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August, 2009

IRS Times & Inquirer

Inside This Issue...

Bad Advice Lands Businessman In Hot Water
Watch Seller Pleads Guilty to Evasion
IRS Question Corner

Bad Advice Lands Businessman In Hot Water

An Ohio businessman has been charged with attempting to evade his 2004 income taxes after he followed the erroneous advice of a person claiming to be a tax professional.

According to court records, Stephan Karchut, of Cortland, Ohio, the sole operator of a business known as PC Surveillance, failed to file income tax returns for the years 2002 to 2004, on false advice that under Section 861 of the IRS code income is not reportable unless it is received from foreign source. Karchut also structured the ownership of PC Surveillance as a supposed limited liability company in a manner designed to conceal Karchut’s control of the business.

As of at least mid-2005, Karchut questioned the validity of the 861 argument and realized that the nominal ownership arrangement of PC Surveillance was a device to conceal his true ownership and control over the business. He nevertheless continued to present that argument and to conceal his ownership and control over the business in his communications with the IRS.

In particular, for 2004, Karchut attempted to evade income taxes of at least $34,075, owing on unreported income of at least $161,849, by failing to file a personal income tax return, among other tactics.

Watch Seller Pleads Guilty to Evasion

An Essex County, NJ man who sells watches and other merchandise through Internet sites such as eBay pleaded guilty to filing a fraudulent tax return.

Jaime Virtucio, 59, of Bloomfield, pleaded guilty to subscribing to a false personal tax return. At his plea hearing, Virtucio admitted that he received payment from Internet sources, including PayPal and CPS Merchant Services, directly into bank accounts he controlled in return for merchandise he sold over the Internet.

Virtucio admitted that in April 2004, he signed and filed a 2003 tax return that stated his taxable income was approximately $18,307. Virtucio admitted that he actually had received and failed to report additional taxable income of about $106,559 that he gained through the sale of watches and other merchandise.

Virtucio also admitted that he filed false personal income tax returns with the IRS for 2004 and 2005, which understated the amount of taxable income he received for those calendar years. Virtucio admitted that for tax years 2004 and 2005, he failed to report a total of about $122,498 in additional taxable income on those tax returns.

He faces up to three years in prison and a fine of up to $100,000.

IRS Question Corner

Question: Like others who have asked questions here, I owe a substantial amount to the IRS. But I fear I won’t qualify for the Offer in Compromise program you have mentioned, because I still make a sizeable salary. Do I have other options?

Answer:  Yours is an excellent question. And I think you’ll like the answer: Yes, you do indeed have options.

If, as you say, you owe a large amount to the IRS, the first thing you should do is consult a qualified tax professional. The reason for that is simple: We often find our clients who are in tax trouble believe they owe more money than they actually do. A qualified tax professional will carefully analyze your returns in question to make sure you are not obligating yourself to pay even a penny more than you owe.

Now, it’s possible you may not qualify for the Offer in Compromise program. If, for example, you still make a lot of money, the IRS may not consider you a candidate. For those who are unfamiliar, the Offer in Compromise is program designed for taxpayers who owe a substantial amount but for whatever reason now lack the economic means to pay it. If the taxpayer meets the IRS’s criteria, he or she may submit an Offer in Compromise — oftentimes resulting in a significant discount — that eliminates the IRS debt once and for all.

Assuming you are correct and do not qualify for the Offer in Compromise, however, I would suggest you and your tax professional consider the Installment Agreement. Under this agreement, you submit monthly payments to the IRS that over time will pay off your debt without significantly affecting your lifestyle. You should look at this the same way you do, say, a car loan. This is a way of paying off your debt without forcing drastic changes now.

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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Nelson & Company, P.S., CPAs Since 1979

Circular 230 Disclosure:
To ensure compliance with requirements imposed by the IRS, we inform you that (i) any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used for the purpose of avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.