Jail Time for Tax Avoidance Schemes
FREDRICKA WHITFIELD, CNN ANCHOR: If you are stressed out about tax preparation, you're not alone: Millions of Americans are crazed right now, given the tax filing deadline is just about a month away. The IRS said it has hired an additional 1,300 auditors this year. But your chances of actually being audited are still very low, especially if you are in a higher tax bracket. For taxpayers with more than $100,000 in income, the odds of being audited have dropped to 1 in 127. Americans still need to be vigilant over tax avoidance schemes that seem too good to be true. CNN's senior correspondent Brooks Jackson has the story of one man who learned that lesson too late.</s>BROOKS JACKSON, CNN CORRESPONDENT (voice-over): Think you've got tax problems? Come to Mount Shasta, California. Talk to Daniel Bullock. This doctor is headed to federal prison because he listened when a crooked promoter told him he could beat the</s>IRS. DANIEL BULLOCK, CONVICTED TAX EVADER: I have two more weeks here at home, and then I have 18 months in prison.</s>JACKSON: It sounded so convincing, a system of trust, supposedly legitimate, but in the eyes of the law, an elaborate scam -- all arranged by this man, Lonnie Crockett, a promoter from Bountiful, Utah, who had already been convicted of falsifying tax returns, though Bullock did not know that. It sounded legal.</s>BULLOCK: He was very careful to underline the proper IRS codes and rules that this followed.</s>JACKSON: But now Crockett has been convicted again, because in practice, his scheme was a money laundry, hiding taxable income. In a typical transaction, Bullock set $12,500 from his medical practice in California to a trust in Utah controlled by Crockett. Crockett deducted a fee and send the rest to a numbered account in Austria, and then brought it back to Utah, subtracted another fee, and sent the rest to Bullock's family trust back in California, tax free, and criminal. The scheme was on for years. Bullock paid several thousand dollars in fees to Crockett, but skipped paying at least 156,000 dollars in federal income taxes until his bookkeeper turned him in, and the IRS came knocking.</s>BULLOCK: My 17-year-old daughter answered the door to some armed federal agents from the criminal investigation division, who forced the door open and came in, and began going through all of my private books and papers, and told her she could not call her dad. And another group went to my office and seized papers, and that was a bad day.</s>JACKSON: Bullock is not alone. Promoters of phony tax trusts are proliferating. Bullock's own attorney works full time defending cases just like his.</s>JENNIFER SODARO, TAX ATTORNEY: There are just always thousands of people that have these trusts right now, as we speak.</s>JACKSON: With crooked schemes on the rise, IRS criminal investigators and federal prosecutors are cracking down.</s>BEN WAGNER, ASST. U.S. ATTORNEY: There really has been a focus on trying to prosecute not only the promoters of these things, but those taxpayers, those clients of the promoters that knowingly, willingly evade taxes through utilizing the services of those promoters.</s>JACKSON (on camera): And judges are running out of the patience. Two other Mount Shasta doctors also evaded taxes using the same phony trust as Bullock, but they said they were not aware they were breaking the law when they did it. The judge did not buy, and gave them even longer prison sentences than Bullock. You cheated your country, he said, said it was a scheme any 10-year-old would know is obviously illegal. (voice-over): Bullock has packed up his medical office; his license to practice is suspended. The IRS wants back taxes, plus interest. He and his wife may lose their house. But he says facing prison had made him grow spiritually.</s>BULLOCK: The good news is I've learned a lot about myself, so I can go there knowing God has a purpose for me there, and there is someone there who is going to need some help.</s>JACKSON: He is telling his story now to warn others not to make the same mistake he did.</s>JACKSON: I know there are other people out there that are thinking about things like this. It wasn't two days ago that a doctor was asking me how a tax haven country could be used to protect his assets from a lawsuit. And I have a loud and clear answer now.</s>JACKSON (on camera): And that is?</s>BULLOCK: Don't get involved in tax haven countries.</s>JACKSON (voice-over): And get independent legal advice.</s>SODARO: Any group that sets forth these principles that you can avoid tax entirely, that you can send money to foreign jurisdiction and avoid tax, that is just the biggest red flag that there can be. They should run for the hills. Brooks Jackson, CNN, Mount Shasta, California. TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com