Wednesday, March 14, 2007

Tax Fraud Can Mean IRS Agents, Too!

Harry Willner, an IRS agent with over thirty years of experience, has been taken into custody on five tax fraud charges. Willner is accused of claiming excessive bad debt deductions related to a loan on an advertising business he ran on the side and attempting to offer the business loan as a tax shelter to other taxpayers. Additionally, he attempted to offset the loan against teaching income, thus alledgedly understating income.

This unquestionably will be embarrassing to the IRS, particularly regarding business audits in the New York City area. My guess is that the IRS will place stricter limits on outside work by their employees as a result of this.


Blogger david said...

Remember, the agent has not been convicted yet and the tax strategies he used do not sound to dissimilar to strategies previously approved by the IRS. How can any taxpayer, including an IRS agent, know the rules if the IRS does not apply the law understandably and consistently to all taxpayers and in line with the IRS treatment of select taxpayers engaging in tax shelter type transactions.

Just a few examples of publicly approved IRS cases:

In November of 1999 in the tax court case Fulcrum Financial Partners, the IRS and the tax court approved an $85 million deduction for Turner Broadcasting on a son of boss transaction even though the IRS held the transaction was a sham with no prospect for profit. See tax court case and settlement agreement for Turner Broadcasting and Fulcrum Financial Partners.

In 2001, a company that the current commissioner of the IRS was vice president of finance for Onyx, sold the Sky Chefs partnership for a $1.4 billion gain but avoided paying $400 million of taxes on such gain from the sale of this U.S. trade or business through the use of shell companies and foreign tax havens. See the 2001 Onyx financial report, page 54 where it shows $628 million of gains not reported as income .

In 1996, Cooper’s and Lybrand wrote a should level opinion on a son of boss type transaction for an audit client which was approved by Cooper’s national office where the current IRS Chief Counsel worked as a high level partner and quality control monitor. Opinion was provided to many public companies..

In 1999, Janet Balboni of the Chiefs Counsel office in the IRS approved a $189 million deduction for Enron from a son of boss variant transaction. See IRS memorandum of approval CCMSRHOUTLNTLN389598.

Even in the criminal context it appears the IRS and DOJ realized one of the son of boss transactions, blips, did not need to be registered (though recently publicly the DOJ has stated otherwise). See copy of IRS memorandum of technical advice wherein the IRS concludes blips does not need to be registered if the blips investment is not outstanding past year end (which the IRS and DOJ have publicly stated none were) on page 12 related to the “excess cash” requirement specifically underlined by the DOJ. Further, an email from Mr. Barral, legal counsel to the IRS, specifically states that the taxpayer is likely to prevail in court on the registration issue and create some bad law in the process. See Stein case publicly filed documents by DOJ.

The IRS even allowed George Bush to escape millions in taxes on his sale of his interest in the Texas `Rangers for a gain of over $18 million through the use of a shell corporation and a complete disregard of tax law that would have caused President Bush to recharacterize a substantial portion of his gain as ordinary income (thereby increasing his tax bill by millions) under code Section 751. President Bush is of course no stranger to tax motivated transactions based on his treatment of employee stock options and nonrecoures debt with Harken Energy in 1991. See copies of the 1998 President Bush tax return and excerpt from Harken Energy annual reports from 1999 to 2002.

In any event these are just a few examples of the apparent inconsistency in the IRS application and interpretation of tax law to select taxpayers and family and friends.

10:41 AM  
Blogger Dan Meyer said...

Wow, hope you feel better. Your point about giving the agent the benefit of the doubt is legally valid; nevertheless, the IRS does NOT need this type of publicity. Regarding the son of boss transactions, I acknowledge not being knowledgable about these transactions; it certainly sounds like a practice which should be stopped.

6:18 PM  

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