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Legal issues


Six defendants found guilty in Chicago tax fraud trial

Six defendants were convicted Monday after participating in a nationwide tax scheme that enabled 650 wealthy taxpayers to cheat the government out of $60 million.Michael Vallone of Orland Park, IL, Edward Bartoli of Clearwater, FL, Robert Hopper of Gadsden, AL, Timothy Dunn of Chesterton, IN, William Cover of Naperville, IL, and Michael Dowd of Glenview, IL were convicted of tax-fraud conspiracy and other charges after the 11-week trial in U.S.

Federal regulators dismiss charges against H&R Block

Federal regulators have dismissed a November 2004 complaint against H&R Block Inc.'s brokerage business. The civil fraud charges had alleged sales practices and supervisory violations tied to the sale of Enron Corp. bonds to investors prior to the company's failure in 2001.The Kansas City Star said the Financial Industry Regulatory Authority (FINRA) issued a 56-page dismissal of the charges on Friday. FINRA succeeded the National Association of Securities Dealers, which had brought the charges against H&R Block near the end of 2004.

SEC foils Craig's List identity theft scammers

The Securities and Exchange Commission took action last week to stop a sophisticated Internet scheme that stole the identities of unsuspecting individuals and netted more than $66,000 in illicit profits in just seven weeks.In a complaint filed in the U.S.
Community News

Ex-KPMG partner charged in new case

Federal prosecutors in New York have charged Robert Pfaff, 57, of Englewood, CO, a former partner at KPMG, with conspiracy to defraud the United States and to commit tax evasion and wire fraud, and obstructing and impeding the Internal Revenue Service (IRS) by concealing fees he and others received for setting up tax shelters for various clients. The indictment charges Pfaff and co-conspirators with hiding millions of dollars in fees by transferring the money from bank accounts in the U.S. and the Northern Mariana Islands into Philippine bank accounts.

SEC goes after infomercial personalities in investor workshop fraud

The Securities and Exchange Commission has filed civil fraud charges against two promoters who illegally made millions selling a get-rich-quick stock trading system they touted on TV and at investor workshops at hotels in dozens of cities nationwide.The Commission's complaint alleges that Linda Woolf and David Gengler, both of Utah, duped seniors and others who had attended free introductory seminars into believing they would make extraordinary stock market profits if they bought expensive "Teach Me to Trade" (TMTT) classes, mentoring, and computer software.In order to con victims into p

Court rules 401(k) participants may sue plan administrators

In a unanimous decision the U.S. Supreme Court ruled in February that individual participants of defined contribution pension plans such as 401(k) plans are protected under section 502(a)(2) of the Employee Retirement Income Security Act (ERISA) and may sue for losses resulting from a breach of fiduciary duties.

Employers face increasing pressure to verify worker identity

The Department of Homeland Security (DHS) is expected to re-issue rules requiring employers to check on employees' identities if they receive letters from DHS notifying them that a worker's Social Security numbers does not match the government's database. The rules, initially issued last August, were challenged in court, and have been modified to allow employers more time to resolve problems.

Evading taxes a capital offense in China

Wesley Snipes and Richard Hatch should be happy they don't live in China.A federal jury last month ordered actor Snipes, who paid no federal taxes from 1999 to 2004, to pay up to $17 million in back taxes plus penalties and interest.

Snipes jury acquits on felony tax charges

The jury in the Wesley Trent Snipes tax trial has found the actor guilty on three misdemeanor charges for failing to file income tax returns. Snipes was acquitted on felony charges of conspiracy to defraud the Internal Revenue Service and presenting a fraudulent claim for payment to the IRS. He was also acquitted on three other charges of failing to file income tax returns. Eddie Ray Kahn, of Sorrento, FL, and Douglas P. Rosile, of Venice, FL, were found guilty of conspiracy to defraud the IRS and presenting a fraudulent claim for payment to the IRS.A sentencing date has not been set.
Community News

Deloitte agrees to $38 million settlement in Delphi case

The law firms representing the Lead Plaintiffs in the securities class action litigation involving Delphi Corp., the U.S.

Class action suit filed against Intuit, H&R Block, and other tax software companies

In a case of unchecked government outsourcing, the law firms Feldman Shepherd Wohlgelernter Tanner & Weinstock and Cooley & Handy, this week filed a class action suit against a group of income tax software companies that are part of a cartel known as the Free File Alliance LLC. The suit, brought by Philadelphia resident Stacie Byers, alleges that cartel members including H&R Block and Intuit unlawfully charged millions of U.S. taxpayers excessive e-filing fees. Damages are estimated in the billions of dollars."This amounts to a tax on e-filing tax returns.

Judge denies IRS request for tax accrual work papers

Companies with audited GAAP financial statements should take note that the U.S. District Court in Rhode Island, in a case that has attracted national attention, ruled that certain sensitive "tax accrual work papers" are protected from disclosure by the work-product privilege and, accordingly, are not subject to discovery requests from the IRS. Several important lessons can be learned from Textron:Companies should take steps to make sure that all written tax analyses of troubling tax positions are prepared internally or by an attorney to be eligible for the work-product privilege.

Testimony ends in tax deductible sex change case

Lawyers on both sides of the law presented their final arguments in the case of Rhiannon O'Donnabhain against the Commissioner of the IRS, where the issue is the authority to take a tax deduction for medical costs relating to a sex change operation.Presenting her case in the U.S. Tax Court in Boston, O'Donnabhain is suing the Internal Revenue Service in the aftermath of having a $25,000 tax deduction for medical expenses relating to the operation disallowed. O'Donnabhain had surgery to remove male genitals and augment breasts.

Tax Court hears case on deductibility of sex change operation

A potentially groundbreaking case is underway in the U.S. Tax Court in Boston where a former man is arguing that the medical expenses relating to her sex change operation should be allowed as a medical deduction on Schedule A of her income tax return.The defendant, Rhiannon O'Donnabhain, has indicated that she had been diagnosed with a disease known as gender identity disorder, and her doctor recommended the sex change surgery, claiming it was a medical necessity. Her psychologist agreed with the recommendation.O'Donnabhain had surgery to remove male genitals and augment breasts.

Networking execs sentenced for accounting fraud

Four former executives with computer networking and security vendor Enterasys Networks have been sentenced to prison terms for their roles in accounting fraud at the company that cost investors millions of dollars, the U.S. Department of Justice announced Tuesday. The executives were convicted on conspiracy and fraud charges during a December 2006 trial. At sentencing hearings that began last week in U.S. District Court for the District of New Hampshire, Judge Paul Barbadoro sentenced former Enterasys CFO Robert J. Gagalis to 11 1/2 years in prison.

IRS can now tax nonphysical injury awards

The United States Court of Appeals for the District of Columbia Circuit has ruled that the IRS can tax damage awards for nonphysical injuries such as mental distress or injury to reputation.In a case that overturns a decision by the same court just last summer, the judges ruled that a tax upon nonphysical damages "is within the Congress’s power to tax."To many analysts, the surprise in this instance was not the reversal of the original decision as much as it was the original decision itself, which led some legal experts to claim it was a threat to the ability of the IRS to collect taxe

Mellon Bank reaches settlement over lost tax returns and checks

Pittsburgh-based Mellon Bank has agreed to pay the federal government $16.5 million to settle all claims relating to the destruction of 77,000 federal individual income tax returns and checks in 2001.Mellon had a contract to collect and process returns and payments for the Internal Revenue Service during the peak busy season in the spring of 2001.

Backstreet Boys' creator singing the blues over accounting charges

His hits include "No Strings Attached" by the boy band 'N Sync, but authorities say Lou Pearlman roped bank officials into a scheme that resulted in nearly $20 million in personal and business loans by using forged documents from an imaginary accounting firm. Indonesian authorities found Pearlman, the creator of the Backstreet Boys and 'N Sync, at a hotel on the resort island of Bali and expelled him from the country last week, the Associated Press reported Monday.

Jackson Hewitt under fire

The federal government has broadened the scope of an investigation into charges that certain franchisees of Jackson Hewitt Tax Services Inc. helped prepare fraudulent tax returns during the 2006 tax filing season. More than 125 offices of the company have been accused by the Justice Department of knowingly filing false tax returns and claiming refunds that resulted from the use of phony W-2 forms and fictitious deductions. The returns were filed on behalf of middle- and low-income people.

Supreme Court rules on IRS refusals

In a unanimous decision, the Supreme Court ruled that only the U.S. Tax Court may review refusals by the Internal Revenue Service to reduce interest payments on people who underpay their taxes.The decision was required in the case of a couple -- John and Pamela Hinck -- assessed additional taxes. The Hincks sued for an $18,000 interest refund in the U.S. Court of Federal Claims, alleging delays in processing their case.Chief Justice John Roberts said federal law specifies that the tax court provides the exclusive jurisdiction for such cases.


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