Tuesday, April 30, 2019

Michael Avenatti Charged Stealing From Clients & Avenatti Charged With Tax Evasion -Pleads Not Guilty

Los Angeles federal prosecutors had already charged Avenatti in March with embezzling client funds and bank fraud. The 61-page indictment on Thursday includes those charges.

At a press conference in Los Angeles on Thursday morning, U.S. Attorney Nick Hanna said restitution for the alleged victims will be one of the highest priorities for prosecutors.

“As an attorney, holding a client’s money in a trust is one of your duties,” Hanna said. “This is ‘Lawyer 101’ — you don’t steal your client’s money.”

While he said they wouldn’t be specifically contacting the California State Bar, Hanna said he was sure the bar will see the public indictment and “act accordingly” regarding Avenatti’s law license status.

Avenatti’s attorney, Steven J. Katzman, said in a statement that the indictment proves nothing against his client.

“We intend to fully investigate the charges and provide Mr. Avenatti the robust defense he deserves,” Katzman said.

Los Angeles federal prosecutors claim Avenatti defrauded five of his former clients by lying to them about the details of settlements in their favor while using the money for his own ends.

The indictment alleges that:

  1. Avenatti appropriated a $4 million settlement he had negotiated in 2015 for a client who sued Los Angeles County over injuries that left the client a paraplegic.
  2. As to a second client who settled for $3 million over a personal relationship, prosecutors claim Avenatti used $2.5 million from the settlement to buy a private jet in 2017.
  3. A third client was allegedly duped out of money from a $1.9 million intellectual property settlement in 2017. Avenatti put some of those funds towards his Tully's Coffee business, prosecutors claim.
  4. Avenatti is further accused of stealing from two additional clients who were to be paid $35 million minus attorney fees in a corporate stock transaction. Prosecutors claim Avenatti improperly used some $4 million of the funds to pay bankruptcy creditors and other clients with settlements into which he had dipped.
  5. The government alleges Avenatti also used funds from his coffee business to make payments to clients whose settlement funds he had taken.

Meanwhile, Avenatti was stiffing the government on payroll taxes from his coffee business to the tune of $3.2 million between 2015 and 2017, according to the indictment.

When the IRS started inquiring about taxes the business owed in 2016, Avenatti allegedly lied and claimed he was not involved in the business’ finances and did not know it had failed to pay.

He also started having Tully’s employees deposit funds into an account associated with his car racing team to avoid an IRS levy on an account associated with the coffee chain, according to the indictment.

Avenatti is further charged with failing to file personal tax returns between 2014 and 2017, and failing to file returns for his law firms Eagan Avenatti LLP and Avenatti & Associates between 2015 and 2017.

The case is U.S. v. Avenatti, case number 8:19-cr-00061, in U.S. District Court for the Central District of California.

Michael Avenatti pled not guilty in a California federal courtroom April 29, 2018 to a 36-count indictment that includes charges of embezzling millions from five clients and tax evasion, on top of separate charges in New York that he tried to extort $20 million from Nike.

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GAO Reports That Private Debt Collection Agencies Are Falling Short

The new program requiring the Internal Revenue Service to hire private debt collection agencies is falling far short of its goals and putting taxpayers at risk of falling prey to scammers, according to a new government report.

The report, from the Government Accountability Office, found that the IRS's private collectors recovered less than 2 percent of over $5 billion in debts. The GAO said the IRS's reports to Congress on the private debt collection program haven’t provided complete financial information either. For example, as of September 2018, the IRS reported program revenue collections of about $89 million and costs of $67 million, suggesting a positive balance of $22 million for the Treasury’s general fund. However, the GAO pointed out the IRS report didn’t clarify that approximately $51 million of the amount collected went to the Treasury and the remaining $38 million was retained by IRS in two special funds to pay for current and future program costs.

“Without this information, Congress has an incomplete picture of the program's true costs and revenues,” said the GAO.

The GAO said the IRS also hasn't fully assessed the potential taxpayer risks in the program. The IRS has documented six risks, including "imposter scams," in which scammers pose as private collectors, but the GAO has identified 10 additional risks.

The current program is the result of legislation passed by Congress in 2015 with a provision requiring the IRS to set up another private debt collection program. The IRS eventually hired three contractors, and began assigning them cases in April 2017.

The GAO found that the IRS hasn’t analyzed the results of the program to identify the types of cases that should not be assigned to collection agencies because they do not result in collections.

The GAO's analysis of IRS data found that between April 2017 and September 2018 about 73,000 of 111,000 cases closed by collection agencies had little or no revenue collected because the collection agencies weren’t able to contact the taxpayer or collect the debt, among other reasons.

“Given the costs associated with managing these cases, without such analyses, the IRS may continue to use resources inefficiently and assign cases with little or no potential for revenue collection, or miss opportunities to assign other cases that could produce more revenue,” said the GAO.

The IRS has identified and taken steps to mitigate some of the program risks that could harm taxpayers, the GAO acknowledged. However, the service hasn’t yet completed the process of identifying and documenting all the risks, and has not fully assessed the risks to taxpayers from the program or its response to these risks.

An IRS official contended that the program has brought in significant revenue since the IRS began assigning cases in April 2017 to private collection agencies.

 “Since that time (through the end of FY 2018) we have assigned over 730,000 cases to PCAs and recovered over $88 million in overdue tax debts for the government,” wrote Kirsten Wielobob, deputy commissioner for services and enforcement at the IRS.
 “The current PDC program has already proven itself to be significantly more effective in the first two years, as compared to its prior iterations.”

She also disagreed with the GAO’s contention that the IRS’s reports to Congress on the program had not provided complete financial information.

A group representing the private tax debt collectors also responded to the report. “The PCA’s welcome effective program oversight, have a strong compliance record, and are always looking for opportunities to improve as the IRS expands the successful Private Debt Collection Program,” said a statement from the Partnership for Tax Compliance. We would look forward to sitting down with GAO staff sometime soon to discuss the program’s proven success.”

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Monday, April 29, 2019

IRS Issued Guidance on Disclosure to Spouses Who Filed Joint Returns & Then Divorce or Separate

IRS's Small Business/Self-Employed Division has issued guidance to its employees IRS Memo SBSE-05-0419-0010 regarding what collection activity information can and cannot be disclosed with respect to a couple's joint return, where the couple has subsequently divorced or are separated and no longer reside in the same household.

If any tax deficiency with respect to a joint return is assessed, the couple are no longer married or no longer reside in the same household, and either joint filer makes a request in writing, IRS must disclose in writing to the individual making the request whether it has tried to collect the deficiency from the other filer, the general nature of those collection activities, and the amount collected. (Code Sec. 6103(e)(8))

Upon receipt of either a verbal or written request from a taxpayer or his authorized representative, IRS may disclose limited information related to the collection of the tax from the other individual with whom the taxpayer filed a joint return when the taxpayer and the other individual are no longer married or are separated and no longer reside in the same household. Verbal requests will be honored if received from either spouse or his/her authorized representative, after verifying the identity of the person making the request to determine his/her right to the information. Disclosures made pursuant to Code Sec. 6103(e)(8) are limited to the specific tax period associated with the requester's joint deficiency, and the information should not be disclosed if its release will seriously impair federal tax administration.

Information that may be disclosed verbally upon receipt of a verbal or written request from a spouse who has been assessed the joint tax include:
  1. Whether IRS has attempted to collect the deficiency from the other spouse,
  2. The amount collected, if any, and the current collection status (e.g., notice, taxpayer delinquent account (TDA), installment agreement, offer in compromise, suspended), and 
  3. If suspended, the reason for suspension. (e.g., unable to locate, hardship, etc.)
Information which IRS employees cannot disclose includes:
  1. The other spouse's location or telephone number,
  2. Any information about the other spouse’s employment, income, or assets, and/or
  3. The income level at which a currently not collectible account will be reactivated.

The guidance provides several examples, including the following:

Illustration 1: Mr. and Mrs. Taxpayer filed a joint return for tax year 2016. They are now divorced and have mirrored assessments under MFT 31 for the year 2016. "Mirrored assessments" is the process of duplicating a joint account into two "MFT 31" accounts, one for each spouse. Mr. Taxpayer recently submitted an accepted offer in compromise (OIC). Mrs. Taxpayer calls in and asks if IRS has tried contacting her husband as he has told her that he owes no more monies for the 2016 tax year. An IRS employee determines that there IRS records show a TC 480, Offer in Compromise Pending and TC 780, Master File Account Compromised posted to her MFT 31 module. While speaking with Mrs. Taxpayer, the employee can tell her that the account does reflect an OIC submission (TC 480) and acceptance (TC 780). He can relay what payments/refund offsets have credited to her MFT 31 and her current outstanding balance.

Illustration 2. Mr. and Mrs. Taxpayer filed a joint return for tax year 2016. They are now divorced and have mirrored assessments under MFT 31 for tax year 2016. Mrs. Taxpayer has a continuous wage levy, and the payments have credited to Mr. Taxpayer’s MFT 31 module. Mr. Taxpayer calls in to ask if IRS is receiving regular payments from his ex-spouse. While speaking with Mr. Taxpayer, an IRS employee can tell him that IRS is collecting monies from Mrs. Taxpayer; each month IRS is receiving $475.00 that is being credited to his 2016 module. The source of payment however, is not shareable. The employee also can relay what payments have credited to his MFT 31 module. The employee can relay his current outstanding balance. He cannot disclose any information about the other spouse's employment, income, or assets.

IRS noted that this guidance supersedes the current instructions found in IRM

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With a Former Spouse? 

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IRS Reports Tax refunds down $4.4B for 2018 Tax Filings

The Internal Revenue Service reported a $4.4 billion decline in total tax refunds as of April 19, the first tax season under the Tax Cuts and Jobs Act, with the average size of tax refunds down about 2 percent.

The total number of tax refunds increased slightly, from 95,434,000 to 95,737,000, a 0.3 percent increase. The total amount of tax refunds declined 1.7 percent, though, from $265.326 billion to $260.919 billion.

The average amount of the refund also dipped 2.0 percent, from $2,780 to $2,725.

At the same time, the Tax Cuts and Jobs Act also eliminated the personal and dependent exemptions. The IRS recommended last year that taxpayers adjust their withholdings with a "paycheck checkup" using its online withholding calculator to avoid withholding too little this year. Nevertheless, relatively few taxpayers actually

The 2017 tax overhaul eliminated or sharply limited a host of tax deductions, including widely used ones like the state and local tax deduction. Taxpayers can write off only $10,000 in state and local taxes from their federal taxes now. That provision has been attacked by lawmakers in so-called "blue states" that traditionally vote for Democrats. In exchange, the tax law doubled the size of the standard deduction and lowered tax rates overall, prompting more taxpayers to skip itemizing this year.  


Cumulative statistics comparing 4/20/2018 and 4/19/2019

Individual Income Tax Returns:   



% Change

Total Returns Received 136,919,000137,233,0000.2
Total Returns Processed  130,477,000130,775,0000.2

E-filing Receipts:

TOTAL             124,515,000126,264,0001.4
Tax Professionals 70,983,00070,476,000-0.7
Self-prepared  53,532,00055,788,0004.2

Web Usage:

Visits to IRS.gov 386,895,000421,514,0008.9

Total Refunds:

Number 95,434,00095,737,0000.3
Amount $265.326 Billion $260.919 Billion-1.7
Average refund $2,780$2,725-2.0

Direct Deposit Refunds: 

Number 80,491,00083,249,0003.4
Amount $236.851 Billion $238.381 Billion 0.6
Average refund $2,943$2,863-2.7

The vast majority of taxpayers saw their taxes reduced over the course of last year, but many of them didn't notice the difference in their paychecks. The IRS faced complaints from many taxpayers who ended up owing far more money than they expected or getting a lower tax refund than anticipated. In response, the IRS lowered the threshold for imposing tax penalties on taxpayers who underwithheld or paid too little in estimated taxes last year. The IRS is again urging taxpayers to check their withholdings now that tax season is over.

However, the IRS is also planning to roll out a newly revised Form W-4 next month that will again require many taxpayers to adjust their withholdings. They will likely need to get help from tax professionals because it is expected to be even more complicated to use than last year's form. An early draft of the form provoked complaints last year from accounting and tax professional groups because it asked for much more information than usual about outside sources of income from spouses and others.

Have a IRS Tax Problem? 
Contact the Tax Lawyers at 
Marini& Associates, P.A. 
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