I enjoy reading the tax news put out by the U.S. Department of Justice’s Tax Division. It always amazes me that people try over and again to argue the same tax schemes for which others have already been busted and sent to jail. I like to report on some of the prosecutions in order to educate people to be vigilant in their tax planning and tax reporting.
Dr. Ellen Merdith Stubenhaus, formerly of Lake Worth, Fla., is an expatriate living in Costa Rica. Stubenhaus was extradited from Costa Rica to the United States in 2011, eventually sentenced to 60 months in prison, and ordered to pay restitution of $373,549 to the Internal Revenue Service. According to the plea agreement, Stubenhaus was a saleswoman with Pinnacle Quest International, also known as PQI or Quest International. PQI was a multi-level marketing organization that operated a marketplace for a variety of vendors. PQI had 11,000 members throughout the United States from 2002 to 2008.
Stubenhaus admitted in court records that several PQI vendors sold bogus theories and strategies for tax evasion. She used the services and schemes of these fraudulent vendors to conceal her own income from selling PQI vendor products and PQI memberships. She also admitted to helping the principals of PQI conceal PQI’s income.
Court documents also showed that another PQI vendor was MYICIS, a computerized “warehouse bank.” MYICIS was a single bank account in which customers secretly pooled their money under the control of a single person, Wayne Hicks. MYICIS had 3,000 clients and approximately $100 million in deposits over a three year period. MYICIS was promoted to PQI’s customers as a method to hide their assets from the IRS as a result of the secret, pooled nature of the account. Stubenhaus did not file federal income tax returns nor pay income tax while she was affiliated with PQI.
Not only am I amazed that people still purchase these bogus theories and strategies for tax evasion, I cannot believe people would deposit their money in a pooled account with others in order to hide from the IRS at the risk of having the money stolen and still going to jail for evasion.
In another case, Jack Ray Carr of Louisiana was convicted of corruptly interfering with the due administration of the Internal Revenue laws, filing false tax returns, and aiding and assisting in the preparation of false tax returns. The evidence at trial showed that Carr threatened violence against a federal agent, filed false documents and tax returns with the IRS, and attempted to pay his tax debt with fraudulent bonds, fictitious money orders and a fake check. On three successive personal income tax returns, Carr falsely reported that his and his wife’s income was $0, despite earning hundreds of thousands of dollars during the 2001, 2002, and 2003 tax years. In 2009, on two tax returns Carr falsely reported more than $100,000 in federal income tax withholdings based on fictitious IRS Forms 1099-OID attached to the tax returns Carr filed in his own name and in the name of his wife. Carr claimed more than $150,000 in fraudulent tax refunds.
Carr faces a potential sentence of 18 years in prison and a fine up to $1.5 million.
Fake checks, fraudulent bonds, fictitious money orders and fictitious 1099-OID forms? This guy should have just painted a target on his chest.
Lastly, we have the self-proclaimed “Governor” of Alabama, Monty Ervin, and his wife, Patricia. The Ervins were convicted of conspiracy and three counts of tax evasion. Based on evidence at trial, the Ervins accumulated hundreds of investment properties over the past 10 years and received more than $9 million in rental income. Despite receiving this income, the Ervins paid no federal income taxes. When pursued by the IRS in 2006, the Ervins claimed they were not United States citizens and as “sovereigns” did not consider themselves subject to federal or state law.
Evidence also showed that the Ervins filed numerous documents in probate court renouncing their U.S. citizenship. The Ervins had a license plate on their vehicle, which law enforcement witnesses testified at trial was associated with a “sovereign citizens” organization.
The Ervins owned and managed Southern Realty, a property management company in Alabama. The evidence showed that the couple concealed their assets from the IRS by placing investment properties into the names of nominees – “trusts” and “trustees.” The trustees named on property deeds testified that they were not involved in the sale or purchase of properties and that the Ervins “stamped” their signatures onto official property records.
These sovereigns’ arguments have been repeatedly addressed in the courts and have failed.
It amazes me that these people openly contest the tax system and still think they are going to get away with it. We all hate paying taxes, but is it worth a person’s liberty to engage in these fraudulent schemes? If you are considering any sort of tax scheme or strategy, I strongly recommend that you seek the advice a qualified tax professional.