Articles Posted in Tax Litigation and Tax Controversy

Tax problems abound for Lauryn Hill, who won five Grammys for her 1998 debut album. Her album, “The Miseducation of Lauryn Hill,” might describe her alleged actions to stop paying taxes and subsequent consequences. Former member of the Fugees band, Ms. Hill, who’s also an actress, has been charged by the the Department of Justice with Failure to File a Tax Return, but not tax evasion, on gross income of slightly more than $1.8 million over a three-year period from 2005 through 2007.

In her response to the prosecution regarding her criminal tax problems, Ms. Hill posted a 1,270-word manifesto at mslaurynhill on Tumblr.

“For the past several years, I have remained what others would consider underground. I did this in order to build a community of people, like-minded in their desire for freedom and the right to pursue their goals and lives without being manipulated and controlled by a media protected military industrial complex with a completely different agenda. Having put the lives and needs of other people before my own for multiple years, and having made hundreds of millions of dollars for certain institutions, under complex and sometimes severe circumstances, I began to require growth and more equitable treatment, but was met with resistance.”

Ms. Hill goes on to further describe her tax dispute: “I did not deliberately abandon my fans, nor did I deliberately abandon any responsibilities, but I did however put my safety, health and freedom and the freedom, safety and health of my family first over all other material concerns! I also embraced my right to resist a system intentionally opposing my right to whole and integral survival.”

Finally she responds to her tax problems: “I conveyed all of this when questioned as to why I did not file taxes during this time period. Obviously, the danger I faced was not accepted as reasonable grounds for deferring my tax payments, as authorities, who despite being told all of this, still chose to pursue action against me, as opposed to finding an alternative solution.”

Ms. Hill, who is facing one year in prison and a $100,000 fine for each year she failed to file, is one of a number of celebrities whose alleged tax fraud have made headlines, including Wesley Snipes, currently serving a three-year sentence.
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Tax fraud penalties were recently upheld against Miguel Robleto of Oregon by the 9th circuit. These were civil tax fraud penalties pursuant to IRC Section 6663, not criminal tax evasion charges under IRC Section 7201. The difference is that although you can wind up paying a lot of money if civil tax fraud penalties are imposed at least you won’t go to jail. In some cases the IRS brings criminal tax evasion charges, and then goes after you for the taxes, plus a civil tax fraud penalty. Although Mr. Robleto probably doesn’t think so he may have been lucky that the IRS didn’t bring criminal tax evasion charges.

The civil tax fraud penalty under IRC Section 6663 is 75% of the tax that is owed. The process of imposing the civil tax fraud penalty is a lengthy one. Generally the first step is a tax audit, sometimes followed by an appeal to the Internal Revenue Service’s Appeals Division. Next the IRS will issue a notice of deficiency, after which the taxpayer may petition the United States Tax Court to decide his case. In order for the Tax Court to uphold the fraud penalty it must find clear and convincing evidence of tax fraud. That’s just what happened in Mr. Robleto’s case.

Mr. Robleto was a small business owner, and under the auspices of the Oregon DMV charged non-English speakers a fee for administering Oregon drivers’ license exams. Although the Tax Court determined, and Mr. Robleto pretty much admitted, that he failed to report over $300,000 spread over four years his excuse was that he had never operated a business before, that he was overwhelmed by all of the customers he had, that he was totally inept in handling the financial aspects of his business, that he couldn’t even pay his utility bills on time, that he had unopened envelopes of cash lying around his home, and that the filing of his incorrect income tax returns was at worst grossly negligent, but not fraudulent.

The Tax Court didn’t buy it. Instead the Tax Court looked at various so-called badges of fraud including inadequate books and records, concealment of ownership of assets, cash transactions and cash hoarding. As the Tax Court so subtly put it:

Dealing in large amounts of cash and not keeping any records thereof often go hand in hand with intentional underreporting of income and taxes. Noteworthy are [Robleto’s] placement of assets in nominee names and [his] lack of cooperation.

Robleto probably wasn’t helped by the fact that he had a safe in his house with almost $200,000 of cash contained in it, or that he had a side business of preparing tax returns. He hired an accountant to prepare his own tax returns, but neglected to tell the accountant about the income from the preparation of the tax returns.
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A “tax attorney’s” conviction for aiding and abetting tax fraud I am not sure that makes him a tax attorney). The District Court sentenced the attorney to 30 months in prison and 3 years of supervised release. While this seems like a light sentence don’t forget that the tax attorney’s license to practice will most likely be revoked as a consequence of this conviction.

The tax attorney, Barry Jewell, suggested to his client, Carl Evans, a scheme by which a fictitious company agreed to fund the client’s litigation in exchange for 100% of amounts awarded over $250,000 as a result of the litigation. No such offer existed and Evans funded the litigation himself, but Jewell provided Evans a fictitious letter making the offer, on the basis of which Evans’s accountant innocently prepared his tax return. With the aid of Jewell, Evans created a new company, forged documents to backdate its existence, and used it to hide the income exceeding $250,000 that purportedly went to the company that fictitiously funded his litigation.

As a part of his appeal, Jewell contended that there was insufficient evidence to find him guilty of aiding and abetting tax evasions. The appellate court disagreed. Evans testified at the trial that Jewell concocted the above scheme for the purpose of Evans’s tax evasion and the IRS testified that a tax underpayment of over $700,000 resulted. The appellate court ruled that these facts were sufficient for a jury to find that Jewell aided and abetted tax evasion and affirmed the lower court’s conviction.
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A controversial Southern California civil rights attorney has been disbarred after being convicted on federal charges of tax evasion, bankruptcy fraud and money laundering, according to the California Bar Journal.

Stephen G. Yagman, 66, had been suspended from the practice of law since August 2007, when he was convicted of one count each of tax evasion and bankruptcy fraud and 17 counts of money laundering.

He was convicted of attempting to avoid paying more than $100,000 in federal taxes and sentenced to three years in federal prison. He also faces two years of supervised release after completing his prison sentence. Prosecutors had requested nine years behind bars. A tax attorney should be consulted as early as possible in such cases.

The government alleged that Yagman hid money and transferred his Venice Beach home into his girlfriend’s name before declaring bankruptcy. He is also accused of incurring federal tax liabilities totaling more than $158,000 from 1994 to 1997, when he paid far less than what was owed, according to his own tax returns.

Prosecutors say he also failed to pay federal payroll taxes owed by his law firm, Yagman & Yagman, P.C. They say he hid more than $776,000 in various accounts and made numerous misrepresentations when he filed for both personal and corporate bankruptcy in 1999.

Yagman claimed he was targeted because of the numerous civil rights battles he had with the federal government. In 2002, he was part of a group that filed challenges to the detention of suspects at Guantanamo Bay. In the 1990s he pursued charges in connection with the case of Randy Weaver and the Ruby Ridge shooting. He often targeted the LAPD with allegations of police brutality and civil rights violations.
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