Ronald J. Cappuccio, J.D., LL.M.(Tax)

Ronald J. Cappuccio, J.D., LL.M.(Tax)
Tax Attorney and Business Lawyer

Sunday, September 21, 2014

Scammers try to fool Tax and Business Lawyers

Most of my clients from around the world make their initial contact by email. It is usually a result of my website, blog posts (published on Tax Connections) and Avvo. Usually, they need a lawyer to negotiate a contract or deal with the IRS or State Tax agencies.

When I get an email from a foreign business, even if the English is not perfect,  I respond. Unfortunately, the scam artists love a response and try their version of the famous “Nigerian Scam.” The trick usually works that I need to review a simple contract, receive payment from the buyer, deposit it in my trust account and immediately send the money (minus an unusually hefty fee) to them. Of course the check is no good and they will sucker me.

The latest attempt was a so-called Japanese company selling a huge piece of equipment to a NJ business for $2 mil. The contract was one page and obviously not drafted by an attorney. There was a picture of construction equipment from a catalog. I emailed that I was not interested, but that did not deter them.

Here is the first email:

I want to inquire if your firm handles Purchase transactions and agreements. A referral will be welcomed if this is not your area of practice and also provide me with your contact number and time of availability. 

Regards,
Aya Asuka
Heraeus Co.,Ltd.
Rm.410, OAG-Haus
5-56, Akasaka 7-chome, Minato-ku, Tokyo
ZIP 107-0052
Tel:(03)3589-0410   
Email:asukaaya95@--------------

This appeared to be a real company, but, oddly, the email address was not at the company website.

A few days later, I received the next email:

 This is a follow up email in regards to my request, I am in the process of selling my Dredger to a company located in your state of practice and one of their verbal terms of purchase is, I will have to provide a purchase agreement that protects them with their state laws and provide an attorney to monitor this transaction.


Find below the name of the proposed buyer for your conflict check. I want to know your hourly rate for preparing a purchase Agreement, I have attached some necessary details of my dredger. I await your prompt response.


PROPOSED BUYER:
J. Silver Design Build LLC
1103 Bloomfield Ave
West Caldwell, NJ 07006

I checked the web and there was a website for the “buyer.” In case this was a real matter, but smelling the old “Nigerian Scam,” I sent the following reply:

Mr. Asuka:

Thank you for the information. Rather than depositing money into an attorney account, I suggest either a letter of credit or direct wire transfer. Because of the high degree of fraud in these transactions, Court Rules require the funds to be held for 21 days to assure clearance.

I hope this helps!

Best Regards,

Ron Cappuccio

I heard nothing further and presumed the scammer had moved on. Then, one day, my secretary ran into my office showing me a $350,000 check, written on a Canadian Bank, that just appeared in the mail. Here is a copy of the letter and check.


A supposed NJ business mailed the letter from Canada. I looked up the business on the web and left several telephone messages. There was no response.

The next day, I received the following email from the scammer with the title URGENT:

Dear,Ronald 

Thanks for the update, we have been notify by the buyer agent that they have issued a payment of $350,000.00 USD to your firm I have ask them to bear the cost and included your retainer fees to the deposit as a sign of commitment to this purchase.

I believe you should receive the payment tomorrow soon, once you have receive the payment deposit it in your account  and send  deduct your fee once the check has cleared.

Notify me once you have received and deposit the check, the balance payment shall be paid on 29th September,2014

This was followed by another URGENT email:

I just wanted to confirm if fund have been receive from the buyer?,please keep me updated.looking forward hearing from you.


Here was my response:

Mr. Asuka:

First, I have never agreed to represent you. Second, this transaction has all the hallmarks of a scam. Essentially, you want me to deposit a foreign check, send you the funds, and then the check will not clear. 

We know this is a fraud, so why bother?

Ron Cappuccio

Of course, the scammer has moved on to another sucker!


Thursday, September 11, 2014

The NFL needed a Tax lawyer to deal with Ray Rice

Let’s review the facts: Ray Rice is a star NFL player. He is not a role model. He is not a minister. They pay him to be a “bruiser” and arguably a star attraction to the Baltimore Ravens. Rice clobbered his (now) wife in a domestic fight. The NFL kicked him out of the game. This hurt Rice, his wife (the victim?), his child and the Team.

The NFL argues they had to do it to clean up football. This is an example for children!

Well, maybe not. They banished Ray Rice. He is gone; disappeared. The Ravens are even offering refunds for Rice jerseys. The game will move on and he will disappear from the news. Not really much of a lesson. No discussions of the benefits of therapy, or the need for domestic violence education.

If the NFL instead had taken a tax lawyers approach, it might have been far more effective - better for the Ravens and better for the game. Instead of an “indefinite suspension,” the NFL should have simply punished Rice by forcing him to suit up for the season and sit at the end of the bench. TV stations and every newscaster around the world would show him being ostracized. Some stations might even put titles such as “suspended” every time they show him sitting forlornly.

They should have “taxed” his pay for those games and contributed to a domestic abuse charity in Baltimore.

The Ravens would get positive publicity and endless promotions. Rice would be humiliated and they would show this to the youth of the world. Finally, some good would come out of this by helping needy charities, providing education on domestic abuse, and ensure Rice's daughter grows up with a father to be proud of - someone who did his punishment, went to therapy and, hopefully, changed for the better.

Yes, the NFL needs a good tax lawyer!

Wednesday, September 03, 2014

The IRS is not calling to arrest you!

The IRS is not calling to arrest you!

Today, a new client appeared in my office and explained he needed a consultation right away.  This is very strange because most people call to set up an initial conference and we discuss the case on the telephone before meeting.  This man was middle-aged, dressed nicely, said he was an IT analyst, but was sweating and extremely nervous.  I asked him “what is wrong?”  He told me “the IRS called and said they had audited my tax returns, I owe a lot of money, and unless I contact the Restitution Department they are coming to arrest me.”

I immediately told him this was a scam.  He was still very concerned.  So I asked him for the telephone number of the so called “IRS” and I called using my speaker phone.  The person answered “IRS Department.”  I immediately knew this was a scam because no one from the IRS answers stating the word “Department” because it is not.  The person was quite difficult to understand and it was a poor connection.  I asked him what section of the IRS he was with.  The response was “the California Department” another thing that does not exist.  I then said “you are not really with the IRS are you” and he hung up the phone.

This client believed me that it was a scam and I explained to him the real process of an audit.  He left my office with a smile and much more relaxed!

In a real audit situation, the IRS will send you letters asking for information (please see an article on my website at  http://taxesq.com/tax-planning-and-issues/tax-audits-and-collections/audits/ ).  You will never get a call saying the audit is already done and they are going to arrest you.  Audits are generally civil matters and they are usually not criminal.  Very, very few people ever go to jail for IRS criminal matters resulting from an audit.  In fact if the IRS suspects criminal fraud during an audit, they stop the audit and the Criminal Investigation Division takes over.

I have had clients, potential clients and other concern people from around the country who call about the scam.  If you get a call from anyone stating they are from the IRS or any State taxing agencies, immediately call your tax attorney!

Saturday, August 02, 2014

Hiding receipts by cash is a Tax issue

Cash is a good way to get clobbered for taxes!

For many years, small restaurants, bars, pizza parlors, ice cream stands, and other food establishments have used all cash systems to hide their income and not pay sales tax and income tax on the full receipts. In New Jersey, the Division of Taxation has created a very aggressive system where they make up excessively high mark ons from food and liquor purchases, and absolutely slaughter businesses that don’t keep good records.

The way this tack works by the New Jersey division of taxation is they subpoena the records from the major food suppliers and liquor distributors. The tax authorities then compared the expenses listed on the tax return to what these third-party sellers reported. Often a business that is trying to hide income lessons the income reported but also lessens expenses but only slightly. The division of taxation then takes the actual expenses and uses very high multiples of the expenses to with the growth should be. Using these high multiples they then decide a phony gross income far beyond the real gross income, add sales tax and corporate or personal income tax. The result is a total disaster for the business that does I keep good records.

In New Jersey and some aggressive states, businesses use sophisticated point-of-sale systems, so the business owner can then prove with the actual income is versus the claims by the Division of Taxation. In fact the division of taxation is far behind that of many small businesses. For example, during a recent audit, a client with a very sophisticated point-of-sale system had every kind of record imaginable kept electronically. The division of taxation was upset that the actual food tickets for each order were not kept in paper format. I simply had my client prepare a computer printout report listing each item sold for the period requested. Because the information was so large, rather than printing out thousands of pages of copies of food tickets, even the auditor agreed that receiving the information in computerized format is easier.

Also, the Internal Revenue Service is far behind current practices. I have many clients, including small pizza restaurants, where 80 to 90% of their business is credit card. The IRS cannot believe that they are not hitting some cash. Nevertheless, go into any fast food restaurant, for example your local McDonald’s. Credit card machines at each cash register for the customer simply to swipe the card. Many people swipe a card for buying a soda or other very small order.

What is even more interesting, is that in some parts of our country, food service business owners are not catching on. For example, in the Poconos in Pennsylvania, many restaurants and food service establishments simply will not accept credit cards. They typically have a sign that says “cash only” and many have an ATM machine in their restaurant. Typically they either do not use their cash register or write out handwritten receipts and clearly keep poor records to hide the gross receipts. My prediction is that these businesses are going to be attacked with a vengeance because of the poor record-keeping and are going to be suffering huge expense in both audits, potential fraud claims and taxes. When any of these businesses get an audit notice from the IRS or state tax authority, they should immediately contact their tax attorney. The tax attorney will have attorney client privilege and can work with their accountant or bookkeeper in fighting the audit.

Friday, May 16, 2014

IRS Letter 5043 - Attacking Small Businesses that Receive Too Much in Credit Cards

IRS Letter 5043 - New way IRS Attacks Small Business




Attempt to get "Cash" businesses

The IRS has been pushing for many years to capture cash income of small businesses and force him to pay taxes.  That is one of the reasons that the IRS is requiring credit card merchant service companies to report a 1099-K for businesses to the IRS.  This form lists the amount of credit card payments made to the business by its customers.  The IRS then takes this information, comparing it to the gross sales of the business.  If the business has too high of a percentage of credit card sales, the IRS issues a letter 5043.

This letter starts out that "your gross receipts may be underreported."  This is the beginning of a long series of letters and correspondence which could eventually lead to an audit in an attempt to force businesses to report cash income.  Most of the letters seem to be going out to clients that are restaurants, pizza parlors, bars and other small retail businesses.

New Trend Attacking Service Businesses

Now, a new trend has started.  The IRS is going after many types of businesses that typically does not have a lot of cash, such as law firms, accounting firms, other professional practices, and general service businesses such as IT support and construction.  The real problem is the IRS is way behind the times!

Upscale restaurants typically have 90% or more of their sales by credit cards.  Even small food businesses such as pizza restaurant's and fast food restaurants have over half of their sales by credit card.  Frequently, consumer oriented attorneys, accountants, and other service providers are having higher percentages of their gross receipts paid by credit card.  Cash payments or declining, checks are decreasing and credit cards or increasing.

The end result of this notice is that the IRS is chasing after cash that does not exist and causing extensive heartache and expense for many small businesses.

If you Receive a 5043 Letter

If you receive a notice from the IRS demanding the explanation. you immediately should retain a tax attorney. Your tax attorney will prepare a response reviewing your income reported on the tax returns as well as your accounting and bank statements records.  IRS letter 5043 is not something that should be ignored.  If you do not respond you will be audited!

Tuesday, April 01, 2014











Senate Misses the Boat - US High Taxes force Businesses to Move to Other Countries.

Equipment
(see Cat.com)


Once again, Congress is focusing on businesses that have used smart planning in order to avoid the excessive US corporate and personal tax rates as well as the extremely complex compliance costs.  Instead of focusing on how to lower US taxes and make tax compliance easier and less expensive, the US Senate is now picking on Caterpillar as a so-called "tax dodge".

The US has extremely high corporate tax rates of 35%.  This means if a corporation makes a $100 profit, it pays $35 federal tax (plus State tax which could be 10% or higher).  The remaining money when distributed to the shareholders gets taxed again at the shareholders rate which could be up to 39 1/2% plus State tax. So for example $100 of earnings would be $35 of federal tax, $10 of State tax leaving $55.  The $55 would be taxed at the individual level with a combined federal and State tax of approximately 50% yielding about $28 on an earnings of $100.  No wonder businesses are trying to do everything possible to avoid this horrible tax scenario.

On top of it, there is the high cost of IRS audits.  Unlike individuals and small businesses where audits, although painful, can be contained, large businesses suffer year in and year out audits that end up costing them large dollars and in internal staffed to prove that their tax return is correct.  In addition they have to pay tax attorneys and accountants and other professionals.

This convergence of high tax cost and high compliance court's has resulted in the US being uncompetitive.  No matter what studies Congress will try to show to prove whatever they want, the fact is major corporations are moving intellectual property outside of the US primarily for tax reasons and compliance reasons.  We are world economy and Congress needs to recognize this.




See Reuters Article:

Caterpillar's Swiss unit dodged $2.4 bln of U.S. taxes -Senate panel

By Patrick Temple-West and James Kelleher
WASHINGTON (Reuters) - Caterpillar Inc avoided paying $2.4 billion in U.S. taxes from 2000 through 2012 by moving profits from sales of replacement parts through a low-tax unit it set up in Switzerland, a congressional panel said on Monday.
In the latest example of a major U.S. corporation's offshore tax strategies going under the congressional microscope, the Senate Permanent Subcommittee on Investigations issued a report focused on a complex 1999 restructuring by Caterpillar. The world's largest mining and construction equipment maker's restructuring negotiated a low tax rate with Switzerland for a unit it set up there to book taxable profits from sales of Caterpillar-branded replacement parts made by third parties under contract with the Peoria, Illinois-based company.
"This is a prime example of a tax avoidance strategy, whichis costing the U.S. Treasury billions of dollars," said Senator Carl Levin, the Democratic chairman of the subcommittee, which has a hearing scheduled for Tuesday on the report's findings. Caterpillar makes no replacement parts and has no warehouses in Switzerland, but 85 percent of its parts business's profits went through the Swiss unit, where the company pays a tax rate of between 4 percent and 6 percent, the subcommittee said. The top U.S. corporate tax income rate is 35 percent.
Caterpillar's Swiss structure continues to save the company about $300 million a year in U.S. taxes, the subcommittee said. In a response to the Levin report, Caterpillar said its Swiss unit, known as Caterpillar Sarl, or CSARL, has a large marketing and sales presence in Geneva, Switzerland. "CSARL is no mere shell, but rather a major operating company employing hundreds of personnel in Geneva," said Julie Lagacy, vice president of Caterpillar's finance services division, according to prepared testimony released ahead of the hearing.

Along with three Caterpillar executives, representatives of Big Four accounting firm PricewaterhouseCoopers LLP (PwC), which advised Caterpillar on the restructuring, are expected to testify. A spokeswoman for PwC defended the firm’s tax advice to Caterpillar. "We stand by the work we did for them," the spokeswoman said in a statement. Levin's panel has also held hearings on the tax strategies of Apple Inc, Hewlett-Packard Co and MicrosoftCorp. "This (Caterpillar) investigation demonstrates just how shifting profits to a tax haven is not just the province of high-tech companies," Levin said.

Tuesday, March 25, 2014

The Continuing Tax Mis-Adventures of Ms Lauryn Hill

Lauryn Hill is out of Jail, but the IRS keeps Hounding




Singer songwriter Lauryn Hill was thrown into jail for 3 months for tax evasion, with another 3 months of home confinement.  This is all based upon her following some scheme by phony tax advisors claiming that she did not need to file and pay income taxes.  Like many people, from physicians to celebrities, she fell prey to the tax protesters coaxes.

The IRS had a great time spending tens of millions of dollars prosecuting her but got incredible amounts of publicity to scare other people into filing their tax returns.  That is the basis of our "voluntary" tax system. Without people being scared of being thrown in jail, the system would collapse.

Now, just before the tax filing deadline, the IRS is using Lauryn Hill's name to keep scaring taxpayers.  This time they are announcing the filing of federal tax liens.  Even though she already had tax liens and obligations, the refiling of these to include additional periods and amounts is enough to get the IRS the publicity it seeks.

If anyone says you do not need to file tax returns or the income tax is unconstitutional, please tell him to "go away".  Every adult should file tax returns every year to start the statute of limitations running.  Even if your income is technically too low to file you should file anyway.

Lauryn Hill tax lien filing

Sunday, March 23, 2014

Marriage Penalty - if you are Married on December 31, you are Married for Tax Purposes

Are you Married for Tax Purposes?

You are married for tax purposes as of December 31. So, if you were married on or before December 31,  2013, you would be single (or head of household depending upon the circumstances for the 2012 tax year, but you would be Married for 2013. Even if you were married on December 31. 2013, you are married for the entire year.

As a married person. you may file jointly with your husband or wife, or as married filing separately

You may not file as single or head of household.

Note, if you and your spouse are both employed, especially if your income is similar, you may end up paying more tax being married (especially if you previously filed as head of household.) This is called the "marriage penalty."

Here is a handy marriage penalty calculator:


Marriage Tax Penalty Calculator

Friday, March 21, 2014

Beware of Scam calls claiming to be from the IRS


Scam IRS Calls!

I am getting many calls from clients and potential clients saying the are getting calls from the “IRS” and are given strange numbers to call.  These are scam telephone calls trying to get personal information such as social security numbers, dates of birth, bank account information so that they can take money from your accounts and uses information as part of identity theft rings.  One typical sign of the scam fraud is the caller stating “you were going to jail”.

You will Never Get a Call from IRS without First Receiving a Letter

In fact, you will never get a call from the IRS threatening you in any way about jail, criminal matters or demanding that you give them information over the phone right away .  Before you get such a call, you will get a written notice from the IRS.  These notices will demand payment of tax and will either be from the IRS/ACS which does have 800 numbers, or from a local “Revenue Agent” who is in IRS employee and collector.

Never Give Information Over the Telephone!

Never give any information over the phone.  Rather, get the persons name, address, telephone number and IRS employee number.  You should then immediately call your tax attorney.  If you in fact owe tax, your tax attorney will file a power of attorney with the IRS and the IRS will contact the attorney rather than you.

I have had many panicked clients call me with this information and it turns out that they are just scams.  If for some reason it is real, then I deal with the matter directly.

Never, ever, give your information to anyone claimed to be from any taxing authority over the telephone!  







Click for article

Tuesday, February 04, 2014

Rob Andrews Resigning from Congress

Once again, New Jersey is being unnecessarily dragged through the mud. First, the unfounded attacks against Gov. Christie. Then, not correctly attributing the SuperBowl to the correct State (the Meadowlands is in NJ, not NY), and now Rob Andrews is getting the "tommy-gun" from the press in an attempt to ignore the real issues in our Federal Government.



Rob Andrews is resigning from Congress under an ethical cloud.   This is unfortunate since he certainly has been a highly energetic and active Congressmen for Southern New Jersey.  Even though I disagree with many of his viewpoints, he certainly always had an open door to me and any other constituents.

Years ago, I sponsored a dinner honoring James Corbett, a retiring member of the Camden office of the SBA.  Rob was gracious enough to come speak at the event, and lend his staff for event assistance.

He was a hard-working Freeholder Director before he got into Congress and he never forgot how important local government is. Many Congressman get into office and forget that what they do has a great impact on the States and Local Governments, including our school systems.

I believe in term limits and certainly 23 years in Congress is long enough, but it is a true shame that he has to resign under an ethical cloud.  It is hard for me to believe that any action he could have done was worse than the typical activities taking place in Washington, especially the unreasonable Obama taxes of small businesses and individuals that have foreign bank accounts, NSA surveillance, and totally ignoring the Constitution!

Good luck, Rob!

Friday, December 06, 2013

New Jersey Division of Taxation Closes Restaurant - leaving employees and customers stuck

NJ Division of Taxation seizes Melange Cafe

Holidays in Haddonfield are Dreary without Melange @ Haddonfield

As the holidays approach us, we renew our quest for a delicious meal that awakens the palate served in a relaxing atmosphere far removed from the hustle and bustle of garish chain restaurants serving mediocre food slapped on a plate. As the town of Haddonfield, NJ brings to life its Christmas shopping season filled with candlelit streets, we are left without its shining star, Melange @ Haddonfield café. Why? Because Chef Joe Brown did not have an attorney that understood his need to be a chef – and his struggles as a restaurateur. After owning Melange Café in Cherry Hill, NJ and achieving much success, Chef Joe Brown opened his Melange @ Haddonfield in 2008, eventually focusing full time on the Haddonfield location and closing the Cherry Hill location.

With those moves and multiple issues that could have arisen (and obviously did arise), Melange received a Division of Taxation Judgment of nearly $72,000 in unpaid taxes which resulted in a state seizure. Brown issued a wrongly written e-mail that blamed the economy rather than providing his fan base with a promise for a future, thus effectively hurting his own future. If Brown had a working system for running his business, he would’ve never had to write such an e-mail in the first place.

Rather than feel sorry for Brown or justified on behalf of the state, this case is one that should be examined and reexamined. What Brown needed was an attorney, like me, with a good working relationship with his accountant. He needed a marketing company that understood the need for a real Point of Sale system and also had a working relationship with his accountant and attorney. Brown’s Epicure Corp, citing himself and his wife as officers, needed oversight that he either may not have received or may not have been willing to have. Perhaps he didn’t want to spend the money on a good attorney, perhaps it seemed easy to run his business (many websites attempt to convince people of this) or perhaps he just didn’t even know what he had. In any case, we will miss his mussels and crème brûlèe.


Thursday, December 05, 2013

NFL Superstar Freddie Mitchell duped into Tax Fraud

Freddie Mitchell Dropped The Ball and the IRS Catches him

My daughter is an avid, ahem rabid, Eagles fan. At 5 ft, barely 2 inches, she can go head to head with the big guys and knows football inside and out. Me? I hate football. I don’t get why people love such violence. Its nasty and I don’t want my son playing it. But, as December 6th approaches and Freddie Mitchell, former WR for the Philadelphia Eagles, a simply presented tax fraud case is anything but simple.

After taking a plea deal and receiving 37 months in prison for playing a role in a tax fraud scam, Freddie Mitchell presented medical documentation stating he has CTE, chronic traumatic encephalopathy, a possible result of his 8 documented concussions. CTE can have symptoms of memory loss, motor skills impairment, depression, aggressive behavior and confusion.  As it is in the research stages, not everyone agrees that CTE can be properly diagnosed unless postmortem. Mitchell clearly states that he did not want a plea deal and yet took one anyway on his attorney’s advice.

This scam involved more than Freddie Mitchell. It involved an IRS agent making promises while clearly trying to defraud the government. It involved an NFL player with a big ego (something found commonly in professional sports) that had more people saying “yes” to him than clearly offering sound advice.

What do we know about this case?
1.      Freddie Mitchell did have concussions.
2.      Those concussions could’ve led to the development of CTE. But, that is not enough to prove bad decision making was caused by CTE and nothing else.
3.      An IRS agent was part of this tax fraud scam – and clearly did not get punished enough! Why aren’t we going after the IRS?
4.      Never trust an IRS agent.
5.      Call an attorney before you sign ANY document.
6.      Never let your ego be bigger than your paycheck. People want to take your money!



 For More information on this story, click here