Overpaying Taxes for Fun and Profit

Overpaying Taxes for Fun and Profit

September 19, 2019 Uncategorized 0

The Case:

Your paycheck stub shows that some of your money went to the IRS. Normally, one wants to keep that number low, but some folks deliberately overpay. This fellow appears to have overpaid his taxes by well over two million dollars… just for starters.

Charles Sebesta, 54, was the chairman of the board for the Fifth Church of Christ, Scientist, in Los Angeles. He was arrested recently on an indictment alleging fraud to the tune of $11.5 million. If he is convicted on all charges, he faces up to 250 years in federal prison. Link

Sebesta allegedly committed five counts of wire fraud, five counts of bank fraud, and two counts of aggravated identity theft. Here, I am focusing on the tax overpayment accusation – other posts will examine different issues. In 2009-2019 he allegedly wired $1.86 million to the IRS and $309,622 to the California Franchise Tax Board, to his own tax accounts (just like your employer does with that federal and state taxes held back from your check). When it came time to file his income taxes, he received a couple of very large refunds.

Analysis:

This is an example of tax overpayment fraud. Had anyone looked at the church books, the payments would look like normal payroll tax payments. When you have a number of employees and pay quarterly, payments can be substantial… though these are pretty big numbers for a church! And it’s doubtful that anyone was looking at the books. Extra money paid into one’s own tax account appears legit… but it launders the money through the government to get it to the thief at refund time. Note that this was a bogus expenditure for the church: he appears to have come up with the payment out of thin air – this wasn’t extra held back from his check! But such fraud can look legit when looking at the books.

How To Prevent This At Your Church:

  • Look at the statements! The statement should be mailed to the pastor’s home, or to the home of a senior staff person or elder. This person can look it over for odd items, including a large payment to the IRS.Once this person looks over the statement, it can be forwarded to the bookkeeper for processing.
  • Know your numbers. This is where having a calendar is handy: one can jot down quarterly payments to see if the numbers on this month’s check are in line with payments in previous quarters. And one can see extra payments, too.

Best Choice?

Consider our church audit service – it’s easy and surprisingly affordable. We help find holes in financial procedures and tell you how to plug them.

  • Your church’s chief money person answers a bunch of questions online
  • He or she fields questions out to others as needed;
  • All the answers are reviewed by the church staff, elders, and deacons (and corrected as necessary);
  • We produce a book showing what is being done well and what could be improved.
  • The book also includes a ‘best practices’ section and a plan to do it all with the minimum number of people;
  • We print copies of the book for the pastor and each board member, and meet by video conference to discuss implementation.

Start answering questions now!