Yesterday's Tax Court opinion in the case of Potter v. Commissioner, T.C. Memo 2014-18, is rather instructive:
"In December 2006 IRS special agents engaged in an undercover investigation of Potter's Pub, posing as buyers interested in acquiring the business. Petitioner assured the agents that Potter's Pub was much more profitable than it appeared. He explained that he deposited in the corporate account only enough of the business revenues to cover its expenses and that he wired the balance of its revenues to his personal bank account in Florida. These wire transfers were structured in amounts less than $10,000 to avoid reporting obligations by the bank to the IRS. In reality, petitioner told the agents, Potter's Pub grossed more than $1 million annually and he took home between $ 400,000 and $520,000 each year. Petitioner showed the agents clandestine sales ledgers for 2003 and 2004 that supported the gross receipts he claimed, acknowledging that it might have been unwise to maintain documentary evidence of his skimming."
Understand that this is the civil side of John M. Potter's tax problems with the IRS; he already had been sentenced to 18 months for tax fraud in a plea bargain to avoid trial.
First of all, he violated the law. And he got caught.
Secondly, he lived a high lifestyle with two vacation homes, all while reporting minimal income. Had he only skimmed five or ten thousand a month and reported all of the remaining income, then his lifestyle would likely not have raised any particular suspicion.
Thirdly, he left an electronic trail with the wiring of funds. If he were dealing solely in cash and kept it all in cash in his cookie jar or under his mattress, it would have been somewhat more difficult to trace.
And, of course, his big downfall was falling for the IRS special agents' ruse as prospective purchasers of the business.
Following the Nazi holocaust in Europe, many of the insular religious Jewish groups transplanted themselves to America so that they could (A) live; and (B) maintain their insularity. But the world has changed, and it is very difficult to remain insular when you are based in a large city such as New York. For one thing, if you borrow significant sums of money, you are subject to all of the lender's remedies if you default on the loan.
One of these groups is the followers of the Siget (or Sighet) chassidic dynasty, which consists of somewhat in excess of 300 individuals living in the Borough Park section of Brooklyn (which would be, at a maximum of maximums, 50 households, and probably closer to 40). The group became an entity under New York's Religious Corporation Law, and is legally known as the Congregation Atzei Chaim of Siget.
In 2008, the Congregation, with due permission of the Court, took out a 10-year $499,000 mortgage loan, secured by their existing synagogue building located at 1511 50th Street in Brooklyn. But times got difficult, and they fell behind in the loan payments -- far enough behind for the lender to bring a mortgage foreclosure action.
Due to the time, difficulty, and expense involved in foreclosing real property, mortgage lenders will go to great lengths to find alternatives to foreclosure. The foreclosure action was apparently filed in late 2012, which indicates that the default probably occurred relatively early on in the life of the 10-year loan.
Valley National Bank, the mortgage holder, having lined up all of the required papers, moved for foreclosure. The Congregation opposed the foreclosure judgment, claiming that the Congregation's leader, Rabbi Jacob Teitelbaum, the Siget Rebbe, who resides in the mortgaged premises, was not properly served with the required notice of the foreclosure action, and Rabbie Teitelbaum was the true owner of the property. [As mentioned in a recent post, I have no problem with making mortgage holders run the gauntlet before they can foreclose on mortgaged properties, but, once the gauntlet has been run, the foreclosure right has been duly established and should be expedited. If lenders could not enforce collection of their loans, then nobody would lend money at reasonable rates, and no person or business would be able to have a home.]. The Rebbe said that the Congregation was just his nominee, apparently a ploy to benefit from the touted advantages of incorporation.
Nothing doing, said Judge Demarest to the Rebbe! The mortgage was a commercial mortgage and not a residential mortgage. The mortgage document specifically indicates that the premises would not include residential properties. Rabbi Teitelbaum was not a signatory to the mortgage or its note. And (for both the individual rights activists on the right side of the political spectrum and the advocates for the homeless on the left side of the political spectrum), merely depriving the Congregation (which, according to the Rebbe, is one and the same as the Rebbe himself) of ownership of the property would not in and of itself dispossess the Rebbe of his living quarters.
[Zooming in on the Street View of Google Maps, (which is reproduced in the Brooklyn Daily Eagle article), one can see that the building has three mailboxes by the front door. There also is a balcony upon which is set up a beach chair of the type used by residential households. The photo accompanying the article in the New York Law Journal indicates that an additional story has been added to the building subsequent to the Google Maps photo.].
The advantages of incorporation are widely touted in the classrooms, in attorney's and accountant's offices, and on the streets. But if you are a corporation, then you do not enjoy the benefits of being a natural person. These range from the famous Miranda Rights of warning upon arrest, to the right to personal notice of a mortgage foreclosure on your property.
I shall not go into the typical "We had a great time in Israel, we didn't get enough done in the short time we were there, and we can't wait to go back again" routine, other than to perfunctorily but unequivocally state that we had a great time in Israel, we didn't get enough done in the short time we were there, and we can't wait to go back again.
The afternoon before we departed, I received a telephone call from the airport limousine services purveyor with whom we had arranged our transportation. Seems that another couple, about three-quarters of a mile away from us, wanted to catch the same flight to and the same return flight from. Would we mind sharing the ride with them (and saving $10 in the process)?
I told the limo guy that as long as there was sufficient room in the vehicle, then I didn't have a problem with it. He assured me that the van he would send would have ample room for four adults plus lots of luggage. It did.
This particular couple is not quite 30 years our junior, married 2 years, no children yet (but they indicated that the situation was subject to change within the foreseeable future). We have a number of mutual acquaintances. To be sure, they were pleasant traveling companions, but they are where we were 25 years ago and still have quite a ways to go in order to bring their marriage up to the level of functionality my wife and I have achieved. There obviously are no guarantees on such matters, but, having done it, I would give them a reasonable chance of hitting their quarter-century mark.
In any event, they were seated in a different section of the plane, so after the luggage was retrieved in Israel we each went our separate ways, and did not have occasion to contact or rendezvous with one another until we found ourselves waiting at the gate to board the return flight.
After landing at Newark Liberty, we of course had to clear the Customs & Border Protection people. And that is where the other couple experienced a slight complication.
This year, the pomegranate crop in Israel yielded lots of specimens which are larger and sweeter than usual. It was quite fortuitous that the holiday of Tu B'Shevat, the New Year for the Trees, occurred during our visit to Israel. It is, of course, a custom to eat fruits on that day, especially the fruits for which the Land of Israel is historically known: Olives, dates, figs, grapes, and pomegranates (The Jaffa oranges and the Sabra cactus pears would come onto the scene much later; immigrants, as it were, who succeeded and made good for themselves and their new country). We, of course, feasted on those fruits and others.
Our limo companions were no less impressed with the pomegranates than we were. They packed a dozen into one of their suitcases. And when they were asked by the CBP people if they were bringing any fruits into the country, they truthfully answered in the affirmative. They were sent to the CBP's agriculture specialist, who confiscated the pomegranates.
I am pleased to no end that the CBP people are protecting America from diseased fruits and plants. Now, how about keeping out the illegal aliens who commit acts of fraud and violence upon the American people!
To those who have asked, my wife and I are having a wonderful time in Israel; as usual, we are accomplishing things we hadn't planned to accomplish, and missing out on some things we had hoped to accomplish. We spent a few days with our son, whom we hadn't seen in a little over a year, and we will likely be spending Shabbat with him.
Oftentimes, when someone's (usually adult) child makes lifestyle decisions which do not fulfill the parents' expectations, the parent or parents resign themselves with an utterance to the effect of "But as long as they are happy, I really cannot complain." And so, the parent(s) end up doing anything and everything to try to make the child happy, spoiling the child in the process. Amy Fisher, Patty Hearst, Bill Ayers, the Kramer boys, and others of their ilk are often the result.
It is good parenting to set expectations for one's child, and to communicate those expectations to the child. It is also not unusual for one's child to deviate from those expectations to one degree or another. Nor is it unusual for the child, in deviating from the parental expectations, to really, really get himself or herself stuck in a tough spot as a result of the child's ill-advised decisions.
I myself made (more than) a few suboptimal decisions during my teenage and early adult years; fortunately, I was able to see the errors of my ways, and, after revising my life plans, was able to become a successful contributing member of society (and maintain a marriage nearing three decades and still going).
If truth be told, my own son made his share of bad judgment calls. Nothing that would put him (too much) on the wrong side of the law or anything like that, but ill-advised enough to set him on a path to nowhere. Like his father, he also had an epiphany or two, went back to the drawing board with his life plans, and, as is now evident during our visit to him, is now on target for success in life (though not necessarily the executive suite of a Fortune 500 company). A little dose of tough love, requiring him to live with the consequences of his decisions, can go a long way.
Is his life simple and comfortable? No way! Is he happy? Happier than he ever has been in his life, I daresay. Are my wife and I happy that he is happy? We are most ecstatic!
But what makes us most happy is not that our son is happy, but that our son has shouldered some significant life responsibilities, and is successfully dealing with the challenges of adulthood on his own.
How much longer he remains abroad has yet to be determined. But his parents are more confident than ever before that he will make the correct decisions with his life. And that really, really, makes us happy.
We are, as always, having a wonderful and meaningful time during our stay in Israel. We have rented a car, which we drove from the airport. For $5 a day we added on a GPS device (with an English option), which all in all has been extremely helpful. We were able to go visit my wife's plemenitza last night, who had some of her brothers and sisters and their families over; about 25 persons, mostly below the age of 10. Religious Jews, making lots of kids, to catch up on that setback from Hitler's failed master plan.
Proportionately speaking, there seem to be a lot less shmucks on the roads of Israel than in America. Not that there are zero; not by any means. But the drivers here know that they are driving in order to get to some place, and that there are others with whom they share the road.
Okay, so we did encounter a shmuck last night on a narrow Jerusalem street, who was going in the opposite direction from us, and who refused to pass us so that we could proceed, even though he had clear road ahead of him beyond the constriction his car occupied. While my Hebrew comprehension is good when I read the written word, my conversational Hebrew leaves much to be desired. This particular driver sounded as though he was from somewhere in the former Soviet Union. So I spoke to him in Italian. Well, I didn't actually speak to him, I just gave him a hand gesture used by my Italian-American friends to indicate disgust and dissatisfaction. Then, the drivers of the cars that had lined up behind him began to grow impatient, and they all started hitting their horns. Eventually he moved, thereby unblocking me and the cars behind me. I suppose that a shmuck driver level of zero percent is, as a practical matter, unachievable.
Some of the traffic circles in Israel (which the GPS people call "roundabouts," and which in Hebrew are called "kikarim") no longer exist, and, conversely, some of what were ordinary intersections have been made into roundabouts, and the GPS has not yet been updated. These are but minor glitches, which we are able to surmount with a small dollop of common sense.
Except that political correctness has really, really made bollixed up our routine today.
This morning, we checked out of our hotel in the Holy City of Jerusalem, and proceeded to visit my wife's friend (whose late mother was a client of mine), who lives in an area considered the Jordan Valley, which Kerry and Obama are pressuring Israel to give to the terrorists in the so-called peace process. The GPS informed us that the location was out of its range (though it did get us there).
That wasn't so bad, at least not at that point. We had a delightful visit with our friend until noon, when she had to leave for her job. We then proceeded to visit our son, who currently is based out of a locale in the north of Israel. Instead of taking us up the usual road that parallels the Jordan River (which is in the politically incorrect territory), the GPS routed us out west through Tel Aviv, then up the coastal highways, and then back inland near Haifa, easily adding more than an hour to our trek.
Actually, I sort of understand this. I can easily envision some attorney for the GPS manufacturer sending out a memo expressing concern that some American tourist who gets routed to an Arab village will sue the GPS people.
[I shall not now comment upon the number of carbon debits the global warming apostles should claim from the GPS people on account of the increased fuel consumption from the politically-correct GPS.].