Articles Posted in Criminal Tax Cases

a1-300x300A recent Internal Revenue Service Office of Chief Counsel memorandum (CCA 201725026) provides guidance on whether the IRS can charge interest on court ordered restitution payments related to Title 18 criminal tax cases. As background, typically when a court orders restitution in a criminal tax case, it is often for an amount equal to the taxes not paid by the defendant due to their conduct. Before Congressional FETI ACT of 2010, the restitution was not viewed as a “tax” under the income tax rules. This act changed that.

The three main issues addressed in this memorandum are:

  1. Whether the court-ordered restitution incurs interest under Title 26 (Internal Revenue Code)

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While there’s no way for an individual to completely avoid paying taxes, there are ways to cut and reduce the amount of taxes an individual owes. By being proactive and engaging in tax planning, an individual can often reduce his or her tax liabilities substantially. It’s important to note, however, that there are creative strategies that can be employed to reduce the amount of taxes one pays and then there are those that are questionable or outright illegal.

Simply failing to file and/or pay one’s taxes is never a good idea. Not only is an individual likely to accrue costly fees and penalties, but he or she may also face criminal charges related to tax evasion. Additionally, it’s never a good idea to file or submit tax-related documents that contain false or doctored figures. Again, an individual who under- reports the amount of income or overestimates deductions will incur costly fines and penalties and may face charges of tax fraud.

In cases where an individual learns that he or she is being investigated or audited by the Internal Revenue Service, it’s wise to contact an attorney. It’s especially important to retain a strong legal advocate and representative if an individual is concerned that an IRS audit or investigation may result in the discovery of questionable or illegal tax-avoidance activities.

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A Staten Island lawmaker could see his political career come to a screeching halt after pleading guilty to tax fraud last month. U.S. Rep. Michael Grimm (R-NY) pleaded guilty to one count of aiding in the filing of a false tax return, in 2009.

Grimm, an ex-Marine and FBI agent, now faces a maximum of three years in prison, which would force him to resign from Congress. His sentencing date has been scheduled for June 8, where a judge will decide his fate.

However, a much worse outcome was avoided thanks to Grimm’s attorneys. Grimm was set to go to trial on Feb. 2 on a 20-count indictment for evading taxes by underreporting income, paying workers off the books and hiring undocumented workers.

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As we discussed in an article on our website, most people don’t think of contacting a tax lawyer until they are facing some kind of problem such as being accused of not paying taxes or being audited. However, it’s best to work with a tax lawyer before that happens in order to avoid these problems in the first place.

For example, one time New York residents may run into tax issues is after receiving an inheritance. Typically, receiving an inheritance is not a taxable event, but there can be tax controversies that arise and greatly complicate the inheritance for the beneficiary or the executor of the estate.

In order to avoid this, it’s best to consult a tax attorney who can work with the estate planning lawyer to make sure that all potential tax issues are resolved.

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In recent years, the U.S. government has been cracking down on individuals who hide money in overseas bank accounts in effort to evade taxes. The Justice Department has mainly focused its efforts on foreign bank accounts in Switzerland but it beginning to expand to other countries such as Israel as well, the Wall Street Journal recently reported.

The Justice Department has not only been targeting individuals that have attempted to evade paying taxes themselves, but also top bank officials who allow it to happen. However, the government has learned that it’s not always easy to do that.

This week, a former top official at UBS AG was found not guilty of helping American banking clients defraud the Internal Revenue Service out of billions of dollars in taxes. It was fairly evident that the conspiracy was taking place at the bank, but the prosecution had little evidence to implicate the former UBS official beyond a reasonable doubt.

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Taxes in New York have made national news in recent years because of some eye-catching laws. New York State taxes cigarettes, for example, at the highest rate in the country among states; New York City adds on additional tax on top of that. Thus, it can be tempting for some people to try to get around these tax issues by finding cheaper cigarettes from other jurisdictions.

However, this is not merely difficult, it is also illegal. Cigarette packs sold in New York must have a tax stamp from our state. Having unstamped cigarettes — or those that bear the stamp of another state — is a violation taken very seriously by the state taxation department.

Recently, a man in Brooklyn found this out for himself when he was arrested for possessing and selling untaxed cigarettes. In addition to allegedly having cigarettes that had no state stamps, officials said the man was selling cigarettes bearing the stamps of Virginia and Georgia — states with cigarette tax rates of 0.30 and 0.37 percent, respectively. By contrast, New York’s state tax rate is 4.35 percent.

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It’s not uncommon for people with high incomes to try to find tax strategies that will reduce the amount of taxes they have to pay. After all, nobody wants to pay more in taxes than they have to. And people who earn top salaries often have more motivation to find creative ways to minimize their tax burdens.

However, choosing the wrong way to go about this can lead to some serious tax problems — especially when there are large amounts of money at stake. Now, several NFL players and other wealthy people are saying that their tax attorney came up with unlawful schemes to help his clients claim millions of dollars in tax credits that were bogus.

As a result, the tax attorney has been prohibited from promoting his tax reduction techniques or preparing tax returns. Some of his former clients have filed lawsuits against him, saying that he committed malpractice and fraud in order to help them reduce their tax liabilities.

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Under the Internal Revenue Code, a person who is convicted of felony tax evasion is defined as “[a]ny person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof…”. In addition to a felony conviction, one who is found guilty of felony criminal tax evasion shall be fined up to $100,000 for an individual and up to $500,000 for a corporation and/or face up to 5 years in prison. In addition to the fine and/or jail time, a felony-convicted taxpayer will also be responsible for the costs of prosecuting the case. The two basic types of evasion include: evasion of assessment and evasion of payment. The evasion of assessment includes failure to file or filing a false return. One common example we often see if where the IRS claims that not all of the taxpayers taxable income was included in their tax returns, based upon reviewing the taxpayers bank statements. Evasion of payment occurs after a tax is assessed and usually involves the concealment of assets available to pay taxes.

Under the Internal Revenue Code, a person who is convicted of misdemeanor tax evasion is defined as “[a]ny person required … to pay any estimated tax or tax, or required … to make a return, keep any records, or supply any information, who willfully fails to pay such estimated tax or tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations…”. In addition to a misdemeanor conviction, one who is found guilty of misdemeanor criminal tax evasion shall be fined up to $25,000 for an individual and up to $100,000 for a corporation and/or face up to 1 year in prison. In addition to the fine and/or jail time, a misdemeanor-convicted taxpayer will also be responsible for the costs of prosecuting the case.

Tax fraud and false statements, under the Internal Revenue Code include willful statements and representations on any tax return or other document that “is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter.” Making fraudulent and false statements under the penalties of perjury are also actionable tax crimes.

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Taxpayers who file their returns and pay the amount due have done a lot in avoiding a tax crime. Once a return is filed, even if it contains errors, the burden of proof is on the Internal Revenue Service to prove any criminal wrongdoing.

According to a recent report, even with fewer staff members and an increase in budget cuts, the IRS has investigated more tax fraud and tax evasion cases and has convicted more tax criminals in recent years. In 2012, the agency investigated 400 more tax cases and made 300 more tax convictions than 2011, and did so with 8 percent less staff. The IRS works to stop tax fraud, tax evasion, identity theft, and money laundering.

The IRS Criminal Investigation charges are often linked to other non-tax crimes. The IRS works with other government agencies to investigate drugs and fraud. However, only the IRS has the power to investigate criminal tax violations of the tax code.

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New York readers might assume that alleged violations of federal or state tax laws automatically implicate certain felony charges or potential prison sentences. However, a recent story illustrates that even an individual facing charges of tax fraud or evasion might be able to argue for mitigating circumstances that can result in a lower sentence.

A New York physician recently benefited from this legal strategy. The 62-year-old taxpayer came under the investigation of the Internal Revenue Service because of his holdings in an offshore bank account — worth almost $1.5 million. The man had inherited the Swiss bank account in 2000 from his father, allegedly with an instruction to secrecy for purposes of tax evasion. Deception seems to have been the reason the account was not labeled in the family name, but rather under a pseudonym, called the Wanderlust Foundation.

Although the man was not responsible for setting up the account, IRS officials and federal prosecutors pointed out that the man could have listed the account on his tax returns at any time. Instead, he perpetuated the deception and evaded paying federal taxes amounting to at least $216,000. The penalties for tax fraud and evasion are severe, however.

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