It's time for our annual summer vacation. See you July 28 or so!

Currently awaiting sentencing on federal tax evasion charges, Mr. Beale and three associates have now been charged with "conspiring to prevent a federal judge from performing her duties." From TwinCities.com:

Robert Beale, 65, was charged Monday in federal court with one count of conspiracy to impede an officer and one count of obstruction of justice. Also indicted on the same charges were Frederick Bond, 62, of Champlin; John Pelton, 67, of Stillwater; and Norman Pool, 43, of Blaine.

"God wants me to destroy the judge," Beale is accused of saying in court records.

According to the charges, these four had an ingenious plot to "arrest" the trial judge to stop the tax trial:

The men issued fake warrants for Montgomery's arrest, filed fraudulent liens, planned to disrupt court proceedings and planned to arrest Montgomery. The plans were concocted at meetings of their "common law court" in Little Canada and in phone calls from Beale, after he was jailed.

Just... brilliant! What could possibly go wrong? Aside from it being absolutely insane and doomed from the start, of course.

Links:

Copy of indictment

Prior Tax Update Coverage

George Baker Jr. was 54 years old when he burned to death in his wheelchair on the patio of the CLC University nursing home in Des Moines in 2002.

State inspectors cited the home for a lack of supervision, noting that Baker had been left alone on the patio to smoke cigarettes, despite having a pressurized container of oxygen strapped to his chair. When the tank exploded, Baker was consumed by fire before he could be rescued.

The story tells of a pattern of patient neglect and state fines for the facilities mangaged by the three. What were the executives doing with the money that should have gone to patient care?

According to court records, the executives diverted other money that could have paid for improved care and supervision of 6,000 seniors living in the company's 70 nursing homes. Instead, the money was used to pay for luxury cars for the executives, antiques, monthly trips to England and Australia, and shopping trips to the Gap, Saks Fifth Avenue and Wal-Mart.

The Gap, Saks, and Wal-Mart? I love this comment in the Register's web site:

obviously these men had some issues. They took luxury trips and shopping trips at the Gap, Saks Fifth Avenue and "WALMART". It is clear that you can take white trash out of the trailer court but you can't take the trailer court out of the white trash.

Link: DOJ Press release on the case

Petitioners' first objection to the application of the AMT is that it contravenes a 2001 statutory enactment of a 15-percent tax rate on capital gains. Petitioners assert that the application of the AMT makes the effective rate on their capital gain income slightly more than 15 percent. In their own words, petitioners contend that the "application of AMT [is] * * * rendered null and void" because of this contravention.

If only it were that easy.

In computing the AMT there is a special computational provision for taxpayers with net capital gains. Generally speaking, the net capital gain income is multiplied by 15 percent and the result is added to the tax on other income which is computed in the manner described above. Sec. 55(b)(3). Following this computational provision, petitioners' AMT is computed at $7,007, which petitioners contend causes their net capital gain income to be taxed at an effective rate slightly greater than 15 percent because of the disallowance of the entire amount of the standard deduction and exemptions.

Petitioners' position would require a change to the statute that would apportion the disallowed items. Ultimately, however, respondent's computation is in accord with the statutes, and petitioners' argument fails.

The moral? The tax law is enforced based on what Congress actually did -- not on what you think they were trying to do.

Cite: Fritz, T.C. Summ. Op. 2008-81.

You can read some of the old shelter cases that look a lot like the current shelter cases where no one even got assessed a penalty, and now suddenly we're talking about people going to jail for a long, long time.

...

Tax enforcement was moribund until 2002, as a result of the 1998 [Internal Revenue Service Restructuring and Reform] Act. It has picked up in the last five years.

...

The trick for prosecutors is to go after the right people for the right crimes and seek the right level of punishment. And I'm not convinced in any white-collar cases that these 15-, 20-, or 25-year sentences make sense at all. The public has a very short memory and will forget five years from now that anyone is still rotting in prison. And in my experience, white-collar defendants get it real fast.

You need a Tax Notes subscription to read the whole thing. Why don't you have one yet?

The Iowa Chops. Seriously....this is embarrassing.

The Partnerships and CVB have been working their tails off (no pig pun intended) to change the image the world has of Iowa and Des Moines. We heralded national coverage in the New York Times, Forbes and other publications that said Des Moines had gotten a whole lot more hip, thanks to the East Village and some upscale restaurants.

And now we've named our hockey team after an irate pig? Talk about three steps forward, five steps back.

The idea of a porcine mascot seems inherently problematical. The old saying goes "pigs get fat, hogs get slaughtered." Obesity or ghastly defeat would seem to be a hard sell for a hockey franchise.

Andrew Healy, my favorite new empirical political economist, has written a bold new paper. You might have thought that disasters were "acts of God," but Healy argues that the American voter is a co-conspirator. From the abstract:

Using comprehensive data on natural disasters, government spending, and election returns, I show that voters reward disaster relief spending but not disaster prevention spending. This aspect of voter behavior creates a large distortion in the incentives that governments face, since the data show that prevention spending substantially reduces future damage.

The paper has some nifty graphs showing the incumbent party's vote share (and change in vote share) as a function of relief and prevention spending. The slope for relief is sharply positive; the slope for prevention is flat. Given these incentives, it's hardly surprising that politicians spend about fifteen times as much on relief (which attracts votes) as they do on prevention (which doesn't).

We're watching an example of this unfold right now. I have received a flurry of emails from Senator Harkin, who is running for re-election, boasting of disaster relief bills he is flogging through Congress. I'm pretty sure I didn't receive any releases from him about his hard work making sure that the Birdland levee would hold. Since the levee failed, causing millions of dollars worth of damage, we can assume that no such work was done. This study would predict that the Senator will be rewarded for bringing in post-disaster pork, rather than punished for neglecting the levee in the first place. The uncritical coverage of the disaster aid pork in The Newspaper Central Iowa Depends Upon is a data point in favor of Mr. Healy's conclusion.

flickr photo of Birdland flooding by MNgilen.

Let's hope that the Iowa Department of Revenue finally gets it right and quickly adopts the federal deadline extension. So far they have have only extended disaster deadlines in dribs and drabs, and in the case of individual second-quarter estimated tax payments, not until the afternoon of the due date.

The list of covered counties is here.

The ad lambastes Governor Culver. While he bears as much responsibility for the giveaway as anyone, he has lots of company in both parties.

In Mr. Leconte’s “Intimate Strangers” Sandrine Bonnaire enters the wrong office, mistakes a rivetingly dull tax specialist (Fabrice Luchini) for a psychiatrist and pours out her heart to him. Flummoxed but enthralled, he cannot bring himself to confess his real identity. After a dust-up when Ms. Bonnaire finds out who he is, the two decide to continue their weekly consultations and ultimately fall in love.

Yeah, that sort of thing happens all the time around here. It sure beats the portrayal of the accountant in "Ghostbusters" as Vinz Clortho the Keymaster, but people do forget that he did get the girl, at least for awhile.

Members of Bank A's ISG were engaged in the design, marketing, and implementation of tax shelter transactions, including a transaction known as "Hedge Option Monetization of Economic Remainder" or "HOMER." In 2001, Individual A — together with other members of ISG, attorneys at the Jenkens & Gilchrist law firm (hereinafter "J&G"), and a foreign bank with United States headquarters in New York (hereinafter "Bank B") — implemented 36 HOMER tax shelter transactions for high net worth clients of Bank A and J&G.

Mr. Daugerdas reportedly earned $93 million ($link) for his work promoting these shelters. He might need some of it to pay some attorney fees of his own.

After the audit he purchased a publication from Save a Patriot Foundation that argued that you don't have to pay income tax. Interestingly enough, in 2006 a court ordered that a notice be put on their home page that states, "The District Court orders...That Defendants...are hereby permanently enjoined from directly or indirectly: ...Advising anyone that they are not required to file federal tax returns or pay federal taxes...." But I digress.

Dr. Miller then ceased filing tax returns. In 2000 he sold his office building to De Soto Regional Health System and became an employee. He was supposed to remit substantially all of his medical income to De Soto but didn't. There's a word for that—embezzlement.

A federal jury made the doctor's long story short, convicting him of tax evasion in only two hours. He's likely to serve considerably more time than that.

The moral? It's probably not wise to trust your financial well being to an outfit with the acronym "SAP." Even if you are one.

Mr. Guardino, a professional psychic, was serving time on tax evasion charges. It's a sad way to go out.

A bold driver stands up against the stifling conformity of the one-way street ordinance on 7th Street today at Walnut in Downtown Des Moines.