— ADVERTISEMENT —
Jury finds tax
A federal jury took about three hours to deliberate before finding Richard Basuel, 63, of RB Tax Service guilty as charged to conspiracy and 20 counts of aiding and abetting in the filing of fraudulent tax returns.
The jury also found Vivian Soong, who worked at RB, guilty of conspiracy and 12 counts of aiding and abetting in the preparation of fraudulent tax returns.
The two were among five individuals charged in a 148-count indictment in February 2004 that involved a scheme in which they falsely claimed $4 million in tax refunds for their clients for 1999. They claimed their Hawaii earnings should be exempt because it was "foreign earned income."
According to prosecutors, Basuel and tax preparers who worked for him began advising their clients in 2000 that because provisions in the Internal Revenue Code were not drafted precisely, the individual 50 states were not included in the definition of the "United States" for income tax purposes, and therefore U.S. citizens could file for foreign earned income exemptions.
The exemptions applied to the first $74,000 the individual earned -- the limit for tax year 1999. If the individual made less than $74,000, all withholding taxes would be refunded and they basically paid no income taxes, said Assistant U.S. Attorney William Shipley.
For preparing these types of returns, Basuel and Soong sought 10 percent of the client's tax refund as a fee.
Reginald Minn, attorney for Basuel, said Basuel had a "good-faith belief" that the loophole was legitimate and could be used to benefit his clients.
Basuel was not claiming that Hawaii was not part of the United States, but that because of the way "state" was defined in the IRS code, it created a loophole that they honestly felt they could take advantage of, Minn said.
Soong sincerely believed she was giving valid advice and charged the 10 percent fee because she believed it would work, he said.
Until trial, no one had told Basuel or Soong specifically why the position they were taking was incorrect or frivolous, Higa said.
The IRS did send out some refunds initially, but once it realized the advice the filers were relying on, it sent out 3,000 letters calling their position frivolous and instructed them to correct their returns, Shipley said.
Sentencing was set for Sept. 12. Each faces five years in prison for the conspiracy charge.
Just before trial, Basuel's son, Richard Basuel III, Dina Caleda and Rosalinda Tamayo each pleaded guilty to conspiracy and multiple counts of aiding and abetting in the filing of fraudulent tax returns. They are free while awaiting sentencing on Oct. 3.