlined process will require that three requirements are met. First, the parties must no longer be married. Second, the requesting party must show that they would suffer economic hardship if relief was not granted. Finally, the requesting party must that for §6015(f) relief, that they did not know or have reason to know of the understatement of income or underpayment of tax. For those in community property states who are seeking relief under §66(c), the third prong is satisfied with a showing that the requesting spouse did not know or have reason to know of the existence of community property income.

Second, the new procedure gives more leeway in the third requirement of the streamlined process. Prior to this ruling, it would be a damaging blow to the requesting spouse if they had actual knowledge of an understatement or an underpayment of taxes. The new procedure allows for a spouse to meet the third prong of the equitable relief requirement by showing that the non-requesting spouse controlled the finances by restricting access to the couple’s financials and that the requesting spouse could not challenge the correctness of the tax return or the payments of taxes due to fear of abuse or retaliation.

The third and final major provision of the procedure deals with refunds to spouses requesting innocent spouse relief. Prior to the new procedure, an innocent spouse could only recover funds paid by the requesting spouse under an installment agreement. Now, a requesting spouse can receive refunds in both underpayment and understatement cases that he or she paid after July 22, 1998, regardless of method of payment.

As discussed in a previous article, the IRS and Treasury have been progressively taking steps toward making the innocent spouse relief process more taxpayer-friendly. This new procedure certainly echoes that sentiment.

 

Tax Preparers: Who May Be Liable, and For How Much

Tax Preparers: Who May Be Liable, and For How Much

| Mar 27 | Tax Law Blog, Tax Preparer Fraud | No Comments
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Date: 03/12/12

Topic: Tax Preparer Fraud

This is an informative blog on tax preparer liability, sketching the conditions under which a tax preparer may be liable for his or her errors, and the correlative penalties. For more on this topic, see:

Tax Preparer Fraud

In the past, a tax preparer was not liable for gift (Form 709) and estate and generation-skipping (Form 706) tax returns. But a tax preparer was liable for income tax returns. Thus, for example, if a tax preparer committed an error–intentionally or unintentionally–on Forms 1040, 1040A, 1040EZ, 1041s, or 1065 (partnership) and 1041 (grantor trusts), the preparer was liable.

Today, since 2007, a tax preparer will be liable for errors committed on any return. This is because the Internal Revenue Code (IRC) §6694 was modified–broadened, really–replacing “an income tax return preparer” with “a tax return preparer.” Thus, a tax preparer may be liable for all federal tax returns and claims for refund.

Who is a “tax return preparer”?  There are two types of tax return preparers: (1) Those licensed to practice under state law and before the IRS. These include your CPAs, attorneys, enrolled agents, enrolled actuaries, appraisers, and the like. (2) Those who are not licensed (called “unenrolled” tax preparers), who are permitted to prepare returns but disallowed from practicing before the IRS.

IRC § 7701(1)(36)(A) defines a “preparer” as “any person who prepares for compensation, or who employs one or more persons to prepare for compensation, any return of tax imposed . . . or any claim of refund.” Thus, a preparer does not include someone who did a tax return without receiving compensation. However, case law includes within the definition of a preparer one who did other services for the client, even though, strictly speaking, no compensation was received for preparing the return itself.

What are the penalties?  Under IRC § 6694, the IRS imposes a penalty on a tax return preparer that understates a taxpayer’s liability, and that is determined by whether he made any part of the understatement due to taking an “unreasonable position” that he knew (or reasonably should have known) of the position, or if he made any part of the understatement due to “willful or reckless conduct.” A penalty of $1,000 or 50% of the income (to be) derived may occur for each error on a return or claim for refund. However, if the preparer had reasonable cause for the understatement, and he acted in good faith, then IRC 6694(a)(3) exempts these penalties. A good tax attorney should be able to inform you whether a preparer had a “reasonable cause” for the understatement.

If the preparer made an understatement with “willful or reckless conduct” he shall pay a penalty on each return (or claim for refund) of $5,000 or 50% of the income derived. What’s “willful or reckless conduct”? It is defined as any willful attempt in any way to understate a tax liability, or a reckless or intentional disregard of the tax law. IRC 6694(b)(2).

In addition to the monetary penalties, there are non-monetary penalties, like an “injunction,” which is a basically a court order saying the preparer cannot practice in her professional capacity for a certain period of time. This can be far more devastating than the monetary penalties, because she would likely lose many clients. Moreover, the preparer may be required to re-open every like and non-like return that she prepared for the years falling within the statute of limitations. Finally, a preparer may also lose his license if found liable for tax preparer fraud.

Tax law is notoriously complex, so it is understandable that mistakes occur. The IRS, however, is not so forgiving. That is why if you are tax preparer who has reason to believe that you have intentionally or unintentionally committed one of the above offenses, you need competent legal counsel. Due to the complexity of the intersection of taxation and criminal law, few attorneys are competent to handle this sort of controversy. The Tax Law Office of David W. Klasing, however, specializes in this area of law; we can help you navigate through your legal options.

 

What happens when you get caught filing a fraudulent refund claim? (preparer or client)

What happens when you get caught filing a fraudulent refund claim? (preparer or client)

| Mar 27 | Tax Law Blog, Tax Preparer Fraud | No Comments

Date: 08/12/12

Topic: Tax Preparer Fraud

Richard Kellogg Armstrong, age 77 was just sentenced to 9 years in federal prison plus three years of supervised release at the end of his sentence. In addition he was fined $1,021,500 as sanctions for 10 separate and distinct acts of contempt of court. He was also ordered to pay restitution to the Internal Revenue Service (IRS) in the amount of $1,678,834 and to forfeit two personal residences and a personal aircraft.

Curtis L Morris (tax preparer), and Richard Kellogg Armstrong (client turned promoter) devised a scheme to defraud and to obtain money and property by means of false and fraudulent material pretenses and representations from the Internal Revenue Service (“IRS”), through the submission of false claims for federal income tax refunds, as part of individual federal income tax returns filed with the IRS, that were based upon and supported by false and fictitious information about federal income taxes purportedly withheld on original issue discount income, as set forth in the federal income tax returns and as purportedly reflected on IRS Forms 1099-OID filed with the IRS.

Armstrong, who was one of Morris’ tax clients, received more than $1.6 million from bogus returns and hid the proceeds in offshore bank accounts while recruiting for and promoting the scheme.

This case is evidence that being of advanced age will not prevent a criminal prosecution and or fend off incarceration. The preparer here also has his own problems…

 

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