August, 2007

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

Q & A ---Taxing LLCs

  Q:  I started an LLC for 2006. My taxes were about the same as 2005. I thought LLCs didn't have to pay taxes.

Yes and no. There is a great deal of confusion about how LLCs are taxed by the IRS and what tax form to use. First you must decide what type of tax return to send to the IRS. You can file as a sole proprietor on Form 1040 with a Schedule C attached, a partnership or sub-chapter S (which generally don't pay tax), or a regular C corporation (which pays tax on net income).

The IRS does not have a special form for LLC filing. You must decide, based on your circumstance, how you want to report business or investment income and expenses. LLCs were created to protect assets and to limit liability; not for tax purposes. In the coming months, we will explain each of the four ways an LLC can report to the IRS.

Certified Public Accountants


AUGUST, 2007

Inside This Issue....

Doctor Hid From IRS $900,000 in Offshore Accounts
Tax Fraud Promoter Gets
To Spend 3 1/2 Years In Prison
Investment Company CEO
Faces Up To Five Years
IRS Question Corner

"Our computers are better than your computers, so let's just see how much real income yours missed, shall we?"


John J. Lawbaugh, the former chief executive officer of two Maryland investment companies, pleaded guilty to wire fraud, theft from a registered investment company and income tax evasion.

"By abusing his authority as chief executive officer of two investment companies, Mr. Lawbaugh stole more than $1.2 million," said U.S. Atty. Rod J. Rosenstein. "It is essential for us to protect investors in order to preserve public confidence in our financial markets."

According to the plea agreement, Lawbaugh was the chairman of the board, chief executive officer and majority stockholder of 1st Atlantic Guaranty Corporation from 1997 and chairman and CEO of SBM Certificate Company from July 2000 until August 2002, when he was removed by each company's respective board of directors.

Lawbaugh admitted that from August 1999 to October 2001, he misappropriated $1.26 million of 1st Atlantic and SBM funds and diverted those funds to unauthorized uses, including for his personal benefit and for the benefit of his family.

He faces up to five years in prison and a fine of up to $250,000.

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Doctor Hid From IRS $900,000 in Offshore Accounts

A doctor in Northern California pleaded guilty to tax evasion and has agreed to pay the United States $900,000 in back taxes.

Leroy Albert Lewis, of Danville, CA, was charged with one count of conspiracy to defraud the United States and four counts of tax evasion. Under the plea agreement, Lewis pleaded guilty to one count of conspiracy.

According to the indictment, for more than 10 years, Lewis, an oral surgeon, attempted to evade taxes on income he earned from his medical practice. Around 1995, he joined an organization in Denver called Tower Executive Resources. Tower assisted its members in evading federal income taxes, in part by providing a false invoicing scheme to offset income the members' income earned. Lewis' medical practice paid funds to Tower in exchange for bogus Tower invoices to substantiate huge false business expenses Lewis deducted on the medical practice's returns. Tower then deposited the bulk of those funds into an offshore bank account, which Lewis controlled.

Lewis faced up to five years in prison and a fine of up to $250,000. Lewis' son, Roy Lewis, a dentist and also a member of Tower, was also charged in the same indictment. He was sentenced to serve 24 months.

Tax Fraud Promoter Gets To Spend 3 1/2 Years In Prison

Following a three-week trial in Denver that resulted in his conviction on charges of conspiracy to defraud the United States and filing false tax returns, tax fraud promoter Robert N. Bedford, 60, of Seminole, FL, was sentenced to serve 42 months in federal prison and three years of supervised release.

The evidence established that Bedford provided legal and tax advice to his co-conspirators on how to circumvent IRS regulations and create false documents designed to disguise the movement of approximately $8 million dollars of unreported income to secret offshore accounts.

According to evidence presented at trial, the scheme involved setting up shell corporations for businessmen that were used to conceal approximately $8 million in taxable income in secret accounts in the Turks & Caicos and other foreign countries from 1992 through 2001.


Question:   I've seen signs on the side of the road, commercials on TV and have heard of all the cons out there. I'm not a sucker. I would never fall for one of those scams. In fact, I've never wanted to not pay the IRS. I wish it were as simple as not wanting to pay. As an independent contractor, I've made a substantial amount of money over the years. But owing to some bad tax advice, I'm in a bind. I've amassed a huge debt to the IRS and I recently lost my biggest client. I don't know how I'll pay the tax debt. What can I do?

Answer:   For what it's worth, your position isn't unusual. Many fabulously successful businessmen accept bad tax advice. By the time they realize their mistake, they owe a large sum to the IRS, but are no longer making the same fabulous income that helped them dig so far into tax debt. If you need tax help, bad advice can be worse than no advice at all.

But don't worry. You have options. Since you know you owe the money and want to find a way to settle up, the IRS (believe it or not) will be more than happy to work with you. The IRS comes down hard on those who don't want to settle up, but for those who cooperate, the IRS can be lenient.

One of your best options might the Installment Agreement. It works like a mortgage or a car payment or any other type of debt you pay off in installments. The first thing you should do is consult a qualified tax professional. He will analyze your previous returns, determine the exact amount you owe, and negotiate with the IRS a small monthly payment that will allow you to pay down your IRS debt without having to alter your lifestyle drastically.

Additionally, there is a chance you could qualify for the Offer in Compromise program, which could reduce your IRS debt to pennies on the dollar. The IRS has found it to be more beneficial to work with those who owe taxes---instead of chasing them for decades. Ask your tax professional about this program.

I deal with 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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