Mark Feldstein & Associates

William Ankomah of Brampton pleaded guilty to one count of fraud over $5,000 on October 16, 2009. He was sentenced to two years less a day house arrest to be served conditionally, and was fined $50,000.

CRA and the RCMP investigation revealed that Mr. Ankomah the operator of Tax Help Centre prepared false personal income tax returns on behalf of 23 of his clients. Mr. Ankomah charged a fee and overstated charitable donation receipts from various charities on his clients’ income tax returns. During the 2003 to 2006 tax years, Ankomah issued $331,716 in fraudulent charitable donation receipts, and in doing so, helped his clients claim over $134,124 in non-refundable tax credits.

Taxpayers that claim false receipts are subject to serious consequences. Taxpayers should understand that the charity has to be registered with CRA and that the donation receipt should equal the funds that were paid to the charity. For example, if you gave $500.00 to a charity and the charity gave you a receipt for $5,000, then you are participating in a fraud in order to obtain non-refundable tax credits. The taxpayer should have known that they are participating in a fraud. The taxpayer will owe the taxes due plus penalties and interest. In addition, if convicted, the court may fine an additional 200% of the tax evaded and sentence them up to a five year jail term. If the taxpayer applies under the voluntary disclosure program before CRA commences and investigation, then penalties and prosecution will be waived.

Mark Feldstein Personal Taxes charitable donations, fraud

Websites around the world are getting new computerized visitors among the google and yahoo web spiders. Tax authorities are cracking down on suspected tax cheats through sophisticated web crawling programs to monitor transactions on auction sites, and track operators of online shops, poker and adult entertainment sites along with many other websites. The Xenon program (a reference to the super-bright auto headlights that light up dark places) originated in the Netherland in 2004 by the Dutch equivalent of the IRS. Since then, it has been expanded and enhanced by an international group of tax authorities in Austria, Denmark, Britain and Canada.

Xenon is primarily a spider that downloads a web page, then traverses its links and downloads those as well, ad infinitum. In this respect, the spider can create huge datasets of web material. It is not clear how effective Xenon has been in generating tax leads. CRA confirmed participation in the use of the Xenon software.

Xenon is smart about link selection and context and uses a slow search paradigm. Google might hit thousands of websites in a second. With the Xenon program, it may take minutes, hours or even days to do a slow search. The slow search prevents the crawler from creating excessive traffic on a website, or drawing attention in the sites’ server logs. The spider can also be configured and trained to look at particular economic niches. This would be useful for compiling lists of businesses in industries that traditionally have high rates of non-filing. For example, weight control yields a tremendous volume of hits which in turn would provide CRA a list of companies that sell services or products.

Xenon’s extraction module interfaces with national databases containing information like street and city names. The software will use the data to automatically identify mailing addresses and other identity information present on the websites it has crawled. The program then matches in bulk to national tax records. If you are on the web including Facebook, Twitter, Linkedin or any other sites with your name listed it maybe possible, with the Xenon software, for CRA to find you.

If you are in an industry that historically has been offside with GST, CRA can use the software to locate you. For example, some physiotherapists charge GST while others do not (excluding billings to OHIP). All CRA has to do is use the spider program to develop a database of physiotherapists across the country and compare the results to GST and tax filings. CRA’s lead will come right from the physiotherapists own website. In other words, they will use your own website against you. It requires nothing more for them to use certain key words to compile a list of individual and companies that may be offside.

I am anticipating with newer versions of Spider, CRA will have the ability to easily find non-filers wherever they are. If CRA finds an individual or a company that has not filed, the penalties can be excessive. Why wait until CRA finds you first. By applying under the voluntary disclosure program before a CRA investigation begins, then there will be no penalties or prosecution. The taxpayer would only be responsible for the income taxes and the interest.

Mark Feldstein Corporate Taxes, Personal Taxes fraud

Arlen Scherba of Sombra, an officer of 952768 Ontario Limited which operates as Restoration Masters pleaded guilty in the London Ontario Court of Justice for GST and income tax evasion. The corporation was fined $129,177. Scherba also pleased guilty personally on three counts of tax evasion and was fined $99,771. The fines delivered by the court represented 90% of the taxes evaded which is in addition to any taxes and interest due. CRA’s audit of Restoration Masters determined that during the years 2002 to 2004, the company understated its taxable income by $494,557. This resulted in reducing their corporation income tax by $133,935 and their GST by $9,595. Scherba did not report shareholder loan appropriations totaling $384,158 on the 2002 and 2004 personal income tax returns. Consequently, there was $110,856 in federal taxes evaded.

The CRA investigation determined that the company used different methods to reduce taxes, including corporate officers claiming personal expenditures as business expenses. Scherba claimed costs relating to renovating his home, landscaping services, furniture and electronic purchases, golf membership fees, sporting goods and family vacations. The son- in law of Scherba claimed boat repairs, towing, dockage fees, flooring costs and electrical work for the home, insurance, clothing and sporting goods as expenses charged to the company. When a shareholder and their families claim personal expenses as business expenses in a company, CRA will add back these expenses and will increase the corporations taxable income. They will also add back to the shareholder the benefit derived by the company paying for their personal expenses. For example, if a corporation paid $100,000 in personal expenses and claimed them as a business expense, CRA on an audit would add the $100,000 to the taxable income of the corporation and a another $100,000 to the taxable income of the shareholder. Therefore, the corporation and the shareholder will be taxed on a total of $200,000 plus penalties and interest. It is very costly to claim personal expenses in a corporation.

If Mr. Scherba and the 952768 Ontario Limited applied under the voluntary disclosure before a CRA investigation began, then they would be exempt from penalty or prosecution. They would only be liable for the income taxes and the interest.

Mark Feldstein Corporate Taxes, GST, Personal Taxes CRA, fraud, Tax Amnesty, Tax Evasion, tax penalties, Unclaimed Income

Matthew Norman Burse of Stoney Creek pleaded guilty on July 2, 2009 in the Ontario Court or Justice. Mr. Burse was charged with income tax evasion for 2003 and 2004.

CRA’s investigation revealed that Mr. Burse did not report his income earned from the delivery of newspapers. During the course of the audit, Mr. Burse did not disclose to the auditor a bank account where the majority of his income was being deposited. The CRA investigation revealed that $71,737 was not reported in 2003 and $70,715 was not reported in 2004.

Mr. Burse was fined $13,942 which represents 50% of the federal tax evaded and was ordered to pay within 30 months. If Mr. Burse filed a voluntary disclosure before he was audited, there would have been no penalties or prosecution. He would only have to pay taxes and interest.

Mark Feldstein Personal Taxes CRA, fraud, tax penalties, Unclaimed Income

There are a number of situations that would lead to someone being accepted into the Voluntary Disclosure program. The program applies to people:

• who have not filed their personal tax return, trust return or corporate tax return or who have failed to report income. This includes foreign pension income that was never reported.
• who have not filed GST returns. Input tax credits may be claimed after four years for those who did not remit source deductions for employees.
• who have filed, but whose return includes mistakes or inaccuracies, for example, claiming too much in expenses.
• who have made fraudulent claims.

Other situations that might apply include people not reportinig income earned off-shore or from a cash basis. In situations like these, the chartered accountant may use a “No-Name” disclosure which allows the taxpayer to keep their identity unknown to the Canada Revenue Agency for 90 days without prosecution while the information is being submitted to the government. The taxpayer can correct any mistakes and submit a complete disclosure without interference from the government. After 90 days, the file is considered closed.

Overall, the system works well because it benefits everyone and it is not adversarial. There is a 10-year limit on eligibility for the Voluntary Disclosure program but the key is that the taxpayer must apply for amnesty before the government starts investigating for tax irregularities.

Mark Feldstein Tax Amnesty fraud, non-name disclosure, Tax Amnesty, Tax Evasion

Abosede Adeoye of Toronto was found found guilty of GST fraud on January 28, 2009. There were six counts of filing false GST returns. On April 30, 2009, Mr. Adeoye was sentenced to 90 days in jail, three years probation and fined $12,050. The fine represents 50% of the amount of false GST refund obtained and attempted to obtain.

CRA’s investigation revealed that Mr. Adeoye claimed $342,114 of business expenses and received a GST refund in the amount of $19,355 and he attempted to receive a GST refund of $4,595 for 1999 tax year. CRA’s analysis confirmed that Mr. Adeoye never operated a business.

Taxpayers who claim false returns are subject to a maximum penalty of 200% of the tax evaded and up to five years in jail. Mr. Adeoye could have come clean by applying under the voluntary disclosure program before CRA commenced their investigation. Penalties would have been waived and there would be no criminal prosecution.

Mark Feldstein Tax Amnesty, Tax Convictions CRA, fraud, Tax Amnesty, Tax Evasion