The IRS Criminal Investigation unit
which has been more or less dormant while they were reinventing themselves
in response to the mandate of the Restructuring Act of 1998 and the recommendations
of the Webster Report, is now alive and well with a new mission. In the
past this unit's main priority was illegal narcotics and money-laundering
cases. IRS Criminal Investigation (CI) Chief Mark E. Matthews declared that
among the types of cases that might be developed by CI are small business/self-employed
fraud cases, abusive trust cases and gaming cases. He further stated
that the goal of CI is to put tax cases in context and, thereby, leverage
the publicity from them which means they are looking to make examples
out of gamblers who are not properly reporting their income. From this we
can conclude that in the past the IRS was not that concerned about unreported
legal gambling winnings as it was focusing on proceeds from illegal activities,
primarily drug dealing. This was probably a facet of our government's war
on drugs which in our opinion has been more of a public relations exercise
than an effective deterrent to the trafficking in drugs. But with the proliferation
of gaming in this county during the nineties, which is continuing in this
century, the probability of the IRS finding and prosecuting unreported legal
gaming activities has risen to the level that they feel the effort will
be fruitful.
We learned of one such case involving a gambler recently while attending
the national conference of the National Association of Enrolled Agents.
This gambler who was a successful ring game player who was not reporting
his gaming winnings, was the focus of an investigation for reasons unknown
to us. It may have been the result of a tip received from someone who had
a grudge against the this consistent winner. As successful as he was at
poker he was inept at laundering his money. In fact, the IRS seized an undisclosed
amount of "stashed" cash from safety deposit boxes that he obtained
under fictitious names and even found cash stashed in his car. His assertion
that he was holding the money for other people could not be substantiated.
The IRS placed a lien for the full value of the home in which he was living
even though the deed was in the name of his significant other because she
could not substantiate where she obtained the money to purchase the house.
They also have indicted him for criminal income tax evasion for which he
will go to trial in the near future.
You maybe wondering how the IRS has the power to do all this without the
normal due process of notifying you of your deficiency with numerous letters
before going to the extreme measures seizing cash and property. The Internal
Revenue Code gives the IRS the power to immediately issue what is known
as a jeopardy assessment if the assessment and collection of the tax would
be jeopardized by delay of if the collection of tax would be otherwise jeopardized
because the individual has the means to flee the county. The ability to
flee the country is assumed if the taxpayer is in physical possession of
more that $10,000 in cash or its equivalent if the individual does not claim
ownership of the cash or claims that it belongs to another person which
cannot be verified. A jeopardy assessment is made at the highest tax rate
that is currently in effect which is now 39.6 percent. In the past the IRS
has played the jeopardy assessment card fairly loosely. Additionally, due
to the fact that they escalated this case to a criminal case they can seize
the cash as evidence. One of the lessons here is not to make a bad situation
worse by attempting to deny the obvious.
The prospect of this gambler ever getting any of this money back is nil
if you consider all the penalties and interest the that could apply in this
case as indicated by the penalties listed below. Do not forget that the
interest compounds daily, so it does not take that long for you to owe the
IRS more than you actually made.
Although his case has yet to be decide in criminal court we do not believe he will emerge unscathed from these proceedings because he has no creditable defense we can think off and the fact that the IRS is planning to leverage these types of cases through the use of publicity. We would hate to see any gambler see hung out to dry so our advise to those of you that are not filing or grossly understating your income to seek professional assistance in "coming in from the cold" and GET LEGAL.