Joseph clients could face tax penalties

Members of George Joseph's investment club could face serious repercussions if they failed to notify the Internal Revenue Service of dividends Joseph paid to them, a local financial expert said.

"They could have a tax nightmare ..." said Richard Cuba, certified wealth strategist and certified financial planner at First Allied Securities.

Joseph, 48, faces charges of first-degree murder and armed criminal action in connection with the May 30 shooting deaths of his wife and son at their home on West Cape Rock Drive.

He told a Cape Girardeau detective he had been despondent over financial issues, according to a probable-cause affidavit filed in Cape Girardeau County Circuit Court.

A Scott County detective has said he interviewed Joseph earlier this year while investigating an unrelated case, and Joseph told him he had been making online investments for about 60 members of an investment club.

His arrest has left club members wondering where their money is.

"We definitely want to get the money back, of course," said Joselito Iringan, who told the Southeast Missourian he had taken between $11,000 and $12,000 out of a 401K retirement plan from a previous job and invested it with Joseph. "That's our hard-earned dollars."

Two club members have said Joseph told investors he was withholding taxes on the interest payments they received, so they did not need to report the income to the IRS.

On its website, sec.gov, the U.S. Securities and Exchange Commission defines an investment club as "a group of people who pool their money to make investments."

According to the SEC and the IRS, most clubs are set up as partnerships, with members researching possible investments and voting on what to buy or sell.

Federal law requires investment club members to report their share of the club's income, gains, losses, deductions and credits on their individual tax returns, the IRS states on its website, irs.gov.

If Joseph's investors were under the impression they did not need to report their income from the club, they could be in for an expensive surprise, Cuba said.

"That doesn't absolve you from the tax liability," he said. "What will happen is they will go back through the number of years you were investing … and what percent of that account was your money and what did that account make, and that's the amount you should have declared. … Not having paid that, you will then have the tax, a penalty for not declaring it and interest on what you owed them."

At a minimum, given persistent questions concerning the legitimacy of the club and the whereabouts of members' money, Joseph's investors are likely to be audited, Cuba said.

Federal law allows individuals to write off up to $3,000 per year in investment losses, he said, but investors still could be on the hook for some of their earnings if they received large payments in previous years.

"You might have the ability to take some losses and go back and amend your return," Cuba said. "… From year to year, you may have made some money that you'd be liable for."

epriddy@semissourian.com

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Pertinent address:

1220 W. Cape Rock Drive, Cape Girardeau, MO