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Walter Anderson: America’s High Flying Tax Evader

Initially gaining fame for attempting to rescue Russia’s Mir Space Station and turn it into a tourist destination, Walter Anderson went down in history as the perpetrator of the largest case of personal tax evasion in U.S. history. The former telecommunications executive hid much of his earnings in a dizzying labyrinth of off-shore shell companies and bank accounts that the IRS never completely unraveled.

Anderson’s high-flying life as an international traveling tax evader ended abruptly in 2005 when the Justice Department filed its biggest tax evasion case in history. A grand jury indictment attested that Anderson conducted business through corporations in the British Virgin Islands and Panama to hide the fact that it was personal income. During that period he is reported to have earned a half a billion dollars of income.

Walter-Anderson

Authorities arrested Anderson at the Washington Dulles International Airport as he returned from London. They placed him in the D.C. Jail where he proceeded to serve 2 ½-years of his eventual nine-year sentence which later took him to federal prison and ended with him on house arrest at his parent’s home in Virginia. His sentenced completed at the end of 2012.

From Not Guilty to Guilty and Back Again

Although Anderson originally pled “Not Guilty,” while on trial in 2006 he admitted to hiding $365 million of income during the 1990s, which resulted in a nine-year sentence and a fine of almost $400 million in back taxes, fees and penalties. While serving his sentence, Anderson later proclaimed his innocence of tax evasion, saying that conditions in the D.C. Jail where they held him in solitary confinement were so barbaric, that they ended up coercing him to declare his guilt.

“I was tortured for 2 1/2 years by the conditions in the D.C. Jail, which included sleep deprivation, sensory deprivation, denial of medical care, threats and intimidation,” wrote Anderson about his experience, saying that ten years in federal prison would have been better than the time he spent in the D.C. Jail. He did add that “federal prison’s no picnic, either.”

Anderson grew up in Silver Spring, Maryland and later lived in Fairfax, Virginia, where in 1971 he graduated from Woodson High School. He attended various colleges, although he never earned a degree. Those learning institutions included George Mason University, University of Richmond and Northern Virginia Community College. Anderson began working as a telecommunications salesman in 1979 for MCI Communications. In the 1980s, he became involved in various entrepreneurial ventures, which continued through the 1990s and into the early 2000s. Early on in his business ventures, he invested in various telecom companies that he later sold for hefty profits.

High-Flying Space Ventures

Anderson was enamored with commercial space ventures and the idea of space tourism. He was one of the early backers of the International Space University (ISU) founded in 1987 that offers a Master of Science in Space Studies. He provided funding and advice to the founding team. Anderson is reported to believe that development of space is the answer to issues facing our planet, such as overpopulation. He also supported the Space Frontier Foundation when it was established in 1988.

Mir Space Station Retrospective

Prior to going to prison, Anderson headed up a variety of space-related businesses, such as serving as Chairman and CEO of Orbital Recovery Corporation and Chairman of the Board for Satellite Media Services, among others.

The investment in space for which Anderson became well-known was the creation of MirCorp in the 1990s, which sought to privatize Russia’s aging Mir Space Station. Anderson is reported to have invested $30 million into the concept of creating the world’s first space tourism destination. He also hoped to use the Mir to lease it to drug companies and other businesses that needed to do micro-gravity research.

Space tourism was the only money-making prospect to emerge from the MirCorp venture. Investor Dennis Tito planned to pay more than $20 million in order to be the world’s first space tourist and reality TV producer Mark Burnett also signed a contract with MirCorp to do a television show called “Destination: Mir.”

Anderson’s plans to use the Mir Space Station ran aground when NASA and the U.S. government pressured the Russian Space Agency to de-orbit the Mir Space Station, also warning other companies against partnering with Anderson on the venture. In April 2001, the Russians de-orbited the space station into the Pacific Ocean.

Typographical Errors Spell Tax Relief

In June 2007, a federal district judge determined that Anderson wouldn’t have to pay from $100 to $175 million of his fine to the federal government because of a typographical error in the plea agreement written by the government. He still has to pay the D.C. government $23 million.

Since his release, Anderson’s tune hasn’t changed much. He insists on his innocence and remains unrepentant and poised for his next entrepreneurial ventures, which have been reported to be tangentially once again “up in space” in the area of cloud computing. In September 2012, he appealed the 2011 U.S. Tax Court filing that requires that he pay his taxes and penalties from 1998 and 1999, but lost.

taxes owed

Anderson claims that he is broke and even had a public defender represent him during his criminal case. Some believe he has money socked away. Considering the maze of a money trail he created, whether he has hidden funds to pay off his debt is anyone’s guess.

Covered under the Affordable Care Act? Meet Form 1095-A

More than 5 million people have received subsides to help reduce their health care insurance premiums, thanks to the Affordable Care Act. For many of these individuals, these subsidies have meant the difference between being able to afford health insurance and going without coverage. But this good news has a potential drawback – possible delays for tax filers in 2015.

Under the ACA, individuals who are eligible for subsidies have the option to apply some or all of the credit directly to reduce monthly health insurance premiums for policies originated through the Healthcare.gov and state-administered insurance exchanges. As an alternative, eligible taxpayers may opt to receive the credit as a tax refund. But people who choose to receive their credits as a refund may have to wait even longer than they had planned to receive their cash.

Meet Form 1095-A and Form 8962

The IRS has developed two new forms in conjunction with administering tax credits for policies issued through federal and state health care exchanges: Form 1095-A and Form 8962. Presumably Form 8962 will be available on the IRS website as well as through public libraries and included in online and computer software tax filing programs. Form 1095-A is scheduled to be mailed to taxpayers by January 31, 2015.

Form 1095-A provides information taxpayers need to report credits received or due to them through the ACA. In this respect, Form 1095-A functions much like Form W-2 for wage earners or Form 1099 for independent contractors, unemployed workers and others who receive non-wage income. Form 8962 functions much like Schedule A or Schedule C and must be attached to Form 1040, Form 1040A or Form 1040NR. As of September 2014, both Form 1095-A and Form 8962 are still in draft mode.

Will There Be Delays in Processing Tax Returns?

After the government shutdown in 2013, the IRS delayed processing tax returns for the 2013 tax year for several weeks. This delay had the knock-on effect of delaying the processing of tax refunds. Further complicating the process is that open enrollment for health insurance policies scheduled to take effect during 2015 will also be underway through the Healthcare.gov and state exchanges during the same period.

These factors alone could result in delays in processing tax refunds. If the final versions of either Form 1095-A, Form 8962 are not ready by the end of 2014, it is almost certain that the IRS will once again delay the processing of federal income tax returns. A delay in processing tax returns equals a delay in issuing income tax refunds, at least for taxpayers who file their federal returns early.

Will Refund Anticipation Loans Fill the Gap?

Many people who file their tax returns early expect to receive tax refunds that are often sizable. As of April 2014, the average tax refund totaled more than $2,800. It is reasonable to believe that the average refund for the 2014 tax year could top that figure. Many low-income taxpayers are entitled to health insurance subsides equaling thousands of dollars.

Delays in processing tax returns due to delays in issuing the final versions of Form 1095-A and Form 8962 could have serious consequences for such taxpayers, who often count on tax refunds to fill substantial holes in their budgets.

For taxpayers struggling with limited resources, waiting weeks for federal income tax refund checks can cause serious hardship.

In the late 1980s and early 1990s, tax anticipation loans became wildly popular among such taxpayers. These high interest loans allowed primarily low-income taxpayers to receive at least some cash from their federal and state income tax refunds without waiting weeks for the processing of paper forms. (Responsible Lending)

Online filing for federal and state income tax returns and direct deposit for tax refunds greatly sped up the process – cutting the average wait time from six weeks or more to two weeks or less. As a result, refund anticipation loans waned in popularity. But if the IRS delays processing returns and issuing refunds for the 2015 tax season, such loans may very wall see resurgence.

Hoping for the Best

For its part, the IRS has not announced delays for issuing the final versions of either Form 1095-A or Form 8962. Also, since this is the second time around for the open enrollment season for the Healthcare.gov website, it is reasonable to assume that the process will go much more smoothly than the disastrous first few months. But taxpayers who are hoping to receive a refund next year might need to brace themselves for a potentially bumpy upcoming tax season.

Jersey Shore Star Michael Sorrentino Charged with $9M Tax Fraud

Michael Sorrentino, better known as “The Situation,” made his fortune starring on the reality television show, “Jersey Shore.” And for all six seasons, he earned approximately $150,000 per episode. But now, Sorrentino has found himself in a situation he would rather have avoided.

“The Situation” Failed to Pay Taxes on $9M Income

Sorrentino and his older brother and business manager, Marc Sorrentino, were arrested and indicted early Septtember 24th, on a total of 7 different charges involving tax fraud. The pair was each charged with one count of conspiring to defraud the United States. In addition, Marc was charged with three counts of filing false tax returns for 2010-2012. Mike was charged with two of the same counts for that time period, along with being accused of failing to file a tax return in 2011, when he reportedly earned nearly $2 million. (Yahoo News)

The older brother and manager, Marc Sorrentino faces up to 14 years in prison for his charges, while Mike is facing up to 11 years along with up to $600,000.00 worth of fines. The pair plead not guilty in a Newark, NJ federal court yesterday, and are currently out on a $250,000 bond. Their next court appearance is scheduled for October 6, 2014.

These federal charges stem from the pair allegedly failing to pay taxes on nearly $9 million worth of income earned between 2010 and 2012. The indictment names the two individuals along with several companies reported to be owned by the pair. These companies include MPS Entertainment, Situation Nation, and Situation Productions.

Another Celebrity Caught by the IRS

The income, totaling $8.9 million dollars, reportedly was earned from a variety of sources besides the Jersey Shore. Personal and television appearances, ownership of an online clothing business, the publication of an autobiography and a comic book featuring the Situation as a superhero are just a few. Also, as he grew to be nearly as popular as co-star Snooki, his name was put on DVDs, clothing lines, jewelry, tuxedos, and designer sunglasses.

“The brothers allegedly claimed costly clothes and cars as business expenses and funneled company money into personal accounts,” claimed the U.S. Attorney. He went on to say “The law is absolutely clear: telling the truth to the IRS is not optional.” – Justice.gov

Sorrentino popularized the phrase, “Gym, Tan, Laundry” when he referred to the pre-party ritual of he and his housemates on Jersey Shore. His popularity on the show and his reputation for drinking heavily also lead him to many endorsement deals, including one with Devotion Vodka. He was also well known for showing off his finely toned abdominal muscles, leading him to release a work-out DVD and gain an endorsement with GNC Vitamins. He appeared on Season 11 of “Dancing With The Stars” but was eliminated after just the 4th round.

This makes him yet another well-paid celebrity, like Vanessa Williams and Conan O’Brien, has been targeted by the IRS.

When asked for a comment on his tax woes, Sorrentino reportedly said, “The situation will sort itself out.”

Corporate Tax Inversion: The Tax Strategy That’s Losing the IRS Big Bucks

During much of 2014, tax inversion stories were prominent in the news. Companies with household names like Pfizer, Walgreens and Burger King attempted, aborted or accomplished corporate maneuvers designed to create corporate tax inversions. Despite the firestorm of protest from lawmakers and the general public, all indications point to a continuation of corporations opting for the tax-saving strategy.

A corporate tax inversion is a method by which companies try to reduce their corporate tax bills by re-establishing headquarters overseas, typically through an acquisition. – Chicago Tribune

If you’re not familiar with the concept, the term “tax inversion” might send you running for an umbrella and a gas mask. In reality, what you might want to protect is your wallet. According to a May 2014 report issued by Deloitte, corporate tax inversion could result in a loss of nearly $20 billion in federal tax revenue from 2015 through 2024. Fewer corporate tax revenues may well translate to cuts in services or increases in taxes, fees and other expenses for individual taxpayers.

A More Agreeable (Tax) Climate

Have you noticed that many American companies are incorporated in Delaware, even though they have few or no actual operations there? That’s because Delaware has very liberal incorporation laws. Delaware is also considered one of the most tax-friendly states for corporations to set up their legal bases of operations. But for some companies, even Delaware is not tax-friendly enough.

Corporate tax inversion occurs when American companies purchase or merge with foreign companies and move their corporate headquarters to the foreign country where the other company is located.

This allows the American company to reduce its corporate tax burden on the operations located in its corporate headquarters, because the corporate income tax rate for many foreign countries is significantly lower than the 35 percent imposed by the United States. At the same time, the company retains access to its American customer base. Business as usual, but major tax savings.

Earnings Stripping and Hopscotching

Corporations must pay taxes on profits earned within the US. But corporate tax inversion may generate tax savings on domestic revenues as well. The process is called “earnings stripping,” and it works like this.

The newly established foreign headquarters grants a “loan” to its American division. The payments that the American division makes to the foreign headquarters are subtracted from its taxable profits.

According to an August 2014 report in Newsday, American corporations are hoarding more than $2 billion overseas. Hopscotching involves US based companies funneling profits earned overseas through a foreign headquarters. This tactic allows companies to invest those earnings without paying US corporate income tax.

Related article: Should We Abolish Corporate Income Taxes?

Have It Your Way, Eh?

Tech heavyweight Seagate and Stanley, a 170-year-old tool stalwart, are just two companies that relocated their headquarters outside the US in the opening years of the 21st century. A parade of American companies, including Tyco International, Fruit of the Loom and Ingersoll-Rand either considered or executed moving their headquarters outside the U.S. to cut corporate taxes during that period.

The legislative response was a 2004 law designed to put a halt to corporate defections. The 2004 law prohibited American companies from skirting US corporate income taxes by moving their headquarters overseas but leaving the same leadership and shareholders in place. Instead, American companies would be required to acquire or merge with a foreign company. Shareholders of the foreign company must acquire at least 20 percent of the shares for the new parent company. (International Tax Review)

The most recent wave of corporate defections was designed to follow the 2004 anti-inversion law. Pfizer launched a failed bid to purchase AstraZeneca and move its headquarters to London. Walgreens announced plans to acquire remaining 55 percent of Alliance Boots GmbH, a European drug store chain, but nixed plans to move its base of operations to Switzerland under intense criticism. (Des Moines Register)

The latest defector, Burger King, made an August 2014 announcement of its plans to acquire Canadian doughnut and coffee chain Tim Horton’s and move its corporate headquarters north of the border. The move allows Burger King to trim the corporate tax burden for its headquarters to 15 percent federal tax and 11.5 percent Ontario provincial tax. It is worth noting that Prime Minister Stephen Harper lowered Canada’s federal corporate tax rate from 28 percent to 15 percent after taking office in 2006.

What Congress (Won’t Likely) Do About Inversion

During the period between 2002 and 2004, anti-inversion legislation enjoyed strong bipartisan support in both houses of Congress. Such support is absent in the highly partisan environment of the 113th Congress. So, despite an anti-inversion bill introduced in May 2014 by Representative Sander Levin and Senator Carl Levin, it is unlikely that any substantive action will occur to address corporate tax inversions. That is, at least before the November 2014 election.

The Silver Lining: You Won’t Lose Your Job

Despite the fact that American corporations seem primed to continue announcing and carrying out corporate tax inversions, there is a silver lining. Unlike off shoring or outsourcing, tax inversions do not usually involve wholesale shipping of American jobs overseas.

So at least American workers won’t lose their jobs, even if American taxpayers eventually foot the bill to fill the hole created by corporate tax inversions.

Vanessa Williams Hit with $370,000 IRS Tax Lien

Singer, actress and former Miss America Vanessa Williams is the latest in a progression of celebrities to be hit by the IRS hammer. According to various news reports, the IRS filed a lien against Williams for $369,249 against the entertainer’s 2011 federal income tax return. Williams reportedly failed to pay an IRS assessment posted in 2012, which prompted the IRS to file the lien on August 13, 2014.

During the Hollywood segment of the Doug Banks Radio Show, the talk show hosts raise a good question: “How does this happen to celebrities?” After all, during the 2011 period of the lien, Williams had just finished Ugly Betty and was starring in Desperate Housewives. The money  was flowing, so why wasn’t the IRS paid?


Maybe it was the accountant’s error and Williams wasn’t even aware of the lien, similar to Conan O’Brien’s brush with the IRS earlier this year.

Here She Is . . .

This is not the first time the 51 year old Williams has had a brush with scandal. Soon after being crowned the first black Miss America in September 1983, nude photographs of the beauty queen that had been taken before her pageant days surfaced. The photos were published without her consent in Penthouse magazine. As a result of the scandal, Williams relinquished her crown to Suzette Charles.

Williams rebounded from the scandal, moving on to a successful recording career. Her debut album The Right Stuff, released in 1988, went gold, along with earning three Grammy nominations for Williams, including Best New Artist. Her third album, Save the Best for Last, released in 1994, went platinum. Williams has also enjoyed success on the silver screen and on television.

In Good Company

The notice for the lien was reportedly delivered to the office of Williams’s accountant in New York City, although Williams lives in Chappaqua, New York. There was no public statement from Williams or her accountant concerning whether Williams was aware of the lien or of her plans to handle the matter. (Comedian and talk show host Conan O’Brien nearly lost his house in Westerly, Rhode Island this year when notice of $8,000 in delinquent county taxes was delivered to the wrong address.)

Other celebrities who have run into trouble with the IRS over unpaid federal income taxes include Lauryn Hill, former lead singer for the Fugees, Courtney Love, widow of grunge rocker Kurt Cobain and singer for the group Hole; soul singer Lionel Richie, rapper Flo Rida and action star Wesley Snipes. Both Hill and Snipes served time in federal prison for failure to pay federal income taxes. At present, there is no indication that criminal charges are pending against Williams.

Conan O’Brien Pays Back Taxes, Avoids Home Auction

In the 2003 film House of Sand and Fog, Jennifer Connolly’s character loses her house due to nonpayment of a relatively small amount of delinquent county property taxes. Ben Kingsley’s character purchases the house at auction for a fraction of its appraised value and begins making renovations to the property. The movie ends with tragic loss of life – and Connolly’s character never gets her house back.

Comedian Conan O’Brien didn’t face tragedy on this scale, but he did come within days of losing his house, valued at more than $720, 000, due to $8,000 in delinquent taxes. The home was one of several that were slated for auction on Tuesday, June 24 by the town of Westerly, Rhode Island, where the house is located. (Source: USAToday)

Lost in the Mail

O’Brien, whose late night talk show on TBS has been renewed through 2018, was not facing financial difficulties that prevented him from paying the tax bill. Instead, the bill was apparently mailed to the wrong address and never reached his accountant in Los Angeles. O’Brien only learned of the risk of losing his house through a reporter’s story published in the Westerly Sun. O’Brien paid the bill on June 20 – as soon as he learned about the mix-up.

The heads-up from the local newspaper came just in time. As soon as O’Brien posted payment on the house, it was pulled from the auction list. Other homeowners who have gotten into arrears with their property taxes have not been nearly so fortunate.

Other celebrities in the news for tax troubles: Lauryn Hill, Courtney Love, Teresa Guidice

Search and Seizure

The story depicted in House of Sand and Fog was highly dramatized in the interest of drawing an audience. But the circumstances surrounding Connolly’s character losing her home and Kingsley’s character being able to purchase it for cheap were fairly accurate. Like the Treasury Department and the IRS, local municipalities and counties are serious about collecting tax revenues. Even when the collection process involves conducting fire sales of property owned by delinquent taxpayers.

Local and county governments routinely seize and sell properties due to unpaid property taxes that total only a fraction of the value of the homes that have been seized. While the execution of the policy can appear borderline ridiculous at times, the principle behind the practice is understandable. After all, a significant portion of the revenue of a city, town or county is derived from property taxes. No property tax collections=no revenue.

Want to know how ridiculous? Earlier this year, Pennsylvania widow Eileen Battisti lost her $280,000 home over a measly $6.30 tax bill. That’s right, six bucks.

Due Diligence

O’Brien’s near-loss of his home also illustrates the need for taxpayers to take a proactive approach to managing their affairs. In O’Brien’s case, the mistake was not made by him or by his accountant. Nonetheless, to learn about your own tax troubles in the news is risky. Had he not paid the amount in arrears in time, he would have lost the house because of a bit of lost mail.

It is possible that O’Brien could have taken legal action had the auction gone ahead. But the process would have been complex and messy, especially if his house had been purchased by a good faith purchaser in the interim. You can bet that O’Brien and his accountant will examine his financial affairs with a fine tooth comb going forward to prevent a similar incident in the future.