In The News Archives...

News stories about taxpayers in trouble with the IRS or state taxing authorities as well as the news regarding IRS about enforcement issues.

In The News

Some tax cheats work at the IRS

Almost 3% of IRS workers caught cheating but some slip through cracks

By Andrea Coombes,
June 21, 2011, 5:35 p.m. EDT

SAN FRANCISCO (MarketWatch) — The IRS catches almost 3,000 tax scofflaws in its own ranks each year, but some employees still dodge the system, according to a new Treasury Department report.

The Internal Revenue Service’s internal program caught on average about 3,000 incidents of noncompliance on employee tax returns each year from 2004 through 2008 — that’s about 3% of its workforce — but 133 employees who may have violated tax law avoided that program’s net in 2006 and 2007, according to the report from the Treasury Inspector General for Tax Administration, or TIGTA, which monitors the IRS.

The potential violations include failure to file a tax return, filing late, failure to report income and failure to pay taxes due.

While the report found that only a tiny portion of the IRS’s some 107,000 employees (in 2007) slipped through the cracks, TIGTA called on the tax agency to root out any and all workers who may be trying to game the system.

“In the inspector-general community, we have a zero-tolerance policy for any incidence of fraud, waste or abuse,” a TIGTA spokeswoman said.

“As the agency of the federal government whose chief mission is to administer the federal tax system, IRS employees are particularly expected to comply with all tax laws,” the TIGTA report said. “The IRS risks an erosion of public confidence in the American voluntary tax system if it does not appropriately address employees who are not complying with their tax obligations.”

For its part, the IRS said in a statement that it imposes harsh penalties for tax fraud within its ranks. “Ensuring that IRS employees comply with the tax law is a top priority for the IRS… Employees who are judged to have willful tax-compliance problems are terminated, in addition to other potential sanctions.”

Also, the IRS said that it investigated the 133 problem cases and most did not constitute fraud. “In 44% of the cases, employees filed a tax return late but were due a refund. And over half the cases have already been reviewed and closed because the facts did not merit further review. We are analyzing the rest of the cases, and if there are problems they will be addressed,” the IRS said.

Inside job

While the scope of the problem appears to be small, examples of IRS workers committing fraud are not hard to find. An IRS agent in Santa Clarita, Calif., in May was sentenced to three years in prison for filing fraudulent returns “for himself and innocent relatives that claimed, among other things, bogus deductions for alimony and mortgage payments,” according to a U.S. Justice Department release.
In April, a part-time data-entry clerk at an IRS office in Fresno, Calif., was charged with filing false tax returns and committing wire fraud and identity theft after allegedly stealing 68 tax returns from an IRS office, filing fraudulent returns using taxpayers’ personal information and claiming excessive federal tax withholding, presumably to generate tax refunds.

Separately, another IRS employee in Fresno in April pleaded guilty to filing false income-tax returns in the names of her husband, who was in state prison at the time, and other prisoners. The tax returns claimed federal tax withholding on wages the prisoners had never earned, to generate tax refunds. The IRS issued tax refunds totaling more than $13,000 based on the false returns, according to Justice Department statement.

And a separate TIGTA report in 2009 found that 128 IRS employees claimed the first-time home-buyer tax credit, even though they might not have been eligible. TIGTA simply identifies potential problems that require further investigation by the IRS.

Andrea Coombes is MarketWatch’s personal finance editor, based in San Francisco.

Seizure on Restaurant Released, But Tax Problems Still Loom

By Jarret Bencks
Medford Patch, June 2, 2011

The bright orange seized sign on the front door of Il Faro restaurant has been taken down, but the Medford Square restaurant is still in hot water with the state’s Department of Revenue.

The seizure on the business was lifted after revenue officials determined nearly all of the restaurant equipment belonged to the landlord at 21 Main St. and could not be auctioned off to pay some of the back taxes, said revenue spokesman Bob Bliss.

The Italian eatery, owned by Giuseppe Longo, still owes $142,784.20 in taxes and penalty fees dating back to 2006, and has made no efforts to create a plan to start paying the debt off, Bliss said.

“The taxpayer clearly is not taking any steps to work anything out with DOR,” Bliss said.

Nearly all of the back taxes, which date back to 2006, stemmed from failing to pay the meals tax, Bliss previously said.

Before being taken down, the sign, dated May 11, read: “The Business Property of Il Faro, Inc. had been seized for nonpayment of taxes, and is now in possession of the Commonwealth of Massachusetts…Any person who attempts to tamper or interfere with this property will be prosecuted to the full extent of the law.”

Medford Square Restaurant Seized By MA DOR

By Jarret Bencks
Medford Patch, May 18, 2011

A seized Medford Square restaurant charged patrons a meals tax but didn’t pay what they collected to the state, a Department of Revenue Spokesman said Thursday.

Il Faro, an Italian eatery located at 21 Main St., was seized by the Department of Revenue last week because it owes the state a total of $142,784.20 in taxes and penalty fees, department spokesman Bob Bliss said. Nearly all of the back taxes, which date back to 2006, stemmed from the meals tax, he said.

“Patrons paid the meals tax, but the restaurant didn’t forward that to DOR,” Bliss said.

Seizing a business is the last thing the Department of Revenue will do in their efforts to collect unpaid taxes, Bliss said.

“You only get to this point when everything else DOR tries to collect has failed,” he said. “This is sort of the last stop.”

The restaurant had an orange sign on its door Tuesday, reading “SEIZED.” Several florescent signs remained lit inside the windows of the Italian eatery Tuesday afternoon.

If Giuseppe Longo, the owner of the restaurant, can come up with a reasonable down payment and payment plan going forward, the business could be reopened, Bliss said.

“We always hope that’s the case, because it’s a lot easier for us,” Bliss said. “We get the money, the business opens back up and the jobs don’t get lost.”

The business, not the building, was seized. If a payment plan isn’t agreed upon, the property of the restaurant will go to auction in about 4 to 6 weeks, Bliss said.

A call to the restaurant Tuesday was unanswered.

Original Story:

A restaurant in Medford Square has been seized by the Massachusetts Department of Revenue for nonpayment of taxes, according to a sign on its door.

Il Faro, an Italian restaurant located at 21 Main St. in Medford, had an orange sign on its door Tuesday, reading “SEIZED.” The sign was dated May 11, 2011.

Several florescent signs remained lit inside the windows of the Italian eatery Tuesday afternoon.

According to filings with the Massachusetts Secretary of State, the owner of the business is Giuseppe Longo. Il Faro first filed as a business with the Secretary of State in 1996, according to state records.

The business was seized but not the building.

The sign on the door read, “The Business Property of Il Faro, Inc. had been seized for nonpayment of taxes, and is now in possession of the Commonwealth of Massachusetts…Any person who attempts to tamper or interfere with this property will be prosecuted to the full extent of the law.”

Lawyer for North Highlands ‘tax lady’ wants out, says he’s not getting paid

By Andy Furillo
The Sacromento Bee (
Published: Friday, May. 6, 2011 – 12:00 am | Page 6B
Last Modified: Sunday, May. 8, 2011 – 12:35 pm

Embattled tax attorney Roni Deutch hasn’t been paying her legal bills in the state’s effort to shut her down, according to the lawyer representing her, who now says he wants out of the case.

In papers filed in Sacramento Superior Court, attorney James J. Banks said Deutch and her North Highlands law firm are “seriously delinquent and have not paid accrued fees and costs for representation in this matter.”

Banks’ declaration filed Monday also suggested he’s afraid the so-called “tax lady” who advertises heavily on late-night TV might blame him for at least some of her legal problems. Banks cited the concern as another reason he wants to be relieved as Deutch’s counsel.

Under the California Rules of Professional Conduct, Banks said in his filing that it is mandatory for him to bail out on the case as a result of his firm’s “understanding that the clients may assert ‘advice of counsel’ as a defense in a contempt proceeding initiated in this case.”

Sacramento Superior Court Judge Shellyanne W.L. Chang last month froze Deutch’s assets and appointed a receiver to oversee her accounts after the state attorney general’s office sought to have Deutch jailed for violation of court orders in the case.

The state lawyers contended Deutch shredded between 1.6 million and 2.7 million documents and refused to refund payments to her clients, both of which were ordered from the bench in Sacramento. The state sued her in August on charges that she has swindled her clients out of $34 million.

In a news release last month, state Attorney General Kamala Harris called Deutch “a predator for profit.”

Neither Banks nor Deutch returned telephone calls Thursday.

A spokeswoman for the attorney general’s office declined to comment.

Court-appointed receiver Scott M. Sackett confirmed Thursday that Banks’ law firm has not been getting paid by Deutch but did not know how much she owes.

Sackett is scheduled to file his report next week on Deutch’s finances.

A hearing on Banks’ effort to drop out of the case has been scheduled for May 13. A hearing on the contempt of court allegations is slated for July 22.

California AG says ‘Tax Lady’ Roni Deutch Should Be Jailed For Contempt

By Darrell Smith and Mark Glover
The Sacramento Bee (
Published: Wednesday, Apr. 20, 2011 – 4:34 pm
Last Modified: Sunday, May. 8, 2011 – 12:35 pm

Roni Deutch, the self-styled “Tax Lady,” could face jail time on contempt of court allegations after allegedly shredding millions of pages of documents and failing to pay clients refunds in violation of a court order.

Calling Deutch a “predator for profit,” State Attorney General Kamala Harris on Thursday asked a Sacramento County Superior Court judge to send Deutch to jail and levy thousands of dollars in fines connected to the allegations.

Harris, in a statement, alleged that Deutch destroyed as many as 2.7 million pages of documents, shredding evidence on which state’s attorneys hoped to prosecute their case.

Deutch has been in hot water with the AG’s office for nearly a year. In August 2010, the state’s top law enforcement officer filed a $34 million lawsuit against the Tax Lady accusing her of swindling her clients. Later that same month, a court order was issued preventing Deutch from destroying evidence, according to the attorney general’s statement.

“Deutch showed herself to be a predator for profit, preying on innocent, hard-working people who were simply hoping to settle their accounts with the IRS,” Harris said in a statement Wednesday afternoon.

Deutch’s law firm, based in North Highlands, posted revenues in excess of $25 million a year, according to the Attorney General’s office. Deutch is probably best-known for her brash style and television commercials that promise relief to tax payers who sign up for her firm’s services.

Attempts to reach Deutch were not immediately successful.

American Tax Relief Shut Down by Federal Trade Commision

American Tax Relief Shut Down by Federal Trade Commision


ABC News expose on Tax Masters

Sharon & Ozzy Osbourne Owe Back Taxes

By Josh Board • Mon, Apr 11th, 2011

With tax day around the corner, no better time then now to have a story about the latest singer to run into tax problems. Ozzy and Sharon Osbourne could lose their US home if they don’t pay the $2 million tax debt on it.

They’re one of the wealthiest couples in the UK, and aside from Ozzy’s music career, Sharon has had success with the Osbourne’s reality show, being a judge on the X Factor and America’s Got Talent, and now a panelist on The Talk. Sharon was also the first of the Osbourne clan to run into tax problems, when in 2009 she was slapped with a $23,000 tax bill to the State of California for payments going back to 2007.

TMZ has reported that daughter Kelly was hit with a tax lien of $34,000 last month.

Over the last few years, Ozzy and Sharon have accumulated a bit of debt. Documents filed by tax authorities state that “John” and Sharon Osbourne, ‘self-employed’, owe $718,948 in tax from 2008, and $1,024,175 from 2009.

Sharon did what most celebrities would do in this situation. She fired off a message on Twitter last Saturday. It said: You can’t rely on anyone but yourself. You have to be on top of your own business affairs. My fault. Lesson learned.

The most famous tax problem celebrity is Willie Nelson, who was hit with a $16.7 million tax bill in 1990. That stemmed from him not paying taxes between ’78 and ’82, and owing $6.5 mil. An additional $10.2 million was tacked on in penalties and interest. The IRS froze his accounts and auctioned off items in his personal position. Many of his fans bought those items, only to return them back to Nelson. Eventually, the IRS claimed Nelson owed $30 million, but that they’d settle for $17 million. This got Nelson poking fun of that in various commercials, and even releasing the album IRS Tapes: Who’ll Buy My Memories?

Releasing a record like that was nothing new. Marvin Gaye released an album called Here, My Dear, when he owed money on alimony payments.

When John Cleese played Spreckels Theatre here in 2009, he was calling it The Alimony Tour. His third wife got a $13 million divorce settlement, and he had to pay her a million a year in alimony. Perhaps he should’ve known better before marrying wife #3, but the comedic actor and Monty Python member does have a law degree – and is smart enough never to have run afoul of the IRS.

The Isley Brothers lead singer Ronald declared bankruptcy in 1997 after the IRS seized his property, including a yacht. He’s currently serving a 37-month sentence for tax evasion and failing to file a tax return.

Mr. Vegas, Wayne Newton, filed for bankruptcy in the early ‘90s with $20 million of debt. He got back into financial trouble in 2005, when the IRS claimed he owed them almost $2 million in back taxes.

Another singer that had a big Vegas show – Toni Braxton – filed for Chapter 7 a second time, late last year. She had well over $10 million in unpaid debts to numerous creditors, one of which was the IRS.

Wesley Snipes was recently given a sentence for years of failure to pay taxes. What a lot of people don’t realize is, the IRS is really good about working on payment plans with people, and the interest isn’t outrageous. Snipes was given jail time for continuing to run afoul of the tax laws. He made $40 million since 1999 (thanks mostly to the Blade films) and between 1999 and 2004, he never filed taxes. In 2006, he even tried to get a $7 million refund.

What a lot of people don’t realize is, if you don’t file, the IRS does a Substitute ForReturn for you. This doesn’t work so well for the rich and famous, as the IRS isn’t writing off all the things those folks probably would for deductions.

These days the IRS has more sophisticated resources and incentives (hundreds of billions owed to the federal government) for tracking down non-filers.

I’m guessing the Osbourne’s are in no real danger of losing anything they own. The IRS would have no problem believing they could pay back anything they owe from future earnings, and wouldn’t make them sell houses or personal items, the way David Crosby had to sell a yacht for a million bucks when he ran into financial problems.

Ozzy’s son Jack Osbourne has a production company (Jacko Productions) that has a documentary on Ozzy that is supposed to hit the theatres later this year. One of the things covered is all the craziness his dad was involved in over the years. We assume Jack has learned from the things that almost killed his father, and made him the punchline to many jokes.

Let’s hope Jack doesn’t also follow in the family footsteps and run into problems with the IRS in the future. Let’s also hope Ozzy doesn’t bite the head off an IRS agent.

Webster, Mass., man charged with killing wife shortly after IRS agents seized car for taxes

March 23, 2011

DUDLEY, Mass. — A Webster man charged with killing his wife about an hour after two IRS agents seized their car for nonpayment of taxes has been ordered held without bail.

William Freudenthal (FROY’-den-thal) pleaded not guilty to second-degree murder Wednesday in Dudley District Court.

Worcester District Attorney Joseph Early Jr. says police responded to the 50-year-old Freudenthal’s home Tuesday when he became angry at the IRS agents.

Police returned less than an hour later after getting two 911 hang-up calls from the home. Officers found Jennifer Freudenthal on the bathroom floor with head and neck injuries. She was pronounced dead at a hospital.

William Freudenthal’s lawyer called the death an accident.

Police say they have gone to the home several times for alleged domestic violence incidents.

Lots of Big Stars Are in Big Trouble With the Tax Man

By Lindsay Carlton
Published March 21, 2011|

March 26, 2010: Al Pacino poses for a portrait in Beverly Hills, Calif.
Despite their high-priced tax attorneys and mega-millions, big stars can find themselves in big trouble come tax time.

Take Hollywood director Martin Scorsese. He was recently nailed with a $2.85 million bill for unpaid taxes. Scorsese was charged for past-due tax and related interest penalties. Although Scorsese’s spokeswoman Leslee Dart says the entire amount is now paid in full and that he has no current IRS debts, sources say the Oscar-winning director’s tax woes are due to his dealings with celebrity accountant Kenneth Starr. Starr was jailed for seven and a half years for a $33 million ponzi scheme, and has duped other superstars in his corrupt plots. He scammed Hollywood heavyweights such as Uma Thurman, Lauren Bacall and Al Pacino, to name a few.

Pacino allegedly failed to pay taxes for two years, a bill for $169,143 in 2008 and $19,140 in 2009, totaling $188,283. Anyone who would stiff this “Godfather” star out of $200,000 might be sleeping with the fishes too, but luckily for Al Pacino, the IRS doesn’t handle their business the same way the mob does. Pacino poured the blame on Starr, his business manager and close friend for years. The money hungry financier apparently used a lot of his fraudulent earnings to play sugar-daddy to his younger wife, ex-pole dancer Diane Passage, who enjoyed a lavish lifestyle. “Managers can be very helpful, but many are not skilled in the area of tax planning and some are outright greedy when given control of celebrities finance,” said Ray Lucia, a certified financial planner.

A spokesperson for Pacino said the “Scarface” actor is working to resolve the situation as soon as possible with a new financial manager.

Another Hollywood cash cow who skipped his IRS bill is Jennifer Lopez’s husband, Marc Anthony. The Latin crooner owes $3.4 million for unpaid taxes on his Long Island mansion. Anthony has a history of running from the tax man. In 2007 he failed to pay taxes on his $15 million income over a five-year-period and ended up paying $2.5 million in back taxes. One might assume that such a power couple would have a better handle on their finances, but some tax attorneys aren’t surprised. “They live in a world where everyone gives them more and more leeway and slack — and they slowly develop an attitude of being above it all,” said Doug Burns, a federal prosecutor who has prosecuted dozens of tax fraud cases.

One pop star even sang a song about paying bills, the aptly titled “Bills Bills Bills,” but then forgot to fork up the cash herself. Former Destiny’s Child singer Kelly Rowland owes $98,634 in back taxes. The government filed a lien against her on Nov. 8, according to the Detroit News. The songstress hasn’t had much success since splitting from the Beyonce Knowles-led girl group. She also recently parted ways with her long-time manager and Beyonce’s father, Matthew Knowles. “Celebs who are attending to other details in their lives may brush taxes aside for later, but by then it’s too late,” said host Kelli Zink.

“Survivor” winner Richard Hatch has had his fair share of tax trouble. The reality star spent three years in jail for failing to pay taxes on the $1 million prize money he won on the hit show. Hatch is heading back to the slammer for not settling a tax bill that is now reportedly up to $2 million. Hatch is currently starring in Donald Trump’s “Celebrity Apprentice” show. Although the episodes of the series have already been filmed, he will miss the live finale in May while he finishes his sentence behind bars. Along with his prison term, Hatch will remain under supervision for 26 months, and 25 percent of his wages will be garnished to pay back the IRS.

Joe Francis, founder of “Girls Gone Wild,” also spent some time behind bars for his tax tribulations and says the IRS targets celebrities every year around tax day. To avoid glitches in your taxes, Francis recommends Hollywood newcomers hire reputable business managers and get references from their other clients. “Good financial managers are helpful, ones like Bernie Madoff are awful. I was young, I was making a lot of money,” Francis said. “You trust people like lawyers and accountants. I didn’t even sign my own tax return. I didn’t even question it.”