Parents could face tax charges, big fines in admissions scam

BOSTON (AP) — A wide-ranging college admissions cheating scheme allowed wealthy parents not only to get their kids into sought-after schools but to write off the bribes on their taxes, federal authorities say.

Now some parents who are already facing possible prison time could be hit with additional criminal charges and stiff financial penalties, experts say.

25 PHOTOS
Lori Loughlin with her daughters
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Lori Loughlin with her daughters
BEVERLY HILLS, CA - FEBRUARY 28: Olivia Jade Giannulli and Lori Loughlin attend WCRF's 'An Unforgettable Evening' at the Beverly Wilshire Four Seasons Hotel on February 28, 2019 in Beverly Hills, California. (Photo by Emma McIntyre/Getty Images for WCRF)
BEVERLY HILLS, CA - FEBRUARY 28: (L-R) Olivia Jade Giannulli, Lori Loughlin and Isabella Rose Giannulli attend WCRF's 'An Unforgettable Evening' at the Beverly Wilshire Four Seasons Hotel on February 28, 2019 in Beverly Hills, California. (Photo by Rachel Murray/Getty Images for WCRF)
WEST HOLLYWOOD, CA - DECEMBER 14: (L-R) Heidi Anne Pillsbury, Olivia Jade, Lori Loughlin and Beth Hayes Giannulli celebrate the Olivia Jade X Sephora Collection Palette Collaboration Launching Online at Sephora.com on December 14, 2018 in West Hollywood, California. (Photo by Gabriel Olsen/Getty Images for Sephora Collection)
WEST HOLLYWOOD, CA - DECEMBER 14: (L-R) Olivia Jade Giannulli, Lori Loughlin and Isabella Rose Giannulli celebrates the Olivia Jade X Sephora Collection Palette Collaboration Launching Online at Sephora.com on December 14, 2018 in West Hollywood, California. (Photo by Gabriel Olsen/Getty Images for Sephora Collection)
WEST HOLLYWOOD, CA - DECEMBER 14: Lori Loughlin (L) and Olivia Jade Giannulli celebrate the Olivia Jade X Sephora Collection Palette Collaboration Launching Online at Sephora.com on December 14, 2018 in West Hollywood, California. (Photo by Gabriel Olsen/Getty Images for Sephora Collection)
LOS ANGELES, CA - MARCH 24: Lori Loughlin and Olivia Jade Giannulli are seen on March 24, 2018 in Los Angeles, California. (Photo by Hollywood To You/Star Max/GC Images)
BEVERLY HILLS, CA - FEBRUARY 27: Actress Lori Loughlin and daughter Olivia Jade Giannulli attend Women's Cancer Research Fund's An Unforgettable Evening Benefit Gala at the Beverly Wilshire Four Seasons Hotel on February 27, 2018 in Beverly Hills, California. (Photo by Axelle/Bauer-Griffin/FilmMagic)
BEVERLY HILLS, CA - FEBRUARY 27: Lori Loughlin, Olivia Jade Giannulli arrives at the The Women's Cancer Research Fund's An Unforgettable Evening Benefit Gala at the Beverly Wilshire Four Seasons Hotel on February 27, 2018 in Beverly Hills, California. (Photo by Steve Granitz/WireImage)
LOS ANGELES, CA - OCTOBER 25: Lori Loughlin and Olivia Jade attend the PrettyLittleThing By Kourtney Kardashian Launch on October 25, 2017 in Los Angeles, California. (Photo by JB Lacroix/ WireImage)
LOS ANGELES, CA - OCTOBER 04: Olivia Jade and mother Lori Loughlin attend People's 'Ones to Watch' at NeueHouse Hollywood on October 4, 2017 in Los Angeles, California. (Photo by C Flanigan/WireImage)
LOS ANGELES, CA - AUGUST 13: (L-R) Isabella Giannulli, Lori Loughlin and Olivia Giannulli arrive at the Teen Choice Awards 2017 at Galen Center on August 13, 2017 in Los Angeles, California. (Photo by Axelle/Bauer-Griffin/FilmMagic)
LOS ANGELES, CA - AUGUST 13: (L-R) Isabella Giannulli, Lori Loughlin and Olivia Giannulli arrives at the Teen Choice Awards 2017 at Galen Center on August 13, 2017 in Los Angeles, California. (Photo by Steve Granitz/WireImage)
LOS ANGELES, CA - AUGUST 13: (L-R) Isabella Giannulli, Lori Loughlin and Olivia Giannulli attend the Teen Choice Awards 2017 at Galen Center on August 13, 2017 in Los Angeles, California. (Photo by Kevin Mazur/Getty Images)
BEVERLY HILLS, CALIFORNIA - JULY 27: Bella Loughlin, Actress Lori Loughlin and Olivia Loughlin arrive for the 2017 Summer TCA Tour - Hallmark Channel And Hallmark Movies And Mysteries on July 27, 2017 in Beverly Hills, California. (Photo by Greg Doherty/WireImage)
BEVERLY HILLS, CA - JULY 27: Actress Lori Loughlin (C) and her daughters Isabella Rose (L) and Olivia Jade Giannulli (R) attend the Hallmark Channel And Hallmark Movies And Mysteries 2017 Summer TCA Tour at on July 27, 2017 in Beverly Hills, California. (Photo by Paul Archuleta/FilmMagic)
WEST HOLLYWOOD, CA - APRIL 21: Olivia Jade and Lori Loughlin attend Marie Claire's Fresh Faces event at Doheny Room on April 21, 2017 in West Hollywood, California. (Photo by Jason LaVeris/FilmMagic)
WEST HOLLYWOOD, CA - APRIL 21: Olivia Jade and Lori Loughlin attend Marie Claire's Fresh Faces event at Doheny Room on April 21, 2017 in West Hollywood, California. (Photo by Jason LaVeris/FilmMagic)
WEST HOLLYWOOD, CA - APRIL 21: Actress Lori Loughlin and Olivia Jade attend Marie Claire's 'Fresh Faces' celebration with an event sponsored by Maybelline at Doheny Room on April 21, 2017 in West Hollywood, California. (Photo by Donato Sardella/Getty Images for Marie Claire)
LOS ANGELES, CA - MARCH 23: Actress Lori Loughlin with her daughters Olivia Jade Giannulli and Isabella Rose Giannulli are seen on March 23, 2017 in Los Angeles, California. (Photo by Hollywood To You/Star Max/GC Images)
LOS ANGELES, CA - FEBRUARY 16: Lori Loughlin (C) and daughters Isabella Giannulli (L) and Olivia Giannulli attend the premiere of Netflix's 'Fuller House' on February 16, 2016 in Los Angeles, California. (Photo by JB Lacroix/WireImage)
LOS ANGELES, CA - FEBRUARY 16: Lori Loughlin (C) and daughters Isabella Giannulli (L) and Olivia Giannulli attend the premiere of Netflix's 'Fuller House' on February 16, 2016 in Los Angeles, California. (Photo by JB Lacroix/WireImage)
LOS ANGELES, CA - DECEMBER 10: Actress Lori Loughlin and Olivia Jade Giannulli attend the Premiere of Awesomeness Films' 'Snervous Tyler Oakley' at the Regency Bruin Theatre on December 10, 2015 in Los Angeles, California. (Photo by Jesse Grant/Getty Images)
LOS ANGELES, CA - NOVEMBER 17: (L-R) Patricia Riley, Bailee Madison, Lori Loughlin, Olivia Giannulli and Isabella Giannulli pose for a photo prior to the World Premiere Screening of 'Northpole: Open for Christmas' at The Grove on November 17, 2015 in Los Angeles, California. (Photo by Joe Scarnici/Getty Images)
BEVERLY HILLS, CA - JULY 29: Actress Lori Loughlin (R) and daughter Olivia Jade Giannulli attend the Summer TCA Tour - Hallmark Channel and Hallmark Movies And Mysteries at a private residence on July 29, 2015 in Beverly Hills, California.(Photo by Jeffrey Mayer/WireImage)
LOS ANGELES, CA - NOVEMBER 04: Lori Loughlin, Isabella Giannulli and Olivia Giannulli arrive for the Hallmark Channel Presents 'Northpole' Premiere Screening at La Piazza Restaurant on November 4, 2014 in Los Angeles, California. (Photo by Gabriel Olsen/FilmMagic)
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And a slew of others who paid into the foundation that an admissions consultant used to mask the bribes, but haven't been charged in the scam, are also sure to face IRS scrutiny.

The IRS has "been known as the follow the money crowd since the days of Al Capone so they will be following those lists and that money very carefully," said Mark Matthews, a former deputy commissioner of the agency who's now an attorney at Caplin & Drysdale in Washington.

Consultant Rick Singer funneled millions of dollars from parents through his tax-exempt organization and then used it to pay coaches and other insiders to designate applicants as athletic recruits or cheat on entrance exams, prosecutors allege.

Among the 33 prominent parents charged in the case are Hollywood stars Lori Loughlin and Felicity Huffman, who haven't publicly commented on the case. The actresses and others are scheduled to make their initial appearances this week in Boston federal court.

26 PHOTOS
Best Lori Loughlin and Felicity Huffman memes
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Best Lori Loughlin and Felicity Huffman memes
When you gotta break aunt Becky out of jail. https://t.co/ouwPjstDnV
did i expect aunt becky to become a meme about inequality in college admissions today? no .......... but the lord works in mysterious ways
Ah, Aunt Becky, how the tables have turned. https://t.co/kohi5bpp5w
TERI HATCHER GOT ME INTO BROWN
JUDITH LIGHT GOT ME WAIT LISTED AT TUFTS
My day was going seemingly as planned until Aunt Becky was charged with conspiracy to commit mail fraud and honest… https://t.co/6WqQ70fQqP
First Aunt Becky witness called to the stand https://t.co/ENEPkOPJBE
What college admissions committee in their right mind wasn't already admitting Aunt Becky's children?! https://t.co/NV7KO7dsJQ
Lori Loughlin after spending >$1 mil on legal fees, bribes & tuition for a college that’s not even ranked top 20 https://t.co/Yy4aFi3yPW
They got Aunt Becky out here getting cuffed by the feds. We living in the worst of times. https://t.co/HPAxk0fFsX
Aunt Becky...SMH https://t.co/xAhBQzORGW
Honestly if it turns out Aunt Becky is deeply enmeshed in the bagmen culture of college basketball everything will be worth it
Lori Loughlin aka Aunt Becky after a long day of college exam fraud https://t.co/00LyS2dDhS
Aunt Becky really paid $500,000 for her child to get into USC half a million for USC....Well now she’s moving from… https://t.co/M6bMzc23Xf
Uncle Jesse bargaining for Aunt Becky’s freedom rn https://t.co/okqDCp7C6q
Judge: Your still lookin at 29 years.. 6ix9ine: You remember aunt becky...? https://t.co/tb77YRMboE
On the way to bail out Aunt Becky !! https://t.co/WkiS34kFAW
“I ride BMX. And you’d never believe my daughter rows crew.” -Aunt Becky https://t.co/iF1oDF4aAv
For $500,000 my child better be getting into Hogwarts, forget USC. Damn Aunt Becky https://t.co/Dqh0I2Y9mg
"I can't wait to lie to get you into the schools of your dreams!" - Aunt Becky https://t.co/pkkOj3vXlp
yo I used to watch Olivia Jade on YouTube and homegirl always talked about how she hated school/barely went and I a… https://t.co/zzh5uGrdaA
Aunt Becky changing all her daughters test answers when she steals it from the test proctor https://t.co/NtBeL65xet
So Aunt Becky from Full House and Lynette Scavo from Desperate Housewives are involved in this college exam scheme… https://t.co/R4Sznhixr6
When I decided to sleep in this morning, I had no idea one of the consequences would be, “all the good Felicity Huf… https://t.co/dkH6KUu6eZ
Live look at Felicity Huffman getting arrested today https://t.co/0RcQWBqFzi
DUPLICITY Huffman
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The parents' bribes were disguised as "donations" to the Key Worldwide Foundation, which purported "to provide education that would normally be unattainable to underprivileged students, not only attainable but realistic."

Singer's foundation sent the parents letters thanking them for the donation that claimed "no goods or services were exchanged," allowing many of them to deduct the payments from their taxes as charitable contributions, prosecutors say.

After Singer began cooperating with investigators in September in the hopes of getting a lenient sentence, the FBI had him call the parents and pretend that his foundation was being audited by the IRS in an attempt to get them to admit their involvement in the scheme.

"So what I want to make sure is that you and I are both on the same page because what I'm going to tell them is that you made a 50K donation to my foundation for underserved kids and not that (the proctor) took the test for (your daughter)..." Singer told one parent, according to court documents.

42 PHOTOS
States where Americans pay the highest in state income taxes
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States where Americans pay the highest in state income taxes

California

State income tax: 1% to 13.3% 

Maine

State income tax: 5.8% to 10.15%

Oregon

State income tax: 5% to 9.9%

Minnesota

State income tax: 5.35% to 9.85%

Iowa

State income tax: 0.36% to 8.98%

New Jersey

State income tax: 1.4% to 8.97%

Vermont

State income tax: 3.55% to 8.95%

Washington, DC

State income tax: 4% to 8.95%

New York

State income tax: 4% to 8.82%

Hawaii

State income tax: 1.4% to 8.25%

Wisconsin

State income tax: 4% to 7.65%

Idaho

State income tax: 1.6% to 7.4%

South Carolina

State income tax: 0% to 7%

Connecticut

State income tax: 3% to 6.99%

Arkansas

State income tax: 0.9% to 6.9%

Montana

State income tax: 1% to 6.9%

Nebraska

State income tax: 2.46% to 6.84%

Delaware

State income tax: 2.2% to 6.6%

West Virginia

State income tax: 3% to 6.5%

Georgia

State income tax: 1% to 6%

Kentucky

State income tax: 2% to 6%

Louisiana

State income tax: 2% to 6%

Missouri

State income tax: 1.5% to 6%

Rhode Island

State income tax: 3.75% to 5.99%

Maryland

State income tax: 2% to 5.75%

North Carolina

State income tax: 5.75%

Virginia

State income tax: 2% to 5.75%

Oklahoma

State income tax: 0.5% to 5.25%

Massachusetts

State income tax: 5.1%

Alabama

State income tax: 2% to 5%

Mississippi

State income tax: 3% to 5%

Utah

State income tax: 5%

Ohio

State income tax: 0.495% to 4.997%

New Mexico

State income tax: 1.7% to 4.9%

Colorado

State income tax: 4.63%

Kansas

State income tax: 2.7% to 4.6%

Arizona

State income tax: 2.59% to 4.54%

Michigan

State income tax: 4.25%

Illinois

State income tax: 3.75%

Indiana

State income tax: 3.3%

Pennsylvania

State income tax: 3.07%

North Dakota

State income tax: 1.1% to 2.9%

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"Dude, dude, what do you think, I'm a moron?" Agustin Huneeus, Jr. a Napa Valley, California, vintner, replied. An email was sent to Huneeus' attorney on Monday.

The IRS, which has been investigating the criminal case jointly with the FBI, has said it is looking into the parents' payments.

Though prosecutors outlined the tax deduction scheme when the parents were arrested last month, none of them have been charged with tax evasion. Some experts suspect officials are holding the additional charge, among others, over the parents in an attempt to convince them to quickly plead guilty.

To convict them of tax crimes, prosecutors would have to prove that they not only purposely underpaid, but knew they were breaking the law when they did. If may be a difficult sell, but parents could try to argue that their statements on the phone calls don't prove that they knew the deductions were illegal.

"Ignorance is no excuse for breaking the law, but in the tax area is it," said Philip Hackney, who worked in the IRS' office of the chief counsel and now teaches at the University of Pittsburg School of Law.

But parents are sure to pay harsh penalties to the IRS, experts say.

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5 tax breaks no longer available
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5 tax breaks no longer available

1. Personal exemptions

For 2017, eligible taxpayers could claim an exemption for themselves and a spouse as well as exemptions for dependents. Each such exemption reduced taxable income by $4,050.

For 2018, however, there are no personal exemptions. Tax reform suspended them, basically meaning it made them temporarily unavailable.

Specifically, personal exemptions and many other tax breaks that were suspended by the Tax Cuts and Jobs Act will be unavailable for tax years 2018 through 2025.

2. Moving expenses

You cannot deduct moving expenses from your 2018 taxable income, either. Tax reform suspended this deduction for everyone except active-duty members of the U.S. armed forces who are ordered to relocate.

“During the suspension, no deduction is allowed for use of an automobile as part of a move,” states IRS Publication 5307, which outlines how tax reform impacts individuals and families in tax year 2018.

Tax reform also suspended the exclusion for qualified moving expense reimbursements for everyone but active-duty military members. So, if your employer reimbursed you for moving expenses in 2018, that reimbursement will be considered taxable income.

3. Casualty and theft losses

Tax reform modified the deduction for net casualty and theft losses, making it available only to taxpayers who suffered such losses that were attributed to a federally declared disaster.

Other requirements for this deduction remain in place, however.

“The loss must still exceed $100 per casualty and the net total loss must exceed 10 percent of your [adjusted gross income],” states Publication 5307.

4. Job-related expenses

Previously, folks who itemized their tax deductions could write off what the IRS refers to as miscellaneous deductions to the extent that they exceeded 2 percent of such taxpayers’ taxable income. But miscellaneous deductions are among those that have been suspended.

Miscellaneous deductions include unreimbursed employee expenses, such as:

  • Uniforms
  • Union dues
  • Business-related meals
  • Business-related entertainment
  • Business-related travel

So, if you paid for such expenses out of your own pocket in 2018 and were not reimbursed for them by your employer, you cannot write them off on your next tax return.

5. Tax preparation fees

This is another miscellaneous deduction and thus has been suspended. It includes:

  • The cost of tax preparation software programs
  • The cost of tax publications
  • Fees for filing tax returns electronically

So, if you paid any of these expenses in 2018, you can’t write them off on your next tax return.

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In addition to paying back the taxes they owe, parents could get hit at a minimum with a 20% penalty for claiming a deduction when they shouldn't have, said Lloyd Hitoshi Mayer, a professor at the University of Notre Dame Law School. Some could be on the hook for a civil tax fraud penalty that's equal to 75% of the amount they underpaid, Mayer said.

"Certainly the exchanges that (Singer) had with those parents are enough to support a fraud penalty," he said.

Some parents are accused of paying Singer's charity through their own family foundations, which could face their own set of civil penalties and lose their tax-exempt status, experts say.

Key Worldwide Foundation should have reported to the IRS all contributions over a certain threshold, said Meghan Biss, who spent a decade with the IRS before joining Caplin & Drysdale.

That means that in addition to clawing back taxes from the parents who've been charged, the IRS will likely be going through those names to determine whether the other donations were legitimate, she said.

"Are there more people who have potential criminal charges or just civil fines out there?" she asked. 

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