Federal Tax Fraud
The I.R.S. is intimidating – anyone facing a tax fraud charge should never try to work with them without a lawyer. The Blanch Law Firm has experienced attorneys who know how to defend against tax fraud allegations from the highest levels of government.
- What is Federal Tax Fraud?:
Basically, tax fraud is anything that is done intentionally to deny the government what they are owed. It can be anything from filing a false return, failing to pay taxes, or underreporting your income. Because the definition is broad, the elements and punishment for these kinds of crimes are varied.
§ 7201 - ATTEMPT TO EVADE OR DEFEAT TAX: Any person who willfully attempts in any manner to evade any tax or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.
This actually creates two offenses – evading the assessment of a tax, and then evading the payment of the tax. It carries the most severe penalty for the federal tax offenses. Evading assessment usually involves filing a false return which omits include or claims deductions that the taxpayer is not entitled to. Evasion of payment is more straightforward – the IRS tells the taxpayer they owe money, and they simply do not pay it, often hiding money or assets from which it could be paid as well. The prosecution has to show ‘willfulness’ meaning an intentional violation of a known legal duty. This requirement is a heavy burden and is one of the best ways to defend against a tax fraud allegation.
§ 7203 - FAILURE TO FILE RETURN, SUPPLY INFORMATION, OR PAY TAX: There are essentially four separate crimes in this statute: failure to pay an estimated tax; failure to make a return; failure to keep records; and failure to supply information. Anyone who is guilty of these crimes shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction, thereof, shall be fined not more than $25,000 ($100,000 in the case of a corporation), or imprisoned not more than 1 year, or both, together with the costs of prosecution.
The difference between this crime and evading is that the first crime requires an affirmative act to evade payment, such as hiding assets. Simply refusing to pay the tax man is merely a willful failure to file returns or pay taxes. This is a less serious offense than IRC 7201, as demonstrated by the difference in punishments.
§ 7205 - FRAUDULENT WITHHOLDING EXEMPTION OR FAILURE TO SUPPLY INFORMATION – anyone required to supply information to his employer who willfully supplies false information shall be fined not more than $1,000 or imprisoned not more than 1 year, or both.
Common examples of this crime include an employee falsely claiming exemptions from withholding, or inflates the number of allowances they can claim, which reduces or eliminates taxes withheld from their paycheck. § 7206 - FRAUD AND FALSE STATEMENTS – These crimes all involve someone willfully making any return, statement or other written declaration which he does not believe to be true, or willfully aids someone doing so (such as a tax preparer). Essentially, lying on your tax return or helping someone to lie is a crime. Additionally, anyone removing or concealing goods where tax is to be imposed, or any property where tax levies are authorized with the intent to evade tax assessment will be charged. The punishment here if convicted is being found guilty of a felony and fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 3 years, or both, together with the costs of prosecution.
Along with 7201, this is one of the more serious tax fraud crimes that one can be charged with. These claims are not the same as someone filing a false claim for a refund – these are simply individuals charged with supplying false information on their tax returns, or any other document that the IRS may rely on when determining their tax owed. Some states have held that the document in question – the Form 1040 – does not become a return until the form is filed with the IRS; therefore, if it is simply a draft with false information, this is most likely not a crime.
§ 7207 - FRAUDULENT RETURNS, STATEMENTS, OR OTHER DOCUMENTS Any person who willfully delivers or discloses to the Secretary any list, return, account, statement, or other document, known by him to be fraudulent or to be false as to any material matter, shall be fined not more than $10,000 ($50,000 in the case of a corporation), or imprisoned not more than 1 year, or both.
This is an incredibly common offense pursued by the IRS. The typical scenario here is when a taxpayer presents false or altered documents presented in response to a request for documentation under an audit.
- Related Charges:
On top of tax fraud charges, the prosecution may also file several other related charges, resulting in what can be a complex case. The following is a list of common crimes that are often prosecuted in conjunction with tax fraud crimes:
Money Laundering 18USC §1956: If there are elements of money laundering in attempting to hide income from the IRS, you could be charged with this felony federal offense, particularly if any transactions happen to cross state boundaries. Penalties for this crime depend upon its severity, and can range anywhere from probation to fines of over $500,000.00 and up to 20 years in prison. If the laundering is connected with funding any sort of terrorism, prison time can extend to 35 years.
Embezzlement and Theft: 18 USC Chapter 31 – This is a broad chapter that deals with anyone who wrongfully appropriates funds, often from public and federal programs, but also inclusive of anyone who embezzles something of value of the United States or of any department or agency thereof, including wrongfully withholding tax. The punishment, if found guilty of this crime, is imprisonment of up to ten years, and/or a fine; however, if the value is less than $1,000.00, the imprisonment is limited to one year and/or a fine.
Possession of false papers to defraud the government: 18 USC §1002: this charge involves anyone who knowingly and with intent to defraud the U.S. or any agency thereof who possesses any false, forged or altered writing or document to obtain a sum of money from the U.S. The punishment for this crime is imprisonment for up to five years, and/or a fine.
- Recent Federal Indictments for Tax Fraud:
Jersey Shore star Mike “The Situation” Sorrentino was recently hit with even more charges at an indictment in April of 2017. Already indicted in 2014 for various tax offenses, these latest charges ensure that Mr. Sorrentino is looking at significant jail time for his actions. He was indicted for tax evasion, structuring and falsifying records. Structuring involves making multiple cash deposits on the same day for under $10,000 in various bank accounts to evade reporting requirements. The feds are alleging that Mike and his brother, Marc, used two companies they controlled to evade taxes. They used the money which ‘passed-through’ the company to purchase high-end vehicles and clothing and characterized them as legitimate business expenses. Additionally, Mike failed to file a personal tax return in 2011, despite earning allegedly nearly $2 million that year. If convicted, Mike faces a statutory maximum conviction of over 20 years for his actions.
More recently, financial services CEO G. Stephen Burrill was indicted for evading federal income taxes and faces up to 30 years in prison and $7 million in fines for this and his other crimes. The 34-count indictment includes charges of filing a false and fraudulent Form 1040, understating his income by excluding money he transferred out of an investment fund and into accounts he controlled. Unfortunately, his tax preparer is also facing criminal charges, alleging that he willfully assisted Burrill in presenting false and fraudulent Form 1040s.
Finally, echoing Capone’s fateful end, the alleged Genovese mobster Salvatore Demeo, aged 77, was charged with tax evasion in New York for attempting to hide $2 million in capital gains from recent real estate deals in Brooklyn, failing to report them to the IRS. He took payment in the form of eight separate checks, then routed them through various businesses and cash to keep them out of his accounting records. The IRS alleges that Demeo scammed the federal government out of $365,000.00.
- What to do if being investigated for tax fraud?:
Often, investigations start out of information gleaned from an audit. Therefore, if you are being audited, you must take it seriously, and be prepared. You should maintain an orderly and organized system to maintain your records, including bank statements, business receipts, credit card statements, travel documentation, and all records related to income, sales, expenses, and deductions. You should probably keep records up to 5 years at a time, and keep them in a logical order.
Next, get representation. At all times, you are entitled to be represented by counsel during a tax audit or investigation, and you can insist that all requests for records and other communications be made directly to their counsel. The attorney can (and should) be present for any interview or on-site investigation of the auditor. As a result, you should obtain professional legal counsel as soon as you believe you are under investigation for tax fraud.
Use your common sense if you are under investigation. Check your mail often and, if required, send an appropriate response. If the IRS is asking for additional information about your return, send them the information. Failing to do so only causes more suspicion with the IRS. To that end, cooperate through the auditing process, even though it can be annoying. If you cooperate, chances are the IRS will be more willing to work with you to resolve the issue rather than jumping straight to the handcuffs.
There is no privilege in your discussions with the IRS. Be consistent with what you tell them, and other law enforcement agencies – including state tax authorities. They will cross-check and corroborate anything you tell them, so do not try to outsmart them. And remember that lying to federal investigators is in itself a crime, as is doing so under oath. Whatever you do, try not to make a bad situation worse.
If you decide to take a plea deal, always make sure you get an attorney to review it. There are often collateral consequences to a conviction, and a good criminal defense attorney should remind you of the risk in accepting such a plea, especially if you are a professional with a license of some sort. The IRS prosecutes around 3,000 cases each year, with a high rate of conviction. Taking a plea may be a good way to limit your exposure, but you should not go into it without knowing all your options and the repercussions of your decision.
Remember that you do have rights. Even if you are under investigation for a tax crime, it is still classed as a criminal investigation, and you have every right to due process, and the rights guaranteed under the Constitution. If you are arrested, you have the right to remain silent, and you should assert this right early and unambiguously, as well as requesting your attorney. This will prevent law enforcement from continuing to question you and will remove the temptation of speaking to investigators without an experienced voice of reason with you.
The Blanch Law Firm has vast experience in handling tax fraud charges. We are first and foremost criminal defense trial lawyers, and we handle each case as though it will proceed to a full jury trial, no matter what. That means we are diligent, aggressive and passionate about ensuring your rights are protected. If you are facing a tax fraud investigation, reach out to our experienced team of litigators to assist you along the way.