IRS Hits Wyclef With $2.1 Million In Tax Liens

Shortly after discussing his plans to run for president in Haiti, Wyclef Jean was hit with a federal tax lien. The musician reportedly owes the IRS over $2.1 million in unpaid taxes. Check out the following story on Wyclef’s tax problems courtesy of The Smoking Gun.com:

In May, the IRS filed a $724,332 tax lien against Jean. Last July, the agency filed a $599,167 lien against the performer. And a $792,269 lien was lodged against Jean in July 2007. The liens cover taxes due on Jean’s individual 1040 returns for 2006, 2007 and 2008.

In 1998, Jean--whose given name is Nel Wyclef Jean--purchased a $1.85 million home at 8 Cameron Road in Saddle River, [New Jersey] where he lives with his wife Claudinette and their family. The three IRS liens were filed against Nel W. Jean at the Cameron Road address.

Other records show that Jean, 37, has previously been the subject of two smaller tax liens filed against him by the State of New Jersey and the New York State Tax Commission, both of which were eventually satisfied.

Following the Haitian earthquake, TSG reported on Jean’s questionable handling of the finances of his charitable foundation. Along with filing tax returns years late, Jean used his foundation to pay himself and a business partner more than $410,000 for rent, production services, and Jean's appearance at a benefit concert.

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Will a Call Center Tax Improve the Unemployment Problem?

Many of you may not be familiar with the newly proposed “call center tax,” however the topic is likely to gain a decent amount of attention over the next few weeks. To help all of my readers stay updated on this recent tax law development, I have put together the following article explaining this new and controversial tax proposal.

The Basics

Senator Charles Schumer (D, NY) recently proposed new legislation to tax US companies - $0.25 per call that is outsourced to a foreign call center. The idea behind the suggestion is to encourage businesses to use domestic call centers, in hopes that this would help reduce unemployment numbers. The proposed law would also require that consumers are warned that their call was being transferred to a foreign call center.

No tax would be imposed on domestic call centers, as Schumer is hoping this will “provide a reason for companies that have already outsourced jobs to bring them back.”

History of Job Losses

Statistics from the Technology Marketing Corp. show that between 2001 and 2003 the United States lost approximately 250,000 call center jobs to India and the Philippines alone. Additionally, reports show calls from within the U.S. are often routed to Indonesia, Ireland, Canada, and South Africa. Wages are much lower in these countries and companies operated in the United States can often reduce expenses by outsourcing calls.

Cost Effective?

Since 2003 the country has gone through an economic recession and more Americans are willing to take lower paying positions as unemployment problems continue. In fact, new call centers have been set up in North Dakota, Michigan and Nebraska that have become increasingly competitive with off shore centers.

Breaks, Not Penalties

As opposed to enacting a “penalty” excise tax on businesses that do outsource, some experts are suggesting that the government provide tax breaks to domestic call centers. This would help the economies of the states like North Dakota, Michigan and Nebraska and also provide incentive to businesses to keep call center and related jobs in the United States. However, other economists argue that in today’s international economy, call centers could easily reduce prices to stay competitive no matter what the federal government does.

Protection for Consumers

Senator Schumer claims the proposed law would serve to protect the privacy of American consumers. Many of the places to which calls are currently being outsourced do not have the same strict regulations regarding the storing of personal information such as credit card numbers. Therefore, to incentivize the use of domestic call centers by US companies, more consumers would know their personal information is being stored securely.

Potential Issues with WTO

Some critics of the proposal are warning that it could raise the potential of retaliation from other countries because of WTO agreements. Reportedly, taxing only international calls violates the “basic principle of national treatment.” According to WTO.org “imported and locally-produced goods should be treated equally — at least after the foreign goods have entered the market. The same should apply to foreign and domestic services.”

A Sarah Palin Tax Problem?

From Talking Points Memo:

Back in September, it was reported that a dinner with former Alaskan governor Sarah Palin was being auctioned by charity on eBay with a minimum asking bid of $25,000.

That was sort of funny.

It was later reported that the winning bid was $63,500, from a woman in Alabama.

That was less funny, and less widely reported.

But the tax consequences were apparently not thought about, because she might have realized taxable income of $63,500 with nothing to show for it.

There is a sometimes-overlooked tax regulation that states that you don't realize income by providing services to a charity, but that you do realize income by providing a service to someone else who then pays the charity for that service. (Treas. Reg. 1.61-2(c).)

If Sarah Palin had charged someone $63,500 to have dinner with her, she would have $63,500 of income, and she could later donate that money to charity and claim a charitable deduction subject to the limits on charitable deductions (usually 50% or 30% of adjusted gross income). The point made by the regulation, and by various rulings issued by the Internal Revenue Service, is that Palin can't avoid that result by assigning the right to have a dinner with her to a charity and letting the charity collect the money. As the Supreme Court first ruled back in 1930, the law taxes incomes "to those who earned them." Lucas v. Earl, 281 U.S. 111, 114 (1930).

So Palin should report the $63,500 as income, and then claim a charitable deduction for the same amount. If the charity is a "public charity" described in IRC section 170(c)(1), and she has at least $63,500 of other income, with no other charitable deductions, it might be a "wash," because she will also be entitled to a charitable deduction of $63,500 for the money that was (after all) paid to charity. But if she doesn't have that much other income, or if she claims other charitable deductions, it's possible that her charitable deduction will be less than the income realized, and she will end up having to pay federal income tax on money she didn't actually receive.

Former Rabbi Charged in $35M Tax Fraud Scheme

From Web CPA:

A former Chicago rabbi and nine others were charged in a $35 million tax fraud conspiracy, accused of filing 3,300 false tax returns in the names of federal prison inmates.

Marvin Berkowitz, 62, who had moved to Israel in 2003 to avoid earlier tax fraud charges, was arrested in Jerusalem, while two of his sons and a son-in-law were detained in Chicago and Los Angeles. They and six other defendants were charged in the scheme to file the phony refund claims, causing the IRS to issue refunds totaling more than $1.5 million, while various states issued tax refunds totaling more than $2.5 million. Berkowitz directed the fraud ring from Jerusalem and allegedly caused at least $800,000 in tax refunds to be paid to, or for the benefit of, at least eight members of his family, according to prosecutors.

The 10 defendants were charged by a Chicago grand jury in a 41-count indictment that was returned in February and unsealed Monday. The indictment remained sealed since February to coordinate the investigation and arrests with Israel.

The Hidden Problems with Forgiven Credit Card Debt

Let’s be honest, the economy is a nightmare. No one’s job is safe, people are losing their homes, and relying on their credit cards to make ends meet. Credit card companies are feeling the pinch too, and are responding by settling delinquent accounts for a fraction of what is owed.

Why would they do this? Simple: collection activities cost credit card company’s money. They have to pay the person calling you to nag about payments, they have to pay for all the letters and notices. And they may never recover all the money you owe. So, when a customer offers a lump sum payment to settle the entire debt, many companies are jumping at the chance. Moreover, whatever balance is not covered by the lump sum, the credit card company just forgives. Which is great for consumers… in the short-term.

Aside from the damage to your credit (though the delinquent payments certainly are not any better), there is a problem laying in wait for you next tax season. If your credit card company forgave your debt, the IRS calls that taxable income, reported to the IRS on a 1099-C. Oh yes, if you settle your $25,000 Visa bill for only $5,000, the “forgiven” twenty grand is now considered income. So, if you are taxed at 15%, your tax bill will increase by $3,000. The increased “income” can even bump you up into a higher tax bracket!

(It is important to note that if your debt is mortgage-related and is forgiven, this may NOT qualify as taxable income, thanks to the Mortgage Debt Forgiveness Act of 2007.)

You get your credit card debt handled, only to find a brand new tax debt waiting for you. What a trade off, eh? Of course there are some ways to get around this. A title 11 bankruptcy can relieve you of the tax debt. Or you can claim insolvency (i.e. your total debts are higher than the fair market value of your assets). Neither option sounds very appealing.

One would hope that the government would see this problem as a major issue, given the large numbers of people currently dealing with overwhelming credit card debts. However, to date, no legislation on par with the Mortgage Debt Forgiveness Act of 2007 has been introduced. And with the inherent inefficiency of Congress, any new legislation would likely be too late to help the millions of struggling Americans with debt today.

10 Professional Athletes that had IRS Tax Problems

As we all have heard, President Obama’s recent nominations have had to answer for some past tax transgressions while under consideration by the U.S. Senate. However, politicians are not the only ones with tax problems. Dozens of athletes and celebrities often feel they are above the law, and do not pay proper taxes on their fortunes. In honor of angry, taxpaying sports fans everywhere, I have put together the following list of 10 professional athletes that had IRS tax problems.

1. Darryl Strawberry

Dodgers star, Darryl Strawberry first got in to trouble with the IRS in 1994 when he was put under investigation for tax fraud. The IRS tacked him with tax evasion, and he had to pay back $350,000 in back taxes, serve 3 years of probation, six years of home confinement, and complete 100 hours of community service.

2. Lawrence Taylor

Former Giants linebacker, Lawrence Taylor filed an incorrect federal income tax return back in 1990. Taylor pleaded guilty to the tax charges in 1997, and was punished with three months house arrest, five years probation and 500 hours of community service for income tax evasion.

3. Pete Rose

Baseball favorite, Pete Rose, also got in to some trouble with the government in 1990, when he filed a false income tax return. Despite his celebrity status, Rose was sentenced to five months in a correctional facility, three months in a community treatment center, 1,000 hours of community service and a $50,000 fine.

4. Helio Castroneves

The recent controversy around Indy 500 racer Helio Castroneves and his supposed $5 million tax debt has shed light on the tax problems sports stars can get in to. He is currently being tried for evading taxes on a licensing deal that he claims to never have received a dime from. Only time will tell whether the Indy 500 and dancing with the stars celebrity actually committed the tax crime.

5. Willie McCovey

Hall of Famer Willie McCovey, like many other athletes who ran in to tax trouble, did so by forgetting to claim cash made during autograph signing. While McCovey pleaded guilty to the crime, he also claimed to have committed it unknowingly, since he had a professional handle his accounting. He was sentenced to two years of probation and fined $5,000.

6. O.J. Simpson

Although infamous for more than his athletic abilities, O.J. Simpson upset the IRS enough to be put on the California tax shame list. His tax debt was over $1.5 million, and he stayed on the list for more than a year.

7. Jesse Owens

The late 1930’s Olympic winner Jesse Owens got himself into trouble with the IRS. After the Olympics, Owens tried multiple business ventures in the United States to profit off his newly found fame. However, one of his ventures lost Owens a fortune and rendered him unable to pay his full tax liability. As a result, Owens was forced to declare bankruptcy.

8. Boris Becker

Famed tennis player and bad boy, Boris Becker, ran right in to tax trouble when it was discovered his apartment was not his priority residence, as previously claimed. As a result, he was given two years probation, fined $500,000, and ordered to pay expensive court fees.

9. Joe Louis

The infamous boxer Joe Louis was not much of a troublemaker before the taxman got to him. In fact, he donated money to the government after the attacks on Pearl Harbor, and even provided entertainment and uniforms to thousands of army troops. However, as tax rates increased Louis began to unknowingly accumulate back tax liabilities. Although he came out of retirement to help pay off his tax debts by fighting again, he died before he was able to fully repay the IRS.

10. Barry Bonds

AAmongst allegations of steroid use, Barry Bonds was also said to have evaded $80,000 in taxes. As of 2009, Bonds is still fighting both cases.

Obama's Trade Rep Pick Owes Almost $10,000 In Taxes

From CNN.com:

Former Dallas, Texas, Mayor Ron Kirk, who is President Obama's nominee to be the U.S. trade representative, owes nearly $10,000 in taxes. He's the fourth Obama pick that has come under fire for tax issues.

Kirk's tax returns for 2005, 2006 and 2007 were reviewed by the Senate Finance Committee as part of the vetting process, according to a report released by the committee Monday.

The committee found that Kirk failed to report as income $37,750 in honoraria collected for 16 speaking engagements at Austin College over those three years. One year, he deducted honoraria from four events as charitable donations though he hadn't reported them as income, according to the committee report.

He also deducted too much for the cost of tickets to see the NBA Mavericks, reporting the entire $17,382 as business expenses, the report says.

Kirk has agreed to pay the $9,975 he owes from amended returns, according to the report.

"The mayor is working with the Finance Committee on a few minor issues," White House spokesman Ben Labolt said, adding that the "nomination is on track."

Other Executive Nominations that had Tax Problems

Over the past month, there has been a lot of controversy surrounding the tax problems of Obama’s executive nominations—and their inevitable withdrawals. In the discussions online, many have questioned Obama’s choices, and potential decision-making skills. However, if you look at the history of executive nominations, you will see that Barack Obama was not the first to President to choose candidates with tax problems for his cabinet.

1. Zoe Baird

Former President Bill Clinton's first nominee for Attorney General withdrew her name for the position after it came in to the light that she had been evading taxes. She had been employing a Peruvian couple, who were illegal immigrants, to clean her house and provide nanny services. However, Baird was not paying the required social security and employment taxes for the couple, and broke federal law by hiring undocumented workers.

2. Kimba Wood

A mere two weeks after Baird withdrew her name for the nomination, her new replacement (Kimba Wood) withdrew her name as well. Wood had similar problems surrounding taxes and undocumented workers, and the term "nanny gate" began to spread. As it turned out many high-ranking officials had been taking advantage of illegal immigrants for domestic services for several years.

3. Linda Chavez

President Bush's 2001 pick for labor secretary was forced to withdraw due to tax evasion and an illegal worker in her home as well. Chavez had been employing a Guatemalan woman for two years and had paid only paid her a total of around $1,500. In addition to breaking tax laws, Chavez had also broken numerous employment and immigration laws.

4. Bernard Kerik

As a highly respected former police commissioner, Bernard Kerik was chosen as Bush’s 2004 nominee for homeland security secretary. Unfortunately, Kerik had gone years without paying the proper employment and social security taxes on his nanny and housekeeper.

5. Shirley Chater

Ironically chosen as Clinton’s nominee as head of the Social Security Administration, Chater had failed to pay social security taxes on a part-time babysitter for a decade or so before her nomination. However, before her nomination, Chater paid the back taxes, and saved herself from having to withdrawal.

6. Charles Ruff

Ruff did not make it long as Clinton’s nominee for deputy attorney general, as it quickly was discovered that he had failed to pay social security taxes on a woman he employed to clean his house for eight consecutive years.

7. Stephen Breyer

Nominated for the Supreme Court in 1994, Breyer took the smart route and came clean about his tax evasion in order to avoid being dropped for consideration. Like Chater, he had failed to pay social security taxes on a woman performing domestic services for him, but paid the back taxes prior to his nomination.

8. Bobby Ray Inman

Clinton’s 1994 nominee for defense secretary, Bobby Inman, had no choice but to withdraw as he too had failed to pay social security taxes on a housekeeper.

9. Ron Brown

Clinton’s commerce secretary was also under the media light for failing to pay social security taxes. Like many before him, Brown was under the impression that he did not have to pay taxes on employees that only worked so few hours.

10. Michael Carns

Last on my list is Michael Carns who was a former Air Force general chosen by Clinton in 1995 to head the central intelligence agency. Unfortunately, he too had evaded social security taxes on a household employee, and even had a pending lawsuit failure to pay a former employee.

Nominees' Tax Problems Could Prompt More People To Cheat

From USA Today:

The high-profile tax missteps of three of the Obama administration's key nominees could make it more difficult for the IRS to enforce the law, tax preparers and academicians say.

Numerous studies have shown that taxpayers are less likely to comply with the law if they believe other taxpayers are cheating, says Jason Mazzone, associate professor of law at Brooklyn Law School. "Taxpayers don't like to be suckers," he says.

On Tuesday, tax problems derailed the nominations of former Senate majority leader Tom Daschle for secretary of Health and Human Services, and Nancy Killefer as the government's chief performance officer. Earlier, Treasury Secretary Timothy Geithner's nomination was delayed by revelations that he had failed to pay self-employment taxes.

"I think a number of Americans will take a look at this and say, 'If they're getting away with it, why shouldn't I?' " says Scott Sandstrom, associate professor of accounting at the College of the Holy Cross in Worcester, Mass.

Americans are among the most law-abiding taxpayers in the world, in part because the IRS uses computer matching programs that make it difficult to cheat, says Walter Pagano, a former IRS agent who is a partner at accounting firm Eisner.

According to a new survey by the IRS Oversight Board, 89% of Americans believe it's unacceptable to cheat on taxes.

Still, the IRS estimates that $300 billion in taxes owed goes uncollected every year.

Another Tax Issue Surfaces for Rangel

From NY Times.com:

Representative Charles B. Rangel’s legal team is reviewing his tax records to determine whether the congressman received a homestead exemption on a house he owned in Washington while living in several rent-stabilized apartments in New York City.

The situation is potentially troublesome for Mr. Rangel, a Harlem Democrat who is already the subject of a wide-ranging internal House investigation stemming from an assortment of ethical concerns.

Rent laws in New York City and the state require that tenants occupying rent-stabilized apartments use those units as their primary residences. At the same time, the District of Columbia’s Office of Tax and Revenue extends the homestead tax deduction only to properties that are primary residences.

The internal review by Mr. Rangel’s legal team was prompted by a report in Sunday’s edition of The New York Post quoting a District of Columbia tax official as saying that Mr. Rangel received a homestead tax exemption for a four-bedroom home he owned in Washington. The official told the newspaper that the congressman received the tax exemptions from 1995 through 2000, when he also had the use of rent-stabilized apartments in his district in Harlem.

In a statement released on Sunday night, Emile Milne, a Rangel spokesman, said: “The New York Post has raised a question about the tax treatment of a property the Rangels once owned. The property was sold more than eight years ago and we have asked Congressman Rangel’s accountant to retrieve the records about it.”

Wesley Snipes Claims Race Discrimination in Tax Liability Cases

Wesley Snipes, who we all know is in trouble with the Federal government for not paying income taxes, has used numerous reasons to try and explain his tax debts but now he is claiming racial discrimination in an attempt to throw out his criminal case. According to this article from the Smoking Gun, Mr. Snipes and his legal team have claimed that prosecutors "deliberately chose the most racially discriminatory venue available" for his trial to take place. The documents claim that the current location in Florida is a "hotbed of Klan activity" where "substantial pockets of prejudice exist." These are all reasons cited in an attempt to get Snipes trial moved from the Ocala, Florida to the Southern District of New York.
In the motion Snipes attorneys claim the Federal government’s lawyers are trying to get an "all-white Southern jury" to hurt Ms. Snipes chances at a fair trial. But, as if the motion alone wasn’t enough, Mr. Snipes also conducted a public opinion roll comparing racial attitudes in both Ocala and New York. This is Snipes second attempt to get the venue for his trial changed; a federal judge rejected the first.