Beware, The IRS Criminal Investigation Unit Is Now Looking for Gamblers
By Yolanda-Smulik Roche, E.A. and Roger C. Roche, E.A.
The IRS Criminal Investigation unit which has been more or less dormant while they were reinventing themselves in response to the mandate of the Restructuring Act of 1998 and the recommendations of the Webster Report, is now alive and well with a new mission. In the past this unit's main priority was illegal narcotics and money-laundering cases. IRS Criminal Investigation (CI) Chief Mark E. Matthews declared that among the types of cases that might be developed by CI are small business/self-employed fraud cases, abusive trust cases and gaming cases. He further stated that the goal of CI is to put tax cases in context and, thereby, leverage the publicity from them which means they are looking to make examples out of gamblers who are not properly reporting their income. From this we can conclude that in the past the IRS was not that concerned about unreported legal gambling winnings as it was focusing on proceeds from illegal activities, primarily drug dealing. This was probably a facet of our government's war on drugs which in our opinion has been more of a public relations exercise than an effective deterrent to the trafficking in drugs. But with the proliferation of gaming in this county during the nineties, which is continuing in this century, the probability of the IRS finding and prosecuting unreported legal gaming activities has risen to the level that they feel the effort will be fruitful.
We learned of one such case involving a gambler recently while attending the national conference of the National Association of Enrolled Agents. This gambler who was a successful ring game player who was not reporting his gaming winnings, was the focus of an investigation for reasons unknown to us. It may have been the result of a tip received from someone who had a grudge against the this consistent winner. As successful as he was at poker he was inept at laundering his money. In fact, the IRS seized an undisclosed amount of "stashed" cash from safety deposit boxes that he obtained under fictitious names and even found cash stashed in his car. His assertion that he was holding the money for other people could not be substantiated. The IRS placed a lien for the full value of the home in which he was living even though the deed was in the name of his significant other because she could not substantiate where she obtained the money to purchase the house. They also have indicted him for criminal income tax evasion for which he will go to trial in the near future.
You maybe wondering how the IRS has the power to do all this without the normal due process of notifying you of your deficiency with numerous letters before going to the extreme measures seizing cash and property. The Internal Revenue Code gives the IRS the power to immediately issue what is known as a jeopardy assessment if the assessment and collection of the tax would be jeopardized by delay of if the collection of tax would be otherwise jeopardized because the individual has the means to flee the county. The ability to flee the country is assumed if the taxpayer is in physical possession of more that $10,000 in cash or its equivalent if the individual does not claim ownership of the cash or claims that it belongs to another person which cannot be verified. A jeopardy assessment is made at the highest tax rate that is currently in effect which is now 39.6 percent. In the past the IRS has played the jeopardy assessment card fairly loosely. Additionally, due to the fact that they escalated this case to a criminal case they can seize the cash as evidence. One of the lessons here is not to make a bad situation worse by attempting to deny the obvious.
The prospect of this gambler ever getting any of this money back is nil if you consider all the penalties and interest the that could apply in this case as indicated by the penalties listed below. Do not forget that the interest compounds daily, so it does not take that long for you to owe the IRS more than you actually made.
Fraudulent failure to file 15% of tax due per month (maximum 75%).
Substantial Underpayment of Tax 20% of the amount of the underpayment if the amount of underpayment meets certain criteria, one of which is a minimum understatement of tax of at least $5,000. This penalty can be doubled to 40% if the IRS proves "gross valuation misstatements.
Criminal willful failure to file Fine up to $10,000 and prison up to 1 year.
Criminal willful failure to pay Fine up to $10,000 and prison up to 1 year.
Criminal tax evasion Fine up to $100,000 and prison up to 5 years.
Although his case has yet to be decide in criminal court we do not believe he will emerge unscathed from these proceedings because he has no creditable defense we can think off and the fact that the IRS is planning to leverage these types of cases through the use of publicity. We would hate to see any gambler see hung out to dry so our advise to those of you that are not filing or grossly understating your income to seek professional assistance in "coming in from the cold" and GET LEGAL.
By Yolanda-Smulik Roche, E.A. and Roger C. Roche, E.A.
The IRS Criminal Investigation unit which has been more or less dormant while they were reinventing themselves in response to the mandate of the Restructuring Act of 1998 and the recommendations of the Webster Report, is now alive and well with a new mission. In the past this unit's main priority was illegal narcotics and money-laundering cases. IRS Criminal Investigation (CI) Chief Mark E. Matthews declared that among the types of cases that might be developed by CI are small business/self-employed fraud cases, abusive trust cases and gaming cases. He further stated that the goal of CI is to put tax cases in context and, thereby, leverage the publicity from them which means they are looking to make examples out of gamblers who are not properly reporting their income. From this we can conclude that in the past the IRS was not that concerned about unreported legal gambling winnings as it was focusing on proceeds from illegal activities, primarily drug dealing. This was probably a facet of our government's war on drugs which in our opinion has been more of a public relations exercise than an effective deterrent to the trafficking in drugs. But with the proliferation of gaming in this county during the nineties, which is continuing in this century, the probability of the IRS finding and prosecuting unreported legal gaming activities has risen to the level that they feel the effort will be fruitful.
We learned of one such case involving a gambler recently while attending the national conference of the National Association of Enrolled Agents. This gambler who was a successful ring game player who was not reporting his gaming winnings, was the focus of an investigation for reasons unknown to us. It may have been the result of a tip received from someone who had a grudge against the this consistent winner. As successful as he was at poker he was inept at laundering his money. In fact, the IRS seized an undisclosed amount of "stashed" cash from safety deposit boxes that he obtained under fictitious names and even found cash stashed in his car. His assertion that he was holding the money for other people could not be substantiated. The IRS placed a lien for the full value of the home in which he was living even though the deed was in the name of his significant other because she could not substantiate where she obtained the money to purchase the house. They also have indicted him for criminal income tax evasion for which he will go to trial in the near future.
You maybe wondering how the IRS has the power to do all this without the normal due process of notifying you of your deficiency with numerous letters before going to the extreme measures seizing cash and property. The Internal Revenue Code gives the IRS the power to immediately issue what is known as a jeopardy assessment if the assessment and collection of the tax would be jeopardized by delay of if the collection of tax would be otherwise jeopardized because the individual has the means to flee the county. The ability to flee the country is assumed if the taxpayer is in physical possession of more that $10,000 in cash or its equivalent if the individual does not claim ownership of the cash or claims that it belongs to another person which cannot be verified. A jeopardy assessment is made at the highest tax rate that is currently in effect which is now 39.6 percent. In the past the IRS has played the jeopardy assessment card fairly loosely. Additionally, due to the fact that they escalated this case to a criminal case they can seize the cash as evidence. One of the lessons here is not to make a bad situation worse by attempting to deny the obvious.
The prospect of this gambler ever getting any of this money back is nil if you consider all the penalties and interest the that could apply in this case as indicated by the penalties listed below. Do not forget that the interest compounds daily, so it does not take that long for you to owe the IRS more than you actually made.
Fraudulent failure to file 15% of tax due per month (maximum 75%).
Substantial Underpayment of Tax 20% of the amount of the underpayment if the amount of underpayment meets certain criteria, one of which is a minimum understatement of tax of at least $5,000. This penalty can be doubled to 40% if the IRS proves "gross valuation misstatements.
Criminal willful failure to file Fine up to $10,000 and prison up to 1 year.
Criminal willful failure to pay Fine up to $10,000 and prison up to 1 year.
Criminal tax evasion Fine up to $100,000 and prison up to 5 years.
Although his case has yet to be decide in criminal court we do not believe he will emerge unscathed from these proceedings because he has no creditable defense we can think off and the fact that the IRS is planning to leverage these types of cases through the use of publicity. We would hate to see any gambler see hung out to dry so our advise to those of you that are not filing or grossly understating your income to seek professional assistance in "coming in from the cold" and GET LEGAL.
