International Law

How to Legally "Cheat" the IRS

At this time of the year, everyone looks for ways to "cheat" the IRS.

Professional con criminals take advantage of this the desire to save money.

Here is the FBI's description of a $132 million tax fraud.

"Edward H. Okun, 57, of Miami was arrested today and charged in an unsealed indictment with mail fraud, bulk cash smuggling and making false statements U.S. Attorney for the Eastern District of Virginia Chuck Rosenberg announced.]

The indictment stems from Okun's scheme to defraud and obtain millions of dollars in client funds held by The 1031 Tax Group, LLP, (1031TG) a qualified intermediary company owned by Okun.

On March 17, 2008, a federal grand jury in Richmond, Va., returned a three-count indictment charging Okun with one count of mail fraud, one count of bulk cash smuggling, one count of false statements and forfeiture. Okun's initial appearance was held today in the U.S. District Court for the Southern District of Florida.

According to the indictment, from August 2005 through April 2007, Okun used 1031TG and its subsidiaries, all owned by Okun, in a scheme to defraud clients of millions of dollars through false pretenses.

Section 1031 of the Internal Revenue Code allows investment property owners to defer the capital gains tax that would otherwise be due on properties sold, dependant on the use of the proceeds to purchase new property in a specified time frame.

To facilitate this exchange, investment property owners deposit the proceeds of sales with qualified intermediaries and sign exchange agreements which include various promises by the qualified intermediaries to clients regarding the safekeeping and use of exchange funds.

The indictment alleges that 1031TG obtained funds by promising clients that their money would be used solely to effect 1031 exchange as outlined in the exchange agreements.

After making such promises, Okun misappropriated approximately $132 million in client funds, to support his lavish lifestyle, pay operating expenses for his various companies, invest in commercial real estate, and purchase additional qualified intermediary companies to obtain access to additional client funds."

You can see how this worked. Okun was pitching to his investors that he could defer indefinitely any capital gains.

People attracted to "beating the Government" would love the idea that they could use section 1031 to defer their capital gain taxes indefinitely.

Like all marks, their own love for complexity, deceit and sham was used against them.

Tax dodges always match the unscrupulous with the incredulous.

Full post as published by Misleading Advertising Law on April 03, 2008 (boomark / email).