Fishermen could face IRS fallout in claims with BP
New York attorney Jerrold Parker warned about the potential pitfalls facing fisherman who intend to file claims against BP for the Gulf of Mexico oil spill.
Parker, speaking at Harris Martin Publishing's Oil Spill Litigation Conference, said there is "a lot of major tax evasion" among Gulf Coast commercial fisherman.
The conference, held at the W Hotel in New Orleans, dealt with BP litigation strategy.
Parker spoke with Reserve attorney Daniel Becnel Jr. and New Orleans attorney Camilo Salas III during a section entitled "The Claims Game."
Parker, a former IRS tax agent in New York City, warned attendees that, should attorneys file claims against BP – which has established a $20 billion escrow account to handle legitimate claims – the process could get murky for fishermen because many deal in cash.
"Many Vietnamese and Cambodian fisherman live on their boats and don't speak much English," he said. "They pay for their supplies in cash, for their bait in cash and their gas in cash."
But foreign fishermen aren't the only ones affected. In a May 30 article in the Los Angeles Times, an anonymous crab fisherman said, "The BP guy wanted my tax statements, but how can I pay taxes if everything I earned was in cash?"
After the presentation, Becnel said that he and most of the lawyers he knows are providing their services and filing claims for fishermen free of charge.
"If we get something on the back end, so be it," he said. "If we don't, then we struck a lousy deal."
Speaking to the conference, Parker noted that there are many ways to prove a fisherman's income without tax returns, from invoices to receipts from cash transactions. But, he also warned that fishermen who show their income through alternative means could also build a case for IRS auditors who are watching out for tax evaders.
"I want to make you aware of this windfall for the IRS," Parker said. "They're looking forward to your client falling into the rabbit hole."
Even though the government won't likely prosecute a large percentage of Gulf fishermen, Parker said that the publicity from any suits will create "a ripple effect throughout the industry."
Parker said that there is a difference between a fisherman that makes "minor" mistakes and those whose tax returns report incomes that are thousands of dollars less than they really are, and between those who have never filed a tax return.
He noted that failing to file a tax return is just a misdemeanor while lying on a return is a felony. He also said fishermen who are proactive could avoid major repercussions.
"I've never heard of the IRS going after a client that makes the IRS aware of discrepancies," he said. "If a shrimper came forward and amended their return, I think they're going to be just fine."
But even if fishermen choose to go back and amend returns, the amount of back taxes and interest they owe the IRS may be greater than how much they would earn from BP by filing a claim. All of it presents a quandary for lawyers representing Gulf fisherman.
"I don't know what to tell you to do," Parker said. "I want to make you aware of this windfall for the IRS."
Parker said a fisherman's best bet would be to file taxes if they haven't already and hope that the back-taxes, interest and penalties doesn't outweigh how much their BP claim.