Tax Lawyer Blog

A Blog written by the Tax Attorneys for Individuals and Businesses

Freeze & Seize Law - California

Senior Partner, Law Offices of Stephen Moskowitz, LLP

California Penal Code Section 186.11 is known as the 'Freeze and Seize Law.'  This law allows a court to preserve a criminal defendant's assets in order to pay restitution to victims and any fines imposed for their misdeeds.  Any money in bank accounts, assets controlled by other financial institutions and even real property can be frozen or seized when the initial complaint or indictment is filed-even before a conviction or a judgment is entered.

What the Prosecution Must Show

A court is able to freeze and seize assets under Section 186.11 when the prosecutor alleges that a person has committed two or more related felonies (involving fraud or embezzlement) which involve a pattern of related felony conduct.  This means that at least two of the felonies must have a similar “purpose, result, principals, victims, or methods of commission, or are otherwise interrelated by distinguishing characteristics, and…are not isolated events.”  Section 186.11 is an enhancement - known as the “aggravated white collar crime” enhancement - that will result in 2, 3 or 5 additional years in prison if plead to or proven at trial.

The Means Used to Seize Property Under Section 186.11

A person charged with the aggravated white collar crime enhancement may have frozen or seized any asset or property in his control, or any asset or property that was transferred to a third party after commission of an alleged criminal act.  (Note there is an exception for an innocent party who purchases property without notice of any other party's claim to the title of that property.)  The prosecution has the ability to seek a temporary restraining order or preliminary injunction in order to prevent any further transfer or disposition of property.  The prosecution may file for the appointment of a receiver to care for the assets or ask for any other measure necessary to maintain the status quo.

Third-Party Claimant's Protection

A thirty-day window is available to a third party who has an interest in the preserved assets.  Within the thirty days, the third party must file a verified claim with the superior court (and serve the complaint on the Attorney General or district attorney) regarding the nature and amount of the party’s interest in the protected property.  The third-party claimant has the burden of proof to establish their interest in the property.

Recent Examples of the Use of Section 186.11

In May of 2009 San Francisco District Attorney Harris announced new charges against Edwin Parada regarding alleged mortgage fraud and investment scams, including charges based on Section 186.11.  It was reported that Mr.  Parada may have to pay nearly $3,000,000 in restitution, in addition to fees.  You can read the San Francisco DA Press Release by selecting the following link:  http://www.sfdistrictattorney.org/News.asp?id=517

On September 22, 2010, Michael and James Nuciforo, two owners of D&J Drywall & Painting, Inc. were sentenced to jail and probation after being convicted of felony workers’ compensation premium fraud.  The defendants paid $517,433 in restitution to victims in order to mitigate their sentences.  Months before sentencing, the Ventura County District Attorney’s Office announced that it had frozen 1.5 million of the defendants’ assets, even though the estimated loss in the case was only $500,000.

The freeze and seize law may be applied in less newsworthy cases as well.  An unpublished opinion filed September of this year in the California Court of Appeals discusses the case of a woman who embezzled money from her employer.  The court seized and sold two residential properties that she had interest in with two former spouses.  The ex-husbands were found to be innocent spouses who were able recover their interests in the seized funds.  People v.  Mahdavi-Cummings, Doc. G041367 (Filed 09/24/10).  You can read this unpublished opinion by selecting the following link: www.courtinfo.ca.gov/opinions/nonpub/G041367.DOC

If the government is attempting to impose the freeze and seize law upon you, we want to help.  We have extensive experience working with prosecutors and the courts in dealing with the application of Section 186.11 in cases involving alleged fraud and misrepresentation.  Call me for your free attorney-client privileged consultation about how we can help you avoid if you are involved in this nasty imposition or if you believe that you might become subject to this.

Bush-Era Tax Cuts Expiring Soon

Senior Partner of the Law Offices of Stephen Moskowitz, LLP

The Bush Tax cuts will expire if Congress does not act by the end of this year.  Their expiration would have an across-the-board impact that would be felt by many Americans.  Perhaps the best way to prepare for the impact of their potential expiration is by understanding exactly what the Bush tax cuts are.

 Two major tax-cutting bills - the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001 and the Jobs Growth Relief Reconciliation Act of 2003 - make up the Bush tax cuts.  Together, these laws lowered the income tax rates, cut capital gains and dividends, addressed the so-called marriage penalty, phased out and eventually eliminated itemized deductions and personal exemptions for higher income earners, doubled the child tax credit and phased-out and eventually repealed the estate tax.  Each of these areas are discussed further below.

Income Tax Rates
Thanks to EGTRRA, the current income tax brackets are 10%, 15%, 25%, 28%, 33% and 35%.  Should the Bush tax cuts be allowed to expire, the 10% tax bracket would disappear and taxable income below $34,550 annually would jump up to the 15% bracket.  Everyone else would pay either 28%, 31%, 36% or 39.6% in annual income tax. 

Capital Gains and Dividends
The Bush tax cuts created a 15% ceiling on the rate of long-term capital gains and qualified dividends.  If allowed to expire, that ceiling for long-term capital gains would move up to 20% while the rate for qualified dividends would soar to 39.6%. 

Marriage Penalty
The marriage penalty is a tax liability that occurs when one or both people in a marriage pay more in taxes due to combining their earnings than they would had they stayed single.  For example, suppose a wife and husband both make $30,000 annually prior to marriage.  When they marry and file jointly, they report $60,000 which carries a higher overall tax liability for both of them.  The marriage penalty can also hurt married couples in scenarios where combining salaries pushes one or both of them into a higher bracket.  
 
Thanks to the 2003 portion of the Bush tax cuts, married couples filing jointly are entitled to deduct double the amount a single filer is entitled to deduct.  If the Bush tax cuts are left to expire, married couples would not be entitled to this deduction and would thus pay more in taxes than they did before they were married. 

Itemized Deductions and Personal Exemptions

The Bush tax cuts also allows higher-income earners to keep more of their money in the form of deductions and exemptions.  If the cuts expire, people with adjusted gross incomes above $170,000 who take itemized deductions will be hit hard come January 1, 2011.  This is because about 80% of the itemized deductions for people in this income level (for things like mortgage interest, state and local taxes, and charitable donations) would go away.  Additionally, higher-income earners would say goodbye to their personal exemption deductions.

Child Tax Credit
The Bush tax cuts doubled the child tax credit from $500 to $1,000 per child.  This deduction would return to $500 per tax year if Congress does nothing. 

Estate Tax
Part of the Bush tax cuts included a gradual decrease in the estate tax over time and a complete repeal of that tax in 2010.  However, the estate tax is scheduled to come back with a vengeance in 2011.  As of January 1, 2011 estates valued under $1 million would remain exempt but estates valued over $1 million would be hit with rates that top out at 55%. 

Clearly the expiration of the “tax cut” as set forth EGTRRA of 2001 and the Jobs Growth Relief Reconciliation Act of 2003, will have a financial impact on most individual taxpayers.   Please contact our firm if you would like to discuss your tax planning going forward.   The Law Offices of Stephen Moskowitz, LLP has over thirty years of broad-based tax experience.   We represent many individuals and businesses from many industries, including but not limited to, real estate management, construction, professional service firms, medical practices, manufacturing, retail, technology development, etc.   We provide comprehensive tax litigation, planning, and defense representation.   I invite you to contact our firm to discuss your legal questions.   Please feel free to use our contact form or phone us at (415) 394-7200.