Posts Tagged ‘Wesley Snipes’

Tax Roundup, 11/30/15: Solar-powered tax fairies, and other signs and wonders.

Monday, November 30th, 2015 by Joe Kristan
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Flickr image courtesy Ashley Van Haeften under Creative Commons license

Tax Fairy signs and wonders. The time is always right for a revival for the Cult of the Tax Fairy, the wonderful mythical being that can make your taxes go away with a wave of her wand, for an entirely reasonable up-front fee. These revivals are often accompanied by signs and wonders, several of which appear in request for a federal injunction filed earlier this month with respect to a solar energy operation. Being alert for these signs and wonders can save would-be Tax Fairy believers from a bad experience when the IRS folds up the revival tent.

The injunction request complaint deals with tax benefits alleged for “solar thermal lenses.” As I understand it, the basic technology is familiar to every little kid who has used a magnifying glass to burn things, but on a bigger scale. The real technical magic lies in the tax breaks.

We’ll discuss the tax breaks are described in the injunction request, which we should remember are the government’s allegations. The defendants may dispute the allegations, which have not been proven in court. The alleged facts do include signs and wonders often seen in Tax Fairy revival tents, though, and may be of instruction to those not wanting to be burned by Tax Fairy false prophets.

Tax benefits as a multiple of the cash paid. Real tax benefits rarely exceed the amount paid out for them. A deduction by definition provides a tax benefit of less than the amount paid — the tax rate times the amount of the expense. A tax credit could in theory provide more than a 100% benefit when combined with a deduction — the Iowa school tuition tax credit can come very close — but even that is a rare creature. By leveraging through borrowings, the up-front payment can be minimized, but real borrowings have to be repaid.

According to the government’s injunction request, the defendants sell solar lenses at a stated price of $3,500. But only $105 is due on the down payment, with $945 due the following year, after the tax fairy has magically provided tax savings from the investors. $3,500 in benefits for $105 would be a sweet deal.

Pretend loans. The remaining $2,450 is supposedly payable over 30-35 years. Most importantly, “the customer is not personally liable for the remaining $2,450. There is no provision for remedy in case a customer defaults, other than ‘repossession’ of the lens…”

This reminds me of cattle shelters of the early 1980s, when a $1,000 cow would be “sold” to Tax Fairy believers for, say, $5,000, or more, with $1,000 down and the rest in super-easy payments. The investors would claim depreciation of the cattle for the state price, but the loan was a wink and a nudge, with no real expectation of repayment. The solar lens shelter described by the injunction complaint would work the same way, promising $3,500 worth of tax benefits for $105 down.

tax fairyCasual Business operations. You can only deduct business expenses for a real business trying to make money. As described in the injunction request, at least, the don’t seem to be trying too hard. The lenses are described as “solar energy” property to generate a tax benefit, yet:

…neither the lenses, nor any other equipment on the installation, are (or have been) generating electricity, heating or cooling a structure, providing hot water for use in a structure, or providing solar process heat.

Also:

47. Defendants’ “lenses” consist of thin sheets of plastic. 
48. There are some lenses mounted on towers at the Installation in Millard County.
49. The thin plastic lenses that have been mounted have been exposed to desert conditions. Many are broken and dangling out of their frames. The ground near the Installation is littered with shards of plastic from lenses which have broken and fallen.
50. In this state, the lenses cannot capture or direct sunlight such that it could be used for any purpose that Congress intended to encourage through tax deductions or credits.
51. The vast majority of lenses purportedly sold – if they even exist – have not been  mounted. Defendants claim the lenses are in storage.

So many signs and wonders. We’ll just note that there is no deduction for an asset unless it’s “placed in service,” which is not the same thing as “placed in storage.”

Tax benefits are all that make the deal profitable. The injunction request says that the investors will get a small annual payment for the use of the lenses, but that the IRS says doesn’t actually get paid. The promotional material instead focuses on the ability to “zero out” taxes, according to the complaint.

Implausibility. Really, if somebody has a revolutionary technology, what’s more likely: that they would find venture capital to ramp it up and syndicate the tax benefits to large investors, or that they would finance it $105 at a time via multi-level marketing?

The web site for at least one defendant company remains up, so you can check it out for yourself.  But when pondering the signs and wonders touted by someone with something to sell, always keep one scientific fact in mind: there is no tax fairy.

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Paul Neiffer, Happy Thanksgiving and CRP reporting:

Roger McEowen of the Center for Agricultural Law and Taxation just posted a brief on whether you need to file a Form 8275 with your tax return if you are reporting CRP payments and not paying self-employment tax on the rents received.  The Morehouse appeal was finalized last year in favor of the taxpayer.  However, the IRS recently issued a non-acquiescence and asserts that it will assess self-employment tax on any CRP payments where the taxpayer is not receiving social security benefits even if they are passive landlord.  Even though they did not appeal the Court’s decision, they still disagree with the Court (typical IRS).

Roger does a good job of breaking down the details of the issue and provides guidance on whether you need to file the form or not. 

I agree with Roger that the IRS is wrong in imposing self-employment tax on non-farmers. I am more willing to disclose than Roger, and I think preparers should discuss disclosure with clients.

 

Russ Fox, De Minimis Rule Change Is Better than I First Thought. “Normally when you read something that’s from the IRS, you expect to find ‘gotchas.'”

William Perez, Year-End Tax Planning Tips for Investors

Robert D. Flach, FINE WHINE! “Forced ethics CPE will not reduce tax fraud!”

Kay Bell, Hunters’ game plan: donating meat to feed the hungry

Peter Reilly, Hobby Lobby Owners Win First Round In $3 Million Tax Refund Case

 

Jason Dinesen, From the Archives: Take the Money and Run? The Tax Consequences of Winning a Home in a Giveaway, Part 2

 

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Alan Cole, Universal Savings Accounts Introduced in Congress (Tax Policy Blog). “The bill, sponsored by Senator Jeff Flake and Representative Dave Brat, would allow Americans age 18 or older to open an account to which they could contribute $5,500 of after-tax money. The money could be invested in bonds and equities, and grow tax free.”

Renu Zaretsky, On Highways and Tax Bases. Today’s TaxVox headline roundup covers efforts to pass an elusive permanent highway funding bill, among other things.

 

TaxProf, The IRS Scandal, Day 931Day 932,Day 934Day 935. Day 934 is probably the best of this holiday weekend’s crop, with discussion of the systematic weakening of inspectors general by the administration. “Last year, 47 of the nation’s 73 federal IGs signed an open letter decrying the Obama administration’s stonewalling of their investigations.”

Robert Wood, Wesley Snipes Sues IRS Over Abusive $17.5M Tax Bill, False Promise Of ‘Fresh Start’. Mr. Snipes has not previously shown good skill with the tax law, and I don’t think he’s starting now.

 

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Snipes strategy fails in Bakersfield

Friday, August 5th, 2011 by Joe Kristan

The team of tax geniuses that got Floridian Wesley Snipes where he is today was also active out west. A Bakersfield man got bad news this week from two different courts after working with tax advisors linked to the jailed actor.
Mark DeVries was a plumbing contractor. He stopped filing tax returns, and in time IRS agent RA Chynoweth was assigned to find out why. The Tax Court outlines the unconventional approach Mr. DeVries and his advisors took with the IRS examination:

Petitioners’ representative and attorney, Milton H. Baxley II (Mr. Baxley), sent letters to the institutions to which RA Chynoweth issued summonses. Petitioners authorized both Mr. Baxley and Mr. Bryan Malatesta, on Forms 2848 attached to each of the letters, to represent them for the years 1985 through 2004. The letters stated that the relevant IRS summons was unauthorized by statute, the Code has not been enacted as positive law, the IRS is not an agency of the United States government and the institution will be held liable if the requested documents are released without court order. Mr. DeVries and the IRS were each sent a courtesy copy of each of the letters.
Later that year, Mr. Devries’ son Jason Henry DeVries sent an invoice for $1 million to RA Chynoweth, billing the revenue agent for the use of purportedly copyrighted property.

Mr. Baxley was involved in the Snipes IRS examination too. He was enjoined in 2003 from a number of tax activities.
The rather aggressive response to the IRS exam continued. Again from the Tax Court:

During the examination, Mr. DeVries also made a Freedom of Information Act (FOIA) request for RA Chynoweth’s personnel file.
Mr. DeVries filed a lawsuit in the California Superior Court, Kern County, against IRS Revenue Officer Douglas McDonald and RA Chynoweth in 2002.8 Mr. DeVries alleged interference with contractual relations, libel, slander, nuisance, intentional and negligent infliction of emotional distress, trespass, conspiracy and imposition of a constructive trust. Mr. DeVries sought over $50 million in damages plus significant punitive damages and injunctions. He caused RA Chynoweth to be served with the lawsuit by a process server at his personal residence. Mr. DeVries’ lawsuit was eventually dismissed.
Ultimately, petitioners’ efforts to derail RA Chynoweth’s investigation failed.

Failed? Imagine that.
The aggressive approach failed yesterday in Tax Court, which upheld 75% penalties for fraudulent failure to file tax returns. It failed also in the criminal case that resulted from the exam; on Monday a federal judge sentenced Mr. DeVries to 27 months in prison — short of Mr. Snipes’ 36 months, but no fun in any case.
The Moral? Suing your IRS agent for “libel, slander, nuisance, intentional and negligent infliction of emotional distress, trespass, conspiracy and imposition of a constructive trust” hasn’t worked yet. Perhaps a less confrontational approach to IRS exams would have been wise.
Cite: DeVries, T.C. Memo. 2011-185

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Wesley Snipes will get to finish his sentence

Tuesday, June 7th, 2011 by Joe Kristan

20101209-1.jpgActor Wesley Snipes was unable to play a victim well enough to get the U.S. Supreme Court to hear an appeal of his tax crime conviction. That means Mr. Snipes will complete his 3-year sentence on or about July 19, 2013. He has the consolation of knowing that after he is free, his former advisor Eddie Kahn will be securely held in the arms of the Bureau of Prisons until sometime in 2026.
The Tax Prof blog has a roundup. Additional blog coverage from TaxGrrrl , Russ Fox, Smartmoney Tax Blog, and Hit and Run.
Related: Wesley Snipes: victim of the system?

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Advice from Wesley Snipes’ tax helpers bites a dentist

Thursday, June 2nd, 2011 by Joe Kristan

A federal appeals court has upheld the tax evasion conviction and sentence of a Florida dentist who relied on the inane tax protester theories of American Rights Litigators, the outfit that helped get Wesley Snipes where he is today. From the opinion:

Maggert, a dentist, worked for several dental offices as an independent contractor. In 1998, Maggert and his wife attended a seminar by American Rights Litigators (“ARL”) and Eddie Kahn at which they were told they did not have to pay federal income tax. Maggert relayed this information to his accountant, who counseled Maggert against ARL’s advice and ended their professional relationship when Maggert persisted.

He then proceeded with some unorthodox business structure planning:

Beginning in 2002, Maggert instructed the accountants for the dental offices where he worked to make his paychecks payable to Total Business Systems, LLC, a Florida corporation, or to Mark’s Word of Faith International, a Nevada corporation.

The articles of incorporation for Mark’s Word of Faith International listed Maggert as the “Presiding Patriarch (Overseer).” Maggert’s wife signed the articles of incorporation as a witness and “Scribe.” Maggert’s wife admitted there was no such religious organization and that Maggert was not a spiritual leader or priest.

No word if there were non-Presiding Patriarchs.
Florida Dentists seem to have had more than their share of tax problems. On the plus side, the dental health of the federal prison system may be better than it has ever been.
Cite: Maggert, CA-11, No. 10-14112 (5/31/2011)

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Wesley Snipes tries last futile gesture

Thursday, March 3rd, 2011 by Joe Kristan

Already serving time for tax charges, Wesley Snipes has appealed to the U.S. Supreme Court, reports the TaxProf. The chances of the court choosing his case are just ahead of the chances of Justice Ginsberg going on Dancing With the Stars next season.

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Wesley Snipes: victim of the system?

Thursday, December 9th, 2010 by Joe Kristan

20101209-1.jpgWesley Snipes is set to report to federal prison today to start his three-year sentence on tax charges.
It’s sad when somebody goes to jail. Even where a sentence is warranted, it’s a waste of potential. Yes, prison sentences keep bad guys off the street and encourage the rest of us to not follow bad examples, but even where imprisonment is necessary and deserved, it’s not a happy thing.
It’s sadder still if the sentence is unjust. Aside from Mr. Snipes himself, there are folks who think he’s getting a very raw deal. For example, Tim Cavenaugh at Reason.com:

More specifically, he shouldn

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Wesley Snipes starts new production December 9

Thursday, December 2nd, 2010 by Joe Kristan

From E! Online:

The U.S. Marshal’s Office has ordered the Blade star to report to a federal penitentiary in Pennsylvania on Dec. 9 to begin serving his three-year sentence for failing to pay his taxes.
The big question: will he surrender?

While he didn’t show great smarts by getting tax advice from Eddie Kahn, I think he’s smart enough to know that being a fugitive won’t get him back on the set any sooner.

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Snipes hunt nears end

Friday, November 19th, 2010 by Joe Kristan

The Defendant Snipes had a fair trial; he has had a full, fair, and thorough review of his conviction and sentence by the Court of Appeals; and he has had a full, fair, and thorough review of his present claims, during all of which he has remained at liberty. The time has come for the judgment to be enforced.

Wesley Snipes has lost what appears to be his final appeal of his 2008 tax conviction and three-year prison sentence. A federal district court has rejected his request for a new trial and ordered him to report to start his sentence when directed by the Bureau of Prisons.
UPDATE, 11/20: The TaxProf has a roundup.

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20 more for Eddie

Tuesday, August 31st, 2010 by Joe Kristan

Wesley Snipes’ tax guru’s vacation from the tax advice business has been extended. From a Department of Justice press release (no free link yet available):

Four promoters of a Florida-based business that sold illegal tax defiance schemes, American Rights Litigators/Guiding Light of God Ministries (ARL), were sentenced today by U.S. District Judge Royce C. Lamberth, the Justice Department and Internal Revenue Service (IRS) announced today. All four defendants were convicted in May 2010 following a one-month jury trial.
Eddie Ray Kahn, formerly of Sorrento, Fla., was sentenced to 20 years in prison for conspiracy to defraud the United States and to commit mail fraud and one count of mail fraud. Stephen C. Hunter, formerly of Candler, Fla., and Danny True, of Deltona, Fla., were sentenced to 10 years in prison for conspiracy to defraud the United States and three counts of mail fraud. Allan J. Tanguay, of Flagler Beach, Fla., was sentenced to 10 years in prison for conspiracy to defraud the United States and to commit mail fraud and one count of mail fraud.

Quatloos provides a wonderful description of Mr. Kahn:
Eddie Kahn of “American Rights Litigators

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Wesley: it could have been worse

Thursday, August 26th, 2010 by Joe Kristan

Wesley Snipes is still fighting his 3-year prison sentence for taking the foolish tax advice of Eddie Kahn.
While Mr. Snipes is understandably unexcited about going to Club Fed, it could have been much worse. A Florida dentist yesterday received a 42-month sentence for tax violations connected to Mr. Kahn. So maybe 36 months isn’t so bad.

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