The Tax Fraud thread

So here’s a company set up by a lawyer.

It owns a ****** strip mall, and it collects rent from its tenants. (It actually probably only “owns” the common areas, parking lot, etc. That’s my guess.) It also owns a condo in Austin and a condo in Fort Worth, but the tenants in those properties don’t pay any rent. However, the company pays the utilities/property taxes/mortgage on the condos, and deducts them as ordinary business expenses.

Coincidentally, the company’s owner (the aforementioned lawyer) has a son that is attending UT-Austin, and a daughter attending Texas Christian University (in Ft. Worth).

You have to think bigger picture, this is a long term investment. Rents will eventually come.

^Good point. Maybe we should pay management fees to the kids property managers who are overseeing the operations in Austin and Ft. Worth.

Now you’re adding value…

What is the protocol when you come across these things? Charge them more?

Of course, there is significiant assumption to tax fraud and ML. Those lawyers are same all over the world:)

Inform the client that he cannot legally do that. Then inform him that your CPA license is not worth the risk and that you will not prepare nor sign a tax return that attempts to do that.

^are u going to report greenman to CFA if he stil prepares the return

So it’s like every other small business in the US? Got it.

In all seriousness, I value businesses for a living. The first step is “recasting” which is eliminating the discretionary expenses from the business. I’d say 1 out of 20 businesses are above board. Last year, I asked a client why gross profit margin was down. They ran the $600,000 in building materials for their home through direct costs. They aren’t even a home builder.

I know people run personal expenses through their business all the time. While we don’t encourage it, we usually turn a blind eye and let some of it slide.

There’s just some kind of moral outrage to this, too. There’s a back story to all this.

This guy’s daddy is a lawyer/landman who buys and sells O&G leases for his own account. He has made a lot of money and become a very successful person.

A couple of years ago, he gifted about $10m worth of royalties to his son (the aforementioned lawyer). In 2015, these O&G royalties generated about $1.5m in royalties. In other words, the son owns O&G royalties worth $10m, and gets $1.5m in royalty income though absolutely no merit of his own, nor athough ny of his own hard work. (BTW–he also makes $250k/yr through his law practice.)

In other words, the dude pulled in almost $2m last year, and he is fraudulently running personal expenses through a fake business, so that he can pay less in tax. Now, I admit freely to hating the IRS, and I don’t like paying taxes any more than the next guy. But part of me wants to stand up and tell the guy, “No. You pay your fair share like everybody else. Stop being a whiny btch and man the fk up.”

BTW–we have to prepare a parntership return for Junior’s fair share of his O&G royalties. (Dad placed the royalties in a partnership, which necessitates a tax return filing.) We billed Dad $5,000 for his portion of the return, and we billed Junior $1,000 for his portion. (Let me reiterate that–Junior received $1.5m in royalties, and we billed him $500, or .03%.)

When Junior got his $500 bill, he called to complain that he shouldn’t have to pay the bill. His dad should have to pay the bill, because Dad set up the partnership/trust in the first place. We told him to talk to his Dad. Ten minutes later, Dad calls me and asks me to bill him instead of Junior.

Is there a whistle blower award from the IRS, like there is for the SEC? If so, you should gain the trust of many of such people, and then cash out.

Or cash in.

snitches get stitches

Yes, there is. And I would on that guy.

@ Greenman,

If that guy gets audited (which is a greater than average chance with that sizable income) and those fraudulent expenses are discovered, Greenman, do you think for one second that that lawyer would hesistate to sue you (your firm) for preparing the return?

tax fraud on a global scale

Maybe that’s how business is done around you, but where I come from, most business expenses are legit. I hope it is not as bad as you say all over. If the expense is immaterial, then yeah, small risk there. Like Greenman said, F*** those people who commit fraud. They’re screwing the rest of us.

Yea this is absolutely massive. Wonder what, if any, fallout there will be. Love that there isnt much american coverage of this. The response of the company that the leak came from his hilarious.

Not exactly related, but one of my undergrad finance professors had 3 or 4 kids and each time one of the kids entered college, he bought a multi-tenant residential property near campus. He put the kid in one of the units as the building manager and used the rent from the other tenants to pay the mortgage, taxes, etc. He then sold the properties when each kid graduated.

He still needs to pay tax for the rent collected from other tenants right?

^Not if there’s no income left after he depreciates 100% of the building and deducts 100% of the property taxes and utilities.