[Ed. Note: This post is reprinted in its entirety from Attorney James McGrath's Internal Investigations Blog. Jim is a friend and great lawyer specializing in Foreign Corrupt Practices Act cases and internal corporate investigations. As you read this story and his blog (and we recommend that you follow Jim's blog if this is a topic that interests you), please remember that we are interested in the other sides of these cases - whistleblowers who come forward to report fraud and corporate abuse.]

Like passersby to a horrific accident on the highway, witnesses to the unfolding Wal-Mart de Mexico scandal continue to gawk at the carnage.  And like the speeding, in-and-out-of-lanes, reckless driver that causes his own near-fatal crash, the men at the wheel of the Wal-Mart bus – executives in Mexico and in Bentonville – are hard-pressed to garner sympathy.  The company’s internal investigators should not share that same fate simply because the “tone at the top” seemed wrong.

The complete sets of facts in this case are yet to be determined.  Indeed, there are now going to be two of them:  those attendant upon the underlying Mexican bribery and those attendant upon Bentonville’s purported sabotaging of its in-house investigation.  The first is an FCPA matter in its purest form, while the latter is more of a corporate governance issue.  Regardless, and as any good litigator will attest, fact-finders – and the on-looking public – cannot make an informed decision on guilt or innocence until all of the evidence is produced.

Nevertheless, some of the facts set forth in The New York Times piece that broke this story seem firmly established, in that they were gleaned from Wal-Mart’s own records.  They deal primarily with the timeline and progress of the company’s own Corporate Investigations team and the seemingly commendable job that it did in probing the illicit payments in Mexico at the heart of this FCPA matter.

According to the Times, the internal probe of payoffs in Mexico started in 2005 and was under the nominal direction of Kenneth H. Senser, then Wal-Mart’s Vice President for Global Security, Aviation and Travel. His right-hand man was Joseph R. Lewis, the company’s Director of Corporate Investigations and former top F.B.I. official. Just before this matter arose, these two had found their 70-person unit “wholly inadequate for an organization the size of Wal-Mart” and together they led an effort to strengthen it.

By the time the Mexico bribery allegations surfaced, they had succeeded in hiring four “special investigators” that would be assigned the “most significant and complex fraud matters.” In addition, Corporate Investigations was also to be tasked with handling all allegations of misconduct by senior executives.

One of these “special investigators,” Ronald Halter, was assigned to lead the preliminary inquiry into the Mexico corruption matter.  He had been with Wal-Mart only a few months, but he had spent 21 years as an investigator with the F.B.I. and spoke Spanish.  He would get help from a senior auditor, Bob Ainley, and several Spanish-speaking junior auditors who were sent to Mexico City with him. They started work at Walmex’s corporate headquarters on November 12, 2005 and by the end of that first day had found 441 payments that might have been bribes.

As expected, Halter and his team ran down leads, interviewed witnesses, and accumulated documentation.  The story provided to them by former Walmex executive and whistleblower, Sergio Cicero Zapata, apparently was corroborated by documentary evidence and in a confidential report to his superiors, the lead investigator wrote that there was “reasonable suspicion to believe that Mexican and USA laws have been violated.”  Halter recommended that Wal-Mart expand its investigation.

Confronted with this evidence of corruption in Mexico, top Wal-Mart executives ultimately focused more on damage control than on rooting out wrongdoing, as the Times so aptly put it.  This took the forms of attempting to kill the messenger and frustrating further inquiry by a number of internal machinations.  On the second point and most astoundingly, it included ultimately transferring primary responsibility for the internal probe to Walmex’s general counsel, who was himself among those alleged to have authorized bribes.

By the Times account, Joseph Lewis seems to have backed his people in the field.  And when he was apprised of the transfer of the investigation to Walmex’s general counsel and the lawyers prompt exoneration of his fellow executives, his appraisal was scathing. “Truly lacking,” he wrote in an e-mail.

Lewis had an investigative predecessor and an ally in Maritza I. Munich, then General Counsel of Wal-Mart International.  “The wisdom of assigning any investigative role to management of the business unit being investigated escapes me,” she wrote in an e-mail to top Wal-Mart executives when that move was finally made.  The investigation, she urged, should be completed using “professional, independent investigative resources.”

Munich was familiar with the challenges of avoiding corruption in Latin America.  Before joining Wal-Mart in 2003, she had spent 12 years in Mexico and elsewhere in Latin America as a lawyer for Procter & Gamble.  At Wal-Mart, she had pushed the board to adopt a strict anti-corruption policy that prohibited all employees from “offering anything of value to a government official on behalf of Wal-Mart.” It required every employee to report the first sign of corruption, and it bound Wal-Mart’s agents to the same exacting standards.

As the original recipient of the Cicero e-mail reporting the bribes in Mexico, she had hired Juan Francisco Torres-Landa, a prominent, Harvard-trained lawyer in Mexico City, to debrief Cicero within days. Ms. Munich even flew in from Bentonville for his third debriefing.  It was from these humble beginnings that the investigation susequently made its way to Lewis’ desk.

Despite this support from a C-suite occupant, the Corporate Investigations team felt resistance to their mission in general and the Mexico probe in particular.

By the time the corruption in Mexico allegations made it to him, Lewis had ruffled executive feathers.  After doubling his unit’s caseload to roughly 400 per year, some grumbled that he acted as if he still worked for the F.B.I.  There he had supervised major investigations. They accused him and his people of being overbearing, disruptive, and naïve about the moral ambiguities of doing business abroad.

At the same time, Walmex executives were continuing to complain to Bentonville about the investigation; protests that “just never let up,” according to a Timessource.  Another source proffered his or her belief that Wal-Mart would have reacted “like a chicken on a June bug” had the allegations concerned the United States.  But because executives saw Mexico as a country where bribery was embedded in the business culture, it simply did not merit the same response.

In the end, these considerations – the disruption that investigations posed to doing business, the necessary moral ambiguities about doing it abroad, and the latent corruption perceived in Mexican business culture – appear to have won out.

Seemingly spurred by this decision, Maritza Munich left the company on February 1, 2006.  Before leaving, she drafted a memorandum that argued for expanding the investigation and giving equal respect to foreign anti-corruption statutes.  “The bribery of government officials,” she noted dryly, “is a criminal offense in Mexico.”

She also warned against allowing implicated executives to interfere with the investigation.

“Given the serious nature of the allegations, and the need to preserve the integrity of the investigation,” Munich wrote, “it would seem more prudent to develop a follow-up plan of action, independent of Walmex management participation.”

Joseph Lewis appears to have been a casualty of his own investigation, as well.  According to the Times, he left Wal-Mart earlier this year.  It does not indicate the circumstances of his departure, although it is hard to think that his work on this case burnished his chances for a friendly work environment and advancement in Bentonville.

It won’t be known whether Wal-Mart’s “tone at the top” and “buy-in” was for real or not until this matter is fully re-investigated and finally put to rest.  But as far as conducting the original investigation goes, the company’s own records appear to document a total failure of adherence to elemental – let alone, best – practices.

In speeding toward construction targets, store openings, and profitability, the people at the top of the Wal-Mart heap seem to have unwisely hurtled down an icy road.  That recklessness should not sully the reputations of the Corporate Investigations unit and its people who worked on this case and look to have been the only ones to recommend applying the brakes.

In recent years we have had very little good news for taxpayers under criminal investigation for unreported foreign accounts or tax evasion. While we have a great track record, nationally the U.S. Department of Justice boasts a conviction record in the high 90’s percentile.  Although that impressive record isn’t threatened, the number of cases brought by the IRS may shrink for the short term.

According to Businessweek (Ed. Note - we frequent post on Businessweek’s online Business Exchange publication), the Justice Department’s Tax Division has lost 30% of its prosecutors in the past month!  That’s great news for those under investigation but bad news for the IRS who must rely on DOJ to prosecute their cases.

Of course, the department’s spokesperson was quoted saying that, “Offshore non-compliance by U.S. taxpayers remains a top priority for the Justice Department’s Tax Division. We will continue to pursue those cases vigorously.” That may be difficult without prosecutors, however.

In the last two years, Justice has indicted dozens of bankers and taxpayers holding offshore accounts. These cases are in addition to the every day “bread and butter” criminal tax cases including conspiracy to defraud the treasury, failure to pay, failure to file returns, false returns and tax evasion.

The IRS operates on a first contact basis meaning that criminal prosecution can generally be avoided if the taxpayer makes the first contact with the IRS. Once the IRS comes knocking, however, its too late. The sudden loss of prosecutors and the pending offshore amnesty program (2012 Offshore Voluntary Disclosure Program or “OVDI”) make this an excellent time to come into compliance. Don’t do it without an experienced criminal tax lawyer, however.

If you have unreported accounts or know there are problems with your tax returns and want to fix those problems, call us immediately. We assist taxpayers with a wide variety of foreign bank reporting and criminal tax investigations. For a completely confidential consultation, contact attorney Brian Mahany at (414) 704-6731 or by email at brian@mahanyertl.com. All inquiries are protected by the attorney client privilege.

Mahany & Ertl - America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota. IRS legal services available nationwide.

James Stuart was convicted earlier this month of three counts of felony tax evasion. When he returns to court for sentencing he faces up to 15 years in prison.  His story hits very close to home. Literally. Stuart owned a business just a few miles from my house. His defense lawyer is also a friend and former mentor.

According to court filings and public records, Stuart owned New Age Chemical in Delafield, Wisconsin.  Until 2005, he filed and paid tax returns like most Americans. Something happened that year, however, that would ultimately result in Stuart finding himself in handcuffs a few short years later.

Prosecutors say that in September of 2005, Stuart directed his company to stop withholding taxes from his paychecks. He unilateraly declared himself an independent contractor instead of an employee. He also amended his tax return seeking a refund of all taxes he previously paid. In April of 2006, he filed a return claiming he earned nothing for 2005.

Stuart began a series of letters to the IRS claiming among other things that he was “duped” into thinking that he owed taxes and had never worked for an “employer.” The IRS rejected his refund requests and warned him that his arguments were frivolous. The government says that the IRS warned Stuart to seek the advice of a competent tax accountant or attorney and that his actions might lead to criminal prosecution.

Apparently those warnings went unheeded. In February of 2009, the IRS executed a search warrant at New Age Chemical and discovered that Stuart had earned significant monies from the business. No taxes were paid on those earnings and no returns filed for 2006 and 2007. (In 2005 he filed a return but claimed zero taxable earnings.)

Prosecutors say that the Wisconsin Department of Revenue, Wisconsin Tax Appeals Commission, and even relatives and a former accountant also tried to warn him that his claims had no merit.

Ultimately, Stuart was indicted and arrested for three counts of tax evasion. At his initial bail hearing, Stuart was ordered held without bail after apparently refusing to recognize the authority of the court.

Stuart was tried in early December in a federal court in Milwaukee.  His attorney claimed that Stuart had an erroneous but good faith belief that he didn’t owe tax.  A 1991 U.S. Supreme Court case, U.S. v. Cheek, says that a “good faith misunderstanding” of tax laws can be a defense to criminal tax charges. Unfortunately, recent court decisions say that the good faith exception is limited. A jury can convict if they believe that a person was simply being “willfully blind” to the obvious. In simple terms, a good faith mistake shouldn’t lead to a conviction but sticking your head in the sand like an ostrich and avoiding the obvious is no defense.

The jury was out for about 2 hours before coming back and finding Stuart guilty of all counts. While there are many arguments that one can make as to the legality of the tax code and the authority of the IRS to collect taxes, all of those arguments have been rejected by the courts.  Although a few people are acquitted each year of tax charges, getting a jury to go along with the so called Cheek good faith exception is difficult. Jurors feel that if they must pay their taxes so should the defendant.

The rare person that does get acquitted still must pay their taxes.  The acquittal only means the IRS can’t put you in jail. The civil authority of the IRS to seize property, bank accounts and levy wages isn’t affected by the criminal prosecution.

If you haven’t filed or paid taxes or believe you are under criminal investigation for tax crimes, contact an experienced criminal tax attorney immediately.

The law firm of Mahany & Ertl has helped many people under under criminal investigation. When your liberty is at stake, call us. We can help. For a confidential consultation, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at brian@mahanyertl.com

My grandmother would often say “It must be true, I heard it on TV.” That was years ago but people still believe things they see or hear on the TV, radio or Internet.  Now a federal grand jury in Los Angeles has indicted a radio talk show host and charged him with running a $20 million Ponzi scheme. Many of his listeners were also his victims.

The indictment says that John Farahi ran a Ponzi scheme from his Beverly Hills office.  During his talk show he would frequently solicit listeners to learn more about his investment opportunities. Prospective investors were told their money would be placed in “safe, low or no risk investments.” Some were told their money would be placed in FDIC insured CD’s while others were told their funds would be invested in government bonds. Prosecutors say he also told investors that he had his own insurance to protect their money.

Where did the money actually go?

Prosecutors say that much of it went to pay off earlier investors, a classic trait of Ponzi schemes.  To keep the scheme going, more and more money must come in to pay off earlier investors.  Ultimately, the scheme collapses under it’s own weight.

Prosecutors say much of the money also went to Farahi’s Beverly Hills home, cars and yacht.

As the scheme unraveled, Farahi became more desperate.  The indictment says he once used a forged deed to lull an investor to believe that his investment was secured by real estate. It wasn’t - the deed was forged.

Individual investors weren’t the only victims.  Prosecutors say that Farahi borrowed millions from Bank of America, Sun West and U.S. Bank.

Farahi is charged with wire fraud, bank fraud and mail fraud, among other things. If convicted he faces over 500 years in prison. He isn’t the only one facing his life behind bars, however. Farahi’s lawyer, David Tamman, has also been indicted. Prosecutors say that he is an experienced securities lawyer that prepared documents that he knew were false and conspired with Farahi to cover their tracks.

If this story isn’t bad enough, once the S.E.C. began investigating, Farahi is accused of perjury, obstructing justice, concealing evidence and witness tampering. The latter charge involved threatened or intimidated a witness to keep him from testifying.

Although Farahi was running so many scams, the interest he was claiming to pay (5%) was not astronomical.  Instead of appealing to people’s greed by promising outrageous rates of return, Farahi claimed to be a conservative investor.  That coupled with his talk show and Persian audience (his radio show was broadcast in Farsi) lulled many investors into a false sense of security.

What are the take aways from this story?

First, just because the promoter is a popular figure doesn’t mean the investment is legitimate. Most people know what they read on the Internet may be a hoax but many people still believe in radio and TV personalities. John Farahi was no Larry King or Walter Cronkite.  (Even then one should always be vigilant.) According to journalist / attorney John Maglich, several other radio and TV personalities have also been charged with fraud in recent years including a Minnesota radio host, Trevor Cook, who had a show  called “Follow the Money.”

The second lesson is to remember that many fraudsters prey on people in insular ethnic or religious communities. Just because the person that wants your money goes to your church or speaks your language doesn’t make him or her honest.

If you are the victim of an investment fraud, call us. Our securities fraud and asset recovery lawyers have helped people across the United States recover their hard earned money.  Often cases can be handled on a contingent fee basis.

For more information contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at brian@mahanyertl.com . All calls are confidential.

Mahany & Ertl - America’s Fraud Lawyers.  Offices in Milwaukee, Wisconsin; Detroit, Michigan & Portland, Maine. Services available in most locations.

by Brian Mahany

Most of the articles we post are designed to help people who themselves the victim of fraud or have difficult tax problems. Sometimes, however, we have to remind ourselves that we can’t save people from themselves. Take the example of Kemp Shiffer, an IRS Special Agent.

Several years ago Shiffer was the lead investigator in the successful prosecution of Joseph Conforte, owner of the infamous Mustang Ranch brothel in Reno, Nevada. Apparently not satisfied with his government salary, however, Shiffer designed to go into the prostitution business himself.

Kemp Shiffer now joins the ranks of former cops who are now convicted felons. He was convicted last month of transporting a woman across state lines to engage in prostitution. As a result of his jaunt across state lines he must also forfeit his Mercedes Benz.

IRS Special Agents are law enforcement officers. Like all IRS employees, they take an oath to uphold and enforce the laws. Special Agents assigned to the IRS Criminal Investigation Division, like Shiffer once was, carry weapons and have the authority to make arrests. It is sad to see any government employee cross the line into criminal behavior but cops who cross the line can expect a rough time in prison and from judges.

According to published reports, Shiffer headed up the investigation that brought down Conforte and the closure of one of Nevada’s less than reputable brothels. Apparently Conforte liked the lifestyle or the glamour (or the women) because shortly thereafter he and his lawyer allegedly invested in a different brothel, Petticoat Junction.

County officials in Nevada would not give him a permit for the prostitution business. Undeterred, Shiffer then went to California and recruited a prostitute to come work for him in Nevada. That’s when he was caught.

Shiffer faces 10 years when sentenced early next year.

Unlike the laws on prostitution, our tax laws, offshore reporting rules and regulations regarding money laundering and currency transactions are quite complex. There is much gray area and even prosecutors can’t always agree what is legal and what isn’t. If you find yourself caught in a jam, give us a call. Criminal or civil tax problems, we can help.

For more information, contact attorney Brian Mahany at (414)704-6731 (direct) or by email at brian@mahanyertl.com. All calls are kept in strict confidence.

Mahany & Ertl – America’s Tax Lawyers. Tax offices located in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine and San Francisco, California. Services nationwide.

A recent appeal stemming from a tax evasion conviction in a Manhattan federal court reveals why it is important to never give up hope. Attorneys Paul Daugerdas and Donna Guerin were convicted of numerous tax evasion related charges after a grueling 10 week jury trial earlier this year. Now it turns out that one of the jurors may have lied about her identity.

What’s one juror out of twelve? Everything in our legal system. Criminal defendants have a Constitutional right to be tried by a jury of their peers. Those potential jurors that are not qualified can be excused. A defendant must also be convicted by a unanamous jury. Remove just one juror and its impossible to know how a trial might have turned out.

According to the lawyers for the two on appeal,  juror Catherine Conrad lied about her qualifications. She claimed to be a “stay at home” Mom who never went beyond a degree in English. Apparently she is a suspended lawyer who lost her license to practice law because of chemical dependency and professional misconduct. A review panel refused to reinstate her law license because of mental competency issues and because of an active arrest warrant.

That’s not all of Conrad’s problems. Attorneys also say she failed to disclose several criminal convictions including two crimes of dishonesty - theft. She also apparently told cops that her husband was a mafia boss.

She is definitely someone I would not want sitting on a jury that was to decide my fate.

Problems with jurors happen more frequently than most people realize. A good white collar criminal defense lawyer never stops looking for the proverbial skeletons in the closet. Prosecutors sometimes lie. Cops make mistakes. Witnesses frequently lie, sometimes simply to save their own hide. And even jurors lie.

In 2006 I received a mistrial on behalf of a client in a felony drug case after it came to light that a juror didn’t even live in the district. Although many people lie to get off jury duty, some lie to get on a jury. Those folks are often the most biased and worst jurors.

Special praise goes to the prosecutor in this case. Conrad sent him a letter praising the government’s trial team. The lead prosecutor, Stanley Okula, did the right thing and turned over the letter to the court and defense. What that means, however, is that absent the letter, no one may have checked out the background of Conrad.

Good trial lawyers must always remember to check out everyone connected with the case. That includes jurors.

If you are accused of a serious felony or white collar criminal offense such as money laundering, wire fraud or tax evasion, call us. Our lawyers have defended people across the U.S. including some of the highest profile cases in the country. For a no obligation consultation, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at brian@mahanyertl.com

Very often criminal trials devolve into a “he said, she said” battle of the witnesses. Sometimes witnesses have different perceptions of the same event. On other occasions one of the witnesses is simply lying. Figuring out who is telling the truth is in the hands of a jury. Although neither the defense attorney nor prosecutor can knowingly call a witness that intends to lie, there has not been much protection for defendants faced with hostile witnesses. Until now.

In a major victory for criminal defendants, including those accused of white-collar crime, the 7th Circuit Court of Appeals in Chicago just ruled that in certain circumstances, the prosecutor has a duty to investigate his or her own witnesses (US v Freeman, June 2011).

The case is important because it comes from a federal appeals court. While only binding in Wisconsin, Indiana and Wisconsin, federal appeals decisions are widely cited and are often viewed as persuasive authority in other courts.

In the Freeman case, the appeals court said a criminal defendant was entitled to a new trial when a prosecutor allowed a key witness to testify; a witness the prosecutor knew or should have known might commit perjury and lie. Here the alert defense attorney had written to the prosecutor prior to trial and indicated that he believed the witness had lied during grand jury.

The case is significant because it now imposes an affirmative duty for prosecutors to investigate claims that witnesses may lie. Said the court, “[T]he governing principle is simply that the prosecutor may not knowingly use false testimony. This includes “half-truths” and vague statements that could be true in a limited, literal sense but give a false impression to the jury…[I]t is obvious that when the government received the letter from [the defendant’s] attorney, it knew there were problems with [the witness’s] testimony – problems it should have cleared up well before [the witness] was allowed to testify . . . .

“[W]hen the government learns that part of its case may be inaccurate, it must investigate. It cannot simply ignore evidence that its witness is lying. Here, the government abdicated its responsibility by failing to investigate . . .”

This case impacts both prosecutors and defense attorneys. Prosecutors that simply ignore suspicions or claims that a witness is lying may later see a conviction reversed on appeal. Although not discussed by the court, the implication is that defense lawyers must be sure to alert the prosecutor of any suspicions that a witness may lie. Because the court did not impose a duty to investigate every witness, good defense lawyers should put the prosecutor on notice whenever there is a suspicion that a witness may lie.

In many white collar prosecutions, co-conspirators often engage in a ‘race to the courthouse” in order to make a deal with prosecutors. Co-defendants embellishing their story in hopes of a better deal is a frequent problem.  Instead of ignoring the problem, prosecutors now should investigate whether their witness is telling the truth. Simply letting a jury decide is no longer the law of the land in the 7th Circuit.

If you are charged with criminal conspiracy, tax evasion, money laundering, wire fraud or other white collar criminal charge, contact us. Our criminal defense lawyers have years of experience defending individuals charged with federal and state fraud and financial crimes.  For a no obligation, confidential consultation, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at brian@mahanyertl.com

Mahany & Ertl, LLC - Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & San Francisco, California (coming soon). Services nationwide.

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[Ed. Note: This post contains one of the lighter moments in the tax field. Most of our posts are geared to current and more pressing tax issues.]

No one likes the tax man. No one. When I served as head of Maine’s state revenue service I paid my taxes but didn’t enjoy doing it. I also didn’t threaten to kill revenue department employees. Not everyone exercises such restraint. A recent indictment in the U.S. District Court for the Southern District of New York reveals that criminals can be both entertaining and stupid.

Many of us have lost our cool and said stupid things we instantly regretted. As a former agent, I have been on the receiving end of some of those stupid comments. I suspect that tow truck drivers that work for the city’s impound yard and meter checkers get their fair share of dumb comments too. It may be wrong but it’s human nature. Enter Charles Patterson of the Bronx. Patterson isn’t likely to win a Darwin award for advanced criminal behavior anytime soon.

According to an indictment earlier this month, the IRS says Patterson joined forces with Shamel Charles who at the time was operating a tax return preparation business known as “420 Multiservices.” (The apparent reference to marijuana smoking is never a good way to avoid law enforcement attention.)

420 then proceeded to file approximately 20 tax returns seeking $200,000 in refunds. Where were these refunds going? Into bank accounts controlled by the defendants, of course.

Preparing returns and seeking refunds is not a crime if you legitimately believe you are owed a refund. Stealing the social security numbers of other people and having checks deposited into your own account is illegal and amazingly stupid. You are going to caught and it won’t be hard to find you.

If stealing the identities of other people isn’t bad enough, Patterson was determined to get an extra piece of the pie. He filed his own refund request, with the assistance of 420 (perhaps literally) and listed phony employers and withholdings.

At this point Patterson is no longer a guy who hates paying taxes or got a little “sloppy” on his return. If the allegations are true, he is a thief and a bad one at that.

Obviously, Patterson, Charles and several other involved in the scheme were caught. Unlike the others who presumably went peacefully, Patterson had to threaten two criminal investigation division special agents - armed special agents - and tell them he kills IRS agents.

Patterson is facing a lengthy prison sentence if convicted of the charges against him.

The lessons here are obvious. Refund scams in which you steal someone’s identity but have the refund deposited into your own account is an instant ticket to a Club Fed vacation. Threatening the feds who are simply doing their job just adds fuel to the fire.

Mahany & Ertl represents people accused of not paying their proper share of taxes. We protect your liberty in a criminal tax investigation and defend you in audits and collection actions. If you receive and audit notice or learn of a criminal investigation, seek professional tax counsel immediately.

Please contact attorney Brian Mahany for more information and a confidential assessment of your tax matter. Brian can be reached at (414) 704-6731 (direct) or by email at brian@mahanyertl.com

Mahany & Ertl, LLC - America’s Tax Lawyers. Offices in Milwaukee; Wisconsin, Detroit, Michigan and Portland, Maine.  We represent people and small businesses with IRS problems anywhere in the United States.

[reprinted with permission from our sister firm's site, mahanylaw.com]

There is an old adage that desperate people do desperate things. Don’t believe it? Just ask Scott and Brenda Becker.

Scott Becker was indicted back in 2009 after he allegedly committed bank fraud. In the indictment, prosecutors sought to forfeit any property acquired directly or indirectly with proceeds of the alleged bank fraud. At first the court detained Becker without bail after determining he was a flight risk and had been transferring assets into his wife and daughter’s name and moving them offshore. After much legal maneuvering, Becker was ultimately released on bail.

What happened next? The title of this article says it all!

Less than four months of being released on bail, prosecutors sought to lock up Scott once again and revoke his bail. Prosecutors say that a yacht which had supposedly been given to a yacht broker to sell was really in Belize. When prosecutors asked Becker’s wife, Brenda, questions about hidden assets, Brenda took the 5th and refused to answer questions. The government also learned that Brenda had received $69 thousand from the sale of assets that were subject of a forfeiture hearing.

Ultimately, Scott Becker was again detained and new indictments were issued. What once was a bank fraud case against Scott Becker is now a conspiracy, perjury, wire fraud and money laundering indictment against both parties. Both are in custody and not likely to be released.

The facts of the case are quite fascinating and available for anyone with a PACER or Westlaw account (US v Becker U.S. District Court Kansas).

The lesson here is obvious. Many people attempt to hide assets everyday. The usual reason is to avoid creditors. If the creditor is Uncle Sam and there is a pending forfeiture account, expect to wind up in jail. Quickly.

MahanyLaw is a full service, boutique law firm that concentrates in lawful asset protection. We can’t help you if you want to evade taxes but we can help you protect your hard earned money from unscrupulous creditors and runaway jury awards. Offshore or domestic, we can help craft a plan that gives you peace of mind.

For more information, contact Brian Mahany at (414) 704-6731 or at brian@mahanylaw.com. Asset protection services generally provided through MahanyLaw. Asset recovery and fraud cases are generally handled by Mahany & Ertl, LLC

by Brian Mahany

There are dozens of urban legends floating around cyberspace suggesting that the IRS cannot force most Americans to file and pay taxes. I personally recognize the apparent legitimacy of some of those arguments – they look and sound accurate. Was the 16^th Amendment to the Constitution properly ratified? Who knows?

There are sound reasons to question many of the interpretations of the tax code. Unfortunately, we do not have final say on how are laws are interpreted. That right belongs to the court and the courts routinely reject these arguments. Right or wrong, the court has the last word.

What does that mean for folks who elect to follow some of these “creative” strategies? It usually means a hefty bill for back taxes, interest and penalties. Some taxpayers also face the ultimate sanction for their position. Prison.

Congress allows the IRS to impose significant monetary penalties for taxpayers who take “frivolous” tax positions. Of course, what the IRS considers frivolous may be far different than what the taxpayer believes. Once again, the taxpayer doesn’t get the last word.

Taxpayers filing returns with frivolous positions face an accuracy related penalty (Internal Revenue Code sec. 6662) of 25% of any underpayment. In more serious case, the IRS can assert a fraud penalty (sec. 6663) of 75% of the underpayment.

The penalties don’t stop there. The IRS can add an additional $5000 penalty for taking a frivolous position (Tax Relief Health Care Act of 2006).

If you take your frivolous position to court, the court can add an additional $25,000 penalty for positions that are frivolous or instituted primarily for delay.

Ultimately, taking a frivolous position may get one prosecuted for tax evasion (punishable by 5 years in prison and a $250,000 fine) or filing a false return (3 year felony).

The rub in all of these penalties and sanctions is that the IRS or court determines what is frivolous.

What does the IRS consider frivolous? According to information released from the IRS on March 4^th, 2011, any of the following beliefs and positions could get you in deep trouble with the IRS:

* Filing a tax return is voluntary.

* Payment of taxes is voluntary.

* It’s okay to file a “zero” return.

*Compliance with an IRS summons is voluntary

*Wages and tips are not taxable income.

*Taxpayers are not citizens of the U.S.

*Taxpayers can invoke religious grounds to avoid paying.

*Our right against self-incrimination protects us from having to file returns.

*The 16^th Amendment to the Constitution was never ratified.

*The IRS is not an agency of the U.S.

*One can create a trust to avoid taxes.

*IRS assessments are unenforceable unless personally signed by the Treasurer.

This is just a small sample of what the IRS contends is frivolous.

Unfortunately, there are many self - professed “gurus” on the Internet that offer packages detailing how people can “legally” avoid paying taxes. Some charge huge fees for their advice or services and some falsely tell stories about how they avoided taxes by use of their system.

Don’t believe them. These promoters have duped many an honest taxpayer.

For many years the IRS sent out a publication (Publication 1) to those who tried to take a frivolous position on their return. While well intended, the publication as very thin on details and no match for the detailed “legal opinions” often offered by those in the tax freedom movement.

The good news is that the IRS has published a detailed legal explanation of the various arguments that have been attempted and what the court has says about each. Hopefully, this guidance will prevent some folks from learning a very expensive lesson. In some cases, the new 84 page document will at least help people make an informed decision of the risks they take by joining the tax freedom movement.

A copy of the document is available from the IRS through this link.

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Mahany & Ertl is a full service, boutique law firm that concentrates in tax matters, fraud recovery (asset recovery) and white-collar criminal defense. Our Wisconsin tax attorneys represent people across the United States. We provide taxpayers with audit defense, defense of criminal investigations and tax evasion charges, collection defense, U.S. Tax Court litigation, welfare benefit plan litigation and offers in compromise.

For a confidential, no nonsense evaluation of your tax problem, call Brian Mahany at (414) 704-6731 (direct) or through the website, http://www.mahanyertl.com