NY Tax Fraud
In addition to criminal liability you might face for failing to file federal tax returns, the State of New York State can prosecute taxpayers who fail to fulfill their obligations under the law. In the event this happens to you, it’s important to get a lawyer who understands both systems of law, as well as the consequences an investigation and prosecution in one area can have on the other. The Blanch Law firm is comprised of criminal litigators who can navigate between both state and federal jurisdictions with confidence.
- Tax Fraud in New York Explained::
New York Tax Law 1801 lays the groundwork for what is considered an act of tax fraud. It covers a large swath of behaviors deemed criminal, but essentially, if you are found to have willfully acted in one of the following ways, then you could be convicted of tax fraud:
- Failure to make or file any required report or return;
- File a tax or other document that you know contains materially false or fraudulent information;
- Supply materially false or fraudulent information or fail to timely supply correct information;
- Engage in a scheme to defraud the State of New York by false representations as to any material related to tax;
- Failure to remit taxes collected on the State’s behalf;
- Failure to collect certain taxes like sales tax;
- Intentionally evade any tax or fail to pay it; or
- Issue a fraudulent exemption certificate or other documents which show that taxes do not apply to a particular transaction.
New York has five degrees of basic criminal tax fraud, broken up based upon the amount of tax money in question.
Fifth Degree: NY Tax Law 1802: The least severe crime, it is also the simplest to understand. “A person commits criminal tax fraud in the fifth degree when he or she commits a tax fraud act.” This crime is a class A misdemeanor. These kinds of crimes are punishable by up to one year in jail. If you commit any of the actions in Section 1801 above, then you will most likely be charged, at minimum, with this crime. However, Fifth Degree Criminal Tax Fraud is rarely the most serious crime someone is charged with in an indictment.
Fourth Degree: NY Tax Law 1803: “A person commits criminal tax fraud in the fourth degree when he or she commits a tax fraud act or acts and, with the intent to evade any tax due under this chapter, or to defraud the state or any subdivision thereof, the person pays the state and/or a political subdivision of the state (whether by means of underpayment or receipt of refund or both), in a period of not more than one year in excess of three thousand dollars less than the tax liability that is due.” In plain English, this means that on top of committing a tax act as listed in 1801, you have also intentionally defrauded the state of New York of at least $3,000.00 that is due and owing, whether you underpay, or keep money that is not owed to you. This is a class E felony, punishable by up to four years for a first-time offender. If you are a repeat felon, you will face a mandatory minimum of one and a half years in prison.
Third Degree: NY Tax Law 1804: “A person commits criminal tax fraud in the third degree when he or she commits a tax fraud act or acts and, with the intent to evade any tax due under this chapter, or to defraud the state or any political subdivision of the state, the person pays the state and/or a political subdivision of the state (whether by means of underpayment or receipt of refund or both), in a period of not more than one year in excess of ten thousand dollars less than the tax liability that is due.” This is the same crime as Fourth Degree, except instead of $3,000.00, the relevant amount that has been taken is $10,000.00. This is a class D felony, punishable by up to seven years in prison.
Second degree: NY Tax Law 1805: “A person commits criminal tax fraud in the second degree when he or she commits a tax fraud act or acts and, with the intent to evade any tax due under this chapter, or to defraud the state or any subdivision of the state, the person pays the state and/or a political subdivision of the state (whether by means of underpayment or receipt of refund or both), in a period of not more than one year in excess of fifty thousand dollars less than the tax liability that is due.” This crime is the same, except the relevant level of money is $50,000.00 or more. This is a class C felony, punishable by up to 15 years in prison.
First Degree: NY Tax Law 1806: The most severe crime of tax fraud in the state, the statute states. “A person commits criminal tax fraud in the first degree when he or she commits a tax fraud act or acts and, with the intent to evade any tax due under this chapter, or to defraud the state or any subdivision of the state, the person pays the state and/or a political subdivision of the state (whether by means of underpayment or receipt of refund or both), in a period of not more than one year in excess of one million dollars less than the tax liability that is due.” The crime must have defrauded New York State out of over $1 million. A class B felony, it carries a mandatory prison sentence for everyone – even first time offenders. However, first-timers would get leniency in that they face a term from a minimum of 1 year up to 25 years, whereas prior felons face a minimum of 4 years up to 25 years.
In addition to these crimes are more specific misdemeanor statutes, such as the willful failure to file a return or report (1817(a)), filing a fraudulent return (1817(b)), willfully failing to pay over to the state any income taxes that should be withheld (1806), and failure to pay tax (1810), among others. The statute of limitations to prosecute a tax law misdemeanor is within 3 years of the offense, whereas the state has 5 years to press charges for a felony offense. Notably, if the state pursues any civil claims for civil tax fraud, there is no statute of limitations.
- Recent Indictments for New York tax fraud cases::
In June 2017, Evgeny Freidman and Andreea Dumitru were charged on a five-count indictment charging them jointly with theft and failure to remit over $5 million in 50 cent MTA surcharges to the New York State Tax Department. Each individual managed a fleet of taxicabs in the New York metropolitan area, and are alleged to have pocketed fares from honest taxi drivers. The MTA tax was automatically collected from passengers as part of their taxi fair and should have been given to the New York State Department of Taxation and Finance. Freidman and Dumitru allegedly developed a scheme to file tax returns and filing falsified returns to keep that money for themselves. They were each charged with four counts of Criminal Tax Fraud in the First degree, and one count of Grand Larceny in the First degree.
Earlier in 2017, A.J. Black, a chef and Manhattan restaurateur was indicted by DA Cyrus Vance, Jr. for defrauding New York State of around $328,000.00 in sales tax, as well as failing to file his quarterly sales tax returns. The crimes he is charged with are Grand Larceny in the Second Degree, and Criminal Tax Fraud in the Second, Third and Fourth Degrees. This indictment shows that first, other crimes are often charged in conjunction with the basic tax fraud crimes. In this case, it was Grand Larceny, which is a charge that is commonly charged in conjunction with tax fraud. Second, New York state has sales tax, business taxes, and other taxes (such as MTA fares) that encompass more than mere income, like the federal tax fraud crimes. Therefore, the exposure for tax crimes in New York is far more significant than that of federal law.
In April 2017, a Bronx lawyer was indicted in that county for failing to file her state taxes for three years. Kathleen Bradshaw was indicted on Repeated Failure to File Personal Income and Earnings Taxes, first-degree Offering a False Instrument for Filing, and owes the state hundreds of thousands of dollars in taxes. Tax fraud is a crime that anyone can commit; however, usually, the significant ones are prosecuted because of the enormous cost associated with the state having to litigate crimes. As a result, tax fraud cases usually involve wealthy and well-educated individuals, and is one of the most common forms of ‘white-collar crime.'
- Specific Taxes Under State Law:
There are specific taxes that must be paid by New York residents, as well as tax relief available only to them. This means that, if taxes are unpaid, or if relief is claimed wrongfully, the may face criminal liability, even beyond underreporting their income. Some examples of New York-specific taxes are:
- Sales tax fraud: A business must register with New York and get a Certificate of Authority from the New York State Department of Taxation and Finance. This gives the business the right to gain exemptions on certain purchases, as well as the right (and duty) to collect sales taxes. Failure to do so could lead to criminal charges of tax fraud.
-Property Taxes and School Tax Relief (STAR) program: every property in New York must be assessed at a certain value and the owners must pay property taxes, or face criminal liability. The STAR program allows partial exemptions for owner-occupied residences. However, this is relief that can be abused, and if so, also has the potential to be criminally prosecuted.
- Family Tax Relief Credit – this is tax relief available to New Yorkers who have children and claim them as dependents. Claiming more children that are dependents than what you actually have would be ripe for criminal prosecution as tax fraud.
- Cigarette Tax- (New York Tax Law Section 1814) - New York and New York City have some of the highest taxes on cigarettes in the country: $4.35/pack of 20 cigarettes, plus an additional $1.50 if you’re in the city. To avoid these taxes, smugglers have begun bringing these items in without reporting them to the state. Smugglers have become a high priority for tax investigators, and has recently the target of a state task force aimed at reducing the influx of smuggled cigarettes.
- Factors the State Considers Before Pursuing Criminal Sanctions:
There are various entities that investigate and prosecute state tax fraud (Manhattan DA's Anti-Money Laundering and Tax Fraud Division, the Attorney General, the Bronx DA, Criminal Investigations Division, etc.). The Criminal Investigations Division is an independent law enforcement arm of the New York Tax Department. Its primary purpose is to detect and investigate taxpayers who evade their obligations under the law. They are not a prosecutorial body; however, they will refer their cases they investigate to the prosecutor if they feel it is warranted, based on their information.
These investigations can be time-consuming and use up significant resources, so before filing formal charges and proceeding to what could be a long and complex trial, the state tries to ensure it will be able to get a conviction out of any charges it files. In other words, the case better be worth it. There are several factors each of these agencies considers in determining whether or not to recommend formal charges, or to file a formal suit even after recommendation.
As seen above from the list of indictments, most cases are serious, high-value cases where the defendant is accused of stealing hundreds of thousands, or even millions, of dollars from the state. The seriousness of each action is a major factor involved in the state decided to prosecute its suspect. If the defendant has a series of other crimes, including tax fraud, but also securities fraud, failing to pay worker’s compensation, and other financial wrongdoing, this is another motivating factor for prosecutor’s to proceed with formal charges. Finally, the question of a successful conviction usually revolves around whether or not the state can prove the requisite intent of the defendant, and therefore, if there is evidence that the defendant acted willfully, or engaged in a pattern and practice of behavior leading to the crime, this would be a persuasive factor in a prosecutor bringing charges against the taxpayer.
A prosecutor will not bring formal charges or indict a taxpayer lightly. It means they are serious and confident in their allegations. Therefore, if you are facing a criminal investigation or formal tax fraud charges from the state, you should seek out the advice of a professional criminal defense attorney. The Blanch Law Firm defends against a multitude of white-collar crimes, including tax fraud. Our attorneys have worked in the District Attorney’s office, and understand how they prosecute a case, and how to spot their weaknesses. We are zealous advocates for your rights, and we will guide you and defend you throughout the entire process.