Friday, January 16, 2015

Foot Kissing Chiropractor Sentenced for Bribing IRS Agent (1/16/15)

USAO MA has announced, here, that a Chiropractor, Stephen Jacobs, has been sentenced to 9 months in  prison for bribing an IRS agent.
In August 2013, an IRS auditor met with Jacobs, a chiropractor, to examine numerous issues with his federal income tax forms for 2011.  During the initial interview, the auditor advised Jacobs that two $5,000 payments were not allowable deductions after Jacobs admitted that each was a payment to two different women after they accused him of touching them inappropriately during medical treatments.  Jacobs told the auditor that he paid the women because he was concerned that they would report him to the police or to the chiropractic board.  Jacobs admitted that he had begun kissing one woman’s feet while he was treating her.  He also admitted to other inappropriate contact when he was giving the second woman a massage. 
Jacobs asked the IRS auditor if there was anything he could do to “just deal with this…”  When the agent said he could not “just deal with this,” Jacobs became agitated and combative, ultimately threatening the agent that he would “ruin [his] career.” 
The following month, after several electronically monitored discussions regarding his non-deductible expenses, Jacobs offered to bribe the auditor in exchange for terminating the examination, saying, “. . . you want a bribe? You want me to pay you?...”  The auditor, acting under the direction of law enforcement, then accepted Jacobs’s offer of $5,000 to give Jacobs a favorable audit letter showing no additional tax for one year and a small refund for the next year.  Jacobs paid the auditor $5,000 in cash for the favorable treatment.  
According to another reports, the electronically monitored discussions included an email in which he opened the opportunity for a bribe:  "You want a bribe? You want me to pay you?" Andy Sheets, Off the Beaten Tax: Girls Gone Wild Lawyers Sue IRS, 2015 TNT 11-5 (1/16/15).  Well, even attempting a bribe is bad.  Starting the discussion by email is not just bad it is dumb.  Even dumber than kissing a patient's feet.  And this is not to mention the stupidity in threatening an IRS agent.


  1. As an aside, why wouldn't the costs have been tax deductible, if the offensive actions occurred on the chiropractor's premises during the course of treating the patients? Not that it should be deductible, but the claims sound work related and were not in the nature of a fine or penalty.

  2. If the costs ($5K to two women =10K) were not deductible, paying a $10K bribe to not have the deduction removed would only save him money if he were in a tax bracket higher than 50%.

    Also, sadly, in some countries bribes are an unavoidable fact of life. But even there, you let the receive be the one to ask and its done more subtly (traffic fine paid on the spot without a receipt being given, for example.)

  3. Switzerland had 15,000 disclosures out of a pupulation of 7 million; the US 40,000 out of 300 million. Seems the Swiss program is much better designed than the US.

  4. Under Section 162(c)(1), the bribe itself would not have been tax deductible.

  5. Also, with the tax on the $10K there would have been additional penalties and interest. There may have also been other questionable items in the return

  6. The IRS is failing miserably at providing a "fair and just tax system" for a lot of people. I recently met a doctor in Switzerland who is a good example. He went to medical school in the US for one year. He did the rest of the years in Switzerland. During his time there, he and his wife had a son. Six months later they left and never returned except for maybe a vacation. His son is now in his early twenties. His son's bank closed his accounts because of where he was American and didn't have a SSN. He can't open another account because he is not US tax compliant. So, he has to get a SSN(which apparently taxes a long time), file 5 years of taxes(for which he owes nothing) and expatriate(which costs $2350). Even though he didn't make enough money to owe taxes, his returns are beyond his abilities due to his limited knowledge of English and the complexity of the US tax system for foreign residents. The bottom line is that this will cost him about $20,000 in legal, accounting and expatriation fees. Fortunately for him his father can afford to pay.
    How can a 20 something year old kid afford $20,000 to fix his problem if he doesn't have a wealth parent? $20,000 seems like a lot to but international tax lawyers cost $500-600+ an hour. Even the $2350 expatriation fee is beyond what many people can afford. Many people are not going to comply simply because they cannot afford to do so.
    What is even more absurd is that this doesn't put one penny in the hands of the US government in most cases. Actually, it cost the US money because they have to process(and possibly audit) the returns. I have little doubt that the sum of the individual and bank compliance costs of FACTA far outweigh the net revenue to the US. It essentially ends up being a transfer of wealth from foreign resident individuals and banks to the US Treasury.
    Can anyone call this a "fair and just tax system?"
    Can lower income people who live overseas get the Earned Income Credit? Maybe that is the solution? People overseas can start getting checks from the US Treasury to help pay for their compliance and expatriation. Maybe if they start getting checks they won't expatriate at all?

  7. Unfortunately Congress knows all this and pretty much doesn't care and
    cannot be bothered to build a simple, efficient and reasonable tax system.


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