The Maynards - A goldmine for Fiscal Arbitrators

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Burnaby49
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The Maynards - A goldmine for Fiscal Arbitrators

Postby Burnaby49 » Tue Feb 09, 2016 9:39 am

First, before getting to the Maynards, a note that I'm changing my policy on reporting Fiscal Arbitrator cases. Up until now all of the Fiscal Arbitrator decisions that I've located have been posted here along with links and details. I'm stopping that for the simple reason that there are just too damn many of them. The Tax Court is churning them out like an assembly line. I locate my Canadian Tax cases by subscribing to Knotia, a tax service operated by Ernst and Young, that gives me a daily notification of all Canadian tax decisions at the Tax Court, the Federal Court and Federal Court of Appeals, the Supreme Court of Canada and the various provincial courts. In the past two days Knotia has sent me five Fiscal Arbitrator decisions, all essentially the same. So I'll give you the outline of all five cases and give my new criteria for posting.

In all of the cases the suckers were taxpayers who heard from somebody how Fiscal Arbitrators, or when that name wasn't used then some tax service, who could perform miracles. They were all of relatively modest means, were employees rather than self-employed, and all avowed they knew nothing of income tax law. They went to the tax service and found they could get back all of their taxes for the year under consideration and get all taxes refunded for the prior three years. Sounded great so they did it. All the tax service guy did was pull some huge number out of his ass, say $350,000, and told them that was their business loss for the year which would offset their employment income and could be carried back to prior years. How? From secret tax laws that only a few knew about, ex Canada Revenue Agency (CRA) auditors who were willing to share this largess with clients for 40% of the tax refunds. Since 60% of something was better than 100% on no refund they signed up and asked no further questions. Until the letters from the CRA came along demanding details of the purported losses. Suckers ran back to tax experts who gave them letters to sent to the CRA which, in the words of one Tax Court judge were comprised of;

nonsense, twaddle, jargon, drivel and babble sprinkled with random Latin words or phrases.


Since the CRA did not consider drivel and babble adequate support for claimed expenses none of the taxpayers were allowed the deduction for the claimed losses. However in (as far as I know) all cases the taxpayers were also hit with a penalty of 50% of the taxes they attempted to avoid by using Fiscal Arbitrator bullshit. This was imposed under subsection 163(2) of the Income Tax Act which allows the CRA to impose a 50% penalty when they think the taxpayer has been grossly negligent in filing income tax returns or requests for reassessments. However if the taxpayer appeals the penalty the CRA must prove gross negligence.

So all of the Fiscal Arbitrator suckers appealed their reassessments. A few, very few, appealed the disallowance of the fake expenses. That didn't go down well with the Tax Court when they refused to show any proof of expenses or a business but instead told the judge that it was up to the CRA to prove that they had no expenses. The greater majority accepted the reassessment of the taxes but appealed the gross negligence penalties on the basis of "poor me, I was conned by scum who claimed that they were tax experts and everything was legitimate so I relied on them entirely." Since the Fiscal Arbitrator claim of fake business expenses was so obviously complete bullshit all of the decision to date have dismissed the appeals on the basis that anyone with the IQ of, or even slightly higher than, a chicken, would have realized that it was "nonsense, twaddle, jargon, drivel and babble". So anyone who claimed the expenses was clearly wilfully blind to the fact it was essentially tax evasion.

I expect future decisions to be exactly the same so I'm only posting new decision when;

1 - A taxpayer appeals to try and get the court to allow the fake expenses;
2 - A taxpayer appeals the gross negligence penalty and wins;
3 - I find the decision amusing.

That brings us to the Maynards who are getting my special attention under count three. Not only did they fall for the Fiscal Arbitrator scheme they went all in by participating in other obvious scams that their Fiscal Arbitrator adviser was selling. It has cost them. The case link is here;

http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/135303/index.do?r=AAAAAQAHTUFZTkFSRAE

First let's meet our appellants;

[3] Elton and Lisa Maynard were born in Trinidad. Elton came to Canada in 1974, but he returned to Trinidad in order to bring his wife, Lisa, back to Canada. They have been happily married for 33 years. He has a grade 12 education in Trinidad and he also took some drafting courses at Centennial College in Scarborough. These courses were taken over a two-year period and included Autocad, a computerized drafting program. He worked as a draftsperson for Trench Ltd. for 33 years before retiring.

[4] Lisa obtained a grade 12 education in Trinidad. She came to Canada in 1982. Since arriving in Canada, she enjoyed several employments with the city of Toronto and is presently employed as an administrative assistant at the Ministry of Finances of Ontario. She has taken accounting courses at Durham College.

[5] Elton sometimes prepared their tax returns using computer software and other times they would have professionals such as H&R Block prepare the returns for a fee.


Then their fateful meeting with Fiscal Arbitrators;

[6] Some time in 2005, a colleague at Elton’s work recommended an individual named Muntaz Rasool to the Appellants. The colleague never did go into too much detail about his experience with Mr. Rasool. The Appellants believed Mr. Rasool to be a chartered accountant who had been in business for 20 years and who had prepared the colleague’s tax returns. They first met Mr. Rasool at a Tim Hortons in Scarborough that was close to Mr. Rasool’s home. In fact, any meetings they had with Mr. Rasool were at Tim Hortons. They never met him at his home office. They never asked Mr. Rasool about his credentials, nor did they check out any references other than Elton’s colleague. They testified that initially their relationship with Mr. Rasool was comfortable and trusting. According to Lisa, Mr. Rasool was a very pleasant person and the Appellants had an open dialogue with him. They testified that they had no reason not to trust him.


I just mentioned Rasool in a prior post;

http://www.quatloos.com/Q-Forum/viewtopic.php?f=50&t=10980

but I've known about him for a while;

http://windsorstar.com/business/cra-charges-tax-preparers-who-led-windsorites-to-financial-ruin

http://victomsofdsc.blogspot.ca/

Spurvey v. The Queen, 2015 TCC 300
http://canlii.ca/t/gmf95

Robichaud v. The Queen, 2016 TCC 19
http://canlii.ca/t/gn58j

Khattar v. The Queen, 2015 TCC 338
http://canlii.ca/t/gmpbr

Not a guy I'd go to for tax advice. However not only did they let him prepare their tax returns they went to him for advice regarding charitable donations;

[7] Right from the very first meeting, Mr. Rasool attempted to recruit them to invest in tax planning or investment schemes. The first of these was something called the Universal Healthcare Trust Donation Program (in conjunction with Liberty Wellness Initiative Foundation). This was a gifting program that was supposedly designed to render assistance to disadvantaged people in poverty stricken countries. The Appellants were provided with material purportedly showing that the Premier of Ontario, the Prime Minister of Canada and the Prime Minister of Grenada all endorsed this program. This appeared to give this scheme some legitimacy. Mr. Rasool convinced Elton to make a $6,000 donation to this program for the 2005 taxation year. Elton was given a T5003 slip indicating that the eligible amount of the gift for tax purposes was $30,000, not $6,000. Mr. Rasool also convinced Lisa to make a $2,500 donation. She was given a T5003 slip indicating that $12,500 was the eligible gift amount rather than $2,500. I find it difficult to understand how a charitable donation can somehow be inflated to five times the amount of the actual donation for tax purposes. The CRA advised the Appellants in August 2007 that it intended to disallow the donations and subsequently did so.


And he advised them about investing in a private company;

[8] For the 2006 taxation year, Mr. Rasool recruited Elton to invest in a business called StockLogic. Elton invested only $7,000 but somehow claimed business losses amounting to $42,000 related to StockLogic. Elton was advised in 2008 that the CRA was auditing the StockLogic scheme. Later, this business loss was disallowed and Elton was assessed gross negligence penalties pursuant to subsection 163(2) of the Act. I understand that this assessment is currently being litigated.


Sadly, as you can see, none of Rasool's advice worked out to their advantage.

However that apparently didn't deter them since their expected tax refunds for the charitable deduction and the stock loss greatly exceeded their actual out of pocket expenses. However their relationship with Rasool took a turn for the worse when he asked for more money once they anticipated getting their Fiscal Arbitrator based tax refunds. Ironically, after being scammed on the fake charity and investment, Lisa was one of the few Fiscal Arbitrator suckers who actually didn't pay for the privilege of getting screwed by the CRA. Rasool had only charged her $49 to do her tax return and when he wanted more money this ensued;

[12] Lisa testified that before she got her refund, she got a call from Mr. Rasool stating that she could expect her refund that week and that she had to see him with her cheque book to pay him for his expertise. He was demanding 40% of her tax refund. She responded that she had already paid him $45, his usual fee. He then told her that if she did not pay him, he would call the CRA and tell them to reverse her taxes. She told him that this was extortion and that she would not pay him a dime. She then contacted the CRA in order to report Mr. Rasool’s behaviour and to let the CRA know not to let anybody else have access to her tax records. The CRA assured her that Mr. Rasool could not access her records without her permission and that he could not reverse her taxes.


And she was shocked, SHOCKED when the CRA questioned her about the complete bullshit included in her personally signed income tax return;

[13] The Appellants only found out there was a problem with their 2008 tax returns in 2011 when they got a letter from the CRA questioning their claimed business losses. Lisa immediately called the CRA to let them know that they must have had the wrong person and they should check the social insurance number since she and her husband had never had any businesses at all. She was convinced that the CRA had made some kind of mistake. Unfortunately, the CRA had not made any mistake. Lisa was devastated, confused and panicky. She had no idea at all that Mr. Rasool had indicated on their returns that they were operating a business. She tried on many occasions to get in touch with Mr. Rasool and she even went to his home. However, Mr. Rasool had fled and was not to be found. She now knew they were in trouble so she tried to get a hold of someone from the CRA to work things out. She also took steps to report Mr. Rasool to the law enforcement authorities since they were the victims of a fraud. She also made enquiries of the governing body of professional chartered accountants to lodge a complaint and she learned that Mr. Rasool was not in fact a chartered accountant. She also lodged complaints with the Better Business Bureau, Equifax and any other organization that she could think of in order to bring Mr. Rasool to task.


Well tough. The anal-retentive CRA didn't care about how she was really, really diligent and honest about preparing her income tax returns but somehow just couldn't be bothered to ask Rasool why she was so special she didn't have to pay any income taxes at all. They just nailed her with a 163(2) penalty.

Bastards.

[15] The Appellants take the position that they honestly and sincerely believed that Mr. Rasool was a responsible professional and that he would prepare their tax returns according to the law and in keeping with his professional responsibilities. They had no idea that he would perpetrate a fraud in the preparation of their returns. They are unsophisticated and law abiding people. They are victims and it is not fair for them to now have to pay a penalty because they were too trusting and naive. They submit that the fact that they signed their returns without reviewing them may demonstrate negligence, but this does not amount to gross negligence such as to attract the imposition of the harsh penalties provided for in subsection 163(2) of the Act. These appeals should therefore be allowed and referred back to the Minister for reconsideration and reassessment on the basis that the penalties imposed pursuant to subsection 163(2) are not appropriate in the circumstances of this matter. The Appellants also seek their costs.


I like that last part. After getting Rasool to file false tax returns for them they wanted the judge to give them costs against the CRA for making them appeal against a penalty for filing fake business expenses.

Didn't work. The Tax Court was not sympathetic and said that any fool could have seen that this was a scam;

[35] Quite apart from any consideration of wilful blindness, I am of the view that the Appellants have demonstrated conduct amounting to gross negligence. As has often been stated by our courts, our tax system is one of self-assessment and self-reporting. Each individual taxpayer has the obligation to ensure that all the information contained in his return is complete and accurate regardless of who prepares the return. The Appellants made no effort whatsoever to verify the accuracy and completeness of their returns. They simply signed their returns, thus certifying that the returns were complete and accurate, and then they filed their returns without even looking at them. They completely disregarded their duty to verify the accuracy and completeness of the information contained in their returns. Had they made even the most minimal effort, they would have quickly and easily discovered the blatantly false information contained in their returns. The Appellants cannot be heard to say, in an effort to deflect blame away from themselves, that they were the victims of a dishonest tax preparer when they made no effort at all to verify the accuracy of their returns.


And they weren't fools;

[33] The Appellants have the equivalent of a high school education here in Canada. They have been in Canada for a long time. They are intelligent and articulate. They have taken post�secondary school courses that were very useful to them in their line of work. They have been steadily employed in positions of responsibility and both earn a good living. Elton has knowledge of the tax system since he has prepared his wife’s returns and his own in the past. He and his wife both have a basic understanding of business organization and concepts of profit and loss. They are not so lacking in education or life experience as to claim ignorance. Education, experience and intelligence are not factors that could relieve the Appellants of a finding that they made false statements under circumstances amounting to gross negligence.


So the penalty was entirely appropriate.

[44] There is no doubt that the Appellants’ 2008 tax returns and their requests for loss carryback contained false statements — they did not carry on a business and they did not incur any business losses whatsoever. In the circumstances of this matter, I can come to no other conclusion than that the Appellants were wilfully blind and grossly negligent as to the falsity of these statements. This is especially so since they signed their returns certifying the accuracy of the information contained therein without bothering to even look at the returns or make any effort at all to verify the returns’ accuracy. As such, they are properly subject to the penalties imposed pursuant to subsection 163(2) of the Act.


Burnaby49 spent 35 years as a Canada Revenue Income Tax Auditor, sometimes dealing with crap like this, so you can easily guess where his sympathies lie.
"Yes Burnaby49, I do in fact believe all process servers are peace officers. I've good reason to believe so." Robert Menard in his May 28, 2015 video "Process Servers".

https://www.youtube.com/watch?v=XeI-J2PhdGs

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notorial dissent
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Re: The Maynards - A goldmine for Fiscal Arbitrators

Postby notorial dissent » Tue Feb 09, 2016 11:35 am

Burnaby49 wrote:I expect future decisions to be exactly the same so I'm only posting new decision when;

1 - A taxpayer appeals to try and get the court to allow the fake expenses;
2 - A taxpayer appeals the gross negligence penalty and wins;
3 - I find the decision amusing.

I would suspect that would cut down on your work load considerably since they all seem to pretty much be a cut and paste each of the other.

One thing about it, cuts down on the CRA's workload since they are all following pretty much the same script.
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LightinDarkness
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Re: The Maynards - A goldmine for Fiscal Arbitrators

Postby LightinDarkness » Wed Feb 10, 2016 11:44 pm

I really know nothing about tax law, US or Canadian, but I still think this observation is accurate:

Canada seems to be more stringent and methodological about smacking tax dodgers with penalties for their behavior. If this kind of case came up in the US, the Maynards would have received a huge refund and then the IRS would have spent years trying to get it back. The IRS would ask the court to assess a frivolous filing fee, and I am betting that a US court would deny it (although they would have to pay back the original refund). Every time I read a US tax case, it seems the amount of insane behavior it takes for a US taxpayer to get hit with a penalty is quite high.

Good on Canada for smacking this stuff down and making people pay for it.

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Re: The Maynards - A goldmine for Fiscal Arbitrators

Postby KickahaOta » Fri Feb 12, 2016 9:41 pm

LightinDarkness wrote:I really know nothing about tax law, US or Canadian, but I still think this observation is accurate:

Canada seems to be more stringent and methodological about smacking tax dodgers with penalties for their behavior. If this kind of case came up in the US, the Maynards would have received a huge refund and then the IRS would have spent years trying to get it back. The IRS would ask the court to assess a frivolous filing fee, and I am betting that a US court would deny it (although they would have to pay back the original refund). Every time I read a US tax case, it seems the amount of insane behavior it takes for a US taxpayer to get hit with a penalty is quite high.

Good on Canada for smacking this stuff down and making people pay for it.


That depends on what you mean by a "penalty".

When it comes to what it takes to get a penalty assessed to you by the Tax Court itself in the US (a penalty under IRC § 6673), you're right that the Tax Court is usually insanely tolerant. You almost get one "freebie" (a stern lecture with no penalty attached). Even if you repeat the performance the next year, the penalty is usually small. It's usually not until the third appearance that the Tax Court starts letting the frivpens fly with full fervor.

But when it comes to other areas, American tax law can dole out penalties with the best of them. In a case like this, the IRS probably wouldn't settle for calling these sort of deductions negligent or reckless; it would probably jump straight to calling them fraudulent. That wouldn't necessarily mean criminal charges, but it would mean a 75% penalty on the taxes evaded, plus no statute of limitations.

Also, if you file something with the IRS that's frivolous on its face -- such as a return filled with zeroes and other typical sovcrit trappings -- the IRS these days can simply send you a letter saying "You have 30 days to tell us you're withdrawing this crap, or we're fining you $5K".


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