March, 2007

Message from Nelson & Company, P.S., CPAs

Q & A ---Kiddies Tax

  Q:  I just completed my 17-year-old son's tax return so he could apply for financial aid for college in the fall. He owes a bunch of money. I had to figure his taxes based on my rate. What gives?

Congress changed the law. The Tax Increase and Reconciliation Act signed in May of 2006 increased the kiddies tax from age 14 to age 18. What this means is if a child under 18 has unearned income, i.e., from interest dividends, and/or capital gains, exceeding $1,700, the tax must be figured at the parents' rate. It is a little late for you to do anything for your son, but folks with younger children should consider changing to growth stocks or mutual funds that pay little or no dividends which would save on the tax. Use of a 529 Plan can also eliminate the kiddies tax.

Certified Public Accountants


MARCH, 2007

Inside This Issue....

Six Schemed to Rip Off Government to tune of $700,000
Vegas Prostitute Sentenced on Tax Evasion Charges
CFO Pleads Guilty
IRS Question Corner


The chief financial officer of Douglas Development Corporation has pleaded guilty to a single count of tax evasion.

John E. Brownell, 45, of Rockville, MD, is the third high-level official of DDC who has been found guilty of felony charges.

According to court records, from mid-1996 and 2004, DDC made payments of more than $270,000 to a credit-line account of the defendant at Potomac Valley Bank, where the funds were then used by Brownell for personal purposes. These payments were disguised in the books of DDC to appear as routine financial obligations of DDC to the bank - in effect, the compensation of Brownell was disguised as a company loan repayment.

In addition, DDC provided other unreported income to Brownwell, including high-dollar checks that were recorded on the DDC books as loans. In loan applications to financial institutions, Brownell did not report having loans of any sort to his employer. Finally, the government's proffer disclosed an instance where DDC distributed monies directly from a real estate loan settlement to Brownell personally - a distribution that was not accounted for on the books of the company. The total tax loss, according to the government, was $80,000 to $150,000.

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Six in Alabama Schemed to Rip Off Government to tune of $700,000

An elaborate scheme to file false tax returns resulted in the indictment of six Birmingham, AL, residents on charges of conspiracy, filing false claims, bank fraud and witness tampering.

The government alleges that six people - Al Morton Jr., 37; Cheryl Harrell, 39; Queshawndra Randolph, 29; Alteago Hopson, 30; Pearline Bloxom, 25; and Katisha Brown, 39 - filed 121 false income returns, resulting in about $700,000 tax loss.

The indictment seeks criminal forfeiture from each of the six of property or cash derived from the violations charged in the indictment.

"People who engage in tax fraud schemes can expect to face criminal prosecution," said U.S. Attorney Alice H. Martin.

According to the indictment filed in U.S. District Court, Morton purchased and operated a Taxx Enterprises franchise located on Forestdale Boulevard in Birmingham. From January 2002 to May 2002, the six caused the preparation and filing of false, fictitious and fraudulent tax returns in their own names and in the names of others they recruited.

They each face up to five years in prison and a fine up to $250,000.

Vegas Prostitute Sentenced on Tax Evasion Charges

A Las Vegas prostitute did so well, law enforcement took her down on tax charges.

Nancy Adams, a former resident of Henderson, Nv., was sentenced in U.S. District Court to 15 months in prison to be followed by six months in a halfway house for concealing the income she earned from an illegal pandering and prostitution business.

In her plea agreement, Adams admitted that in 1999, she and her then-pimp, Louis Young, traveled from Minnesota to Las Vegas. From about January 1999 to November 2001, Young worked as a pimp and Adams as a prostitute. Adams and Young earned considerable income from their enterprise. Adams admitted that she and Young conspired to defraud the government of the taxes that were due on the income she and Young earned during this time.

Adams admitted that she and Young put assets in other peoples' names to conceal and disguise the fact that they were receiving income. Adams and Young also operated a fast-food restaurant called L& N House of Foods in Henderson, Nv., to conceal and disguise the fact that they received pimping and prostitution income.


Question:   Given how everyone talks about how tough the Internal Revenue Service is, I really find it hard to believe that something like the Offer in Compromise program exists. What's the catch?

Answer:   As hard to believe as it may be, there is no catch. Really.

After years of chasing taxpayers door to door, the IRS realized that a kinder, gentler approach can be more effective in some cases. Enter the Offer in Compromise program - and there's a good chance you're eligible for it.

If you have a lot of tax debt that you simply can't pay off, the Offer in Compromise likely is suited for you. The first thing you should do is consult a qualified tax professional who will analyze your previous returns to ensure that you are not offering to pay the IRS even a penny more than you owe.

Once that figure is established, it's time for you and your qualified tax professional to meet with IRS agents. This is where you can witness the benefits of the Offer in Compromise program.

Often, using this program, taxpayers are able to settle their debt with the IRS for pennies on the dollar.

You and your qualified tax professional will negotiate with the IRS an amount that you can and will pay to wipe out, once and for all, your looming tax debt. As I said, depending on your current financial situation, this can amount to pennies on the dollar - meaning that you can eliminate all of your tax debt by paying only a fraction of what you owe. Now, don't take this as charity. The IRS has good reason to offer this: Wouldn't you rather get something than nothing?

See if you can take advantage of the Offer in Compromise program. Call me. I solve IRS problems like yours every day. For a free, no-risk consultation, please call my office at 253-752-9522 or send me an E-mail at Do it today!


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