California Tax Law Blog

Ohio Interior Designer’s Indictment Evidences Need for Experienced Tax Lawyer During an Investigation

Ohio Interior Designer’s Indictment Evidences Need for Experienced Tax Lawyer During an Investigation

| May 18 | Tax Law Blog | No Comments

When we usually think of interior designers, we can imagine a creative mind creating a work of art in the form of paint, furniture, and knick-knacks. But what if that creativity was used to defraud clients, the state, and the IRS? An Albany, Ohio woman was recently indicted on a laundry list of charges that include tax evasion, wire fraud, theft of government benefits, and the illegal structuring of cash transactions in order to avoid federal reporting laws.

According to an IRS press release, Connie L. Christy, an interior designer by trade may be spending a large number of years using her talents to determine what prison cell accessories match her federal corrections jumpsuit. Over the course of six months in 2011, Christy is accused of stealing money not only from her clients, but from her state and the IRS. According to federal prosecutors, Christy frequently stole significant amounts of money from her clients by first baiting them with a low quote for services and once she had received payment from the customer, she would demand even more money by lying that either the subcontractors had left items off of their quote or suppliers had gone out of business before being able to deliver goods that had already been paid for. Although Christy is only alleged to have stolen from her clients over a period of six months, the theft was significant as the government asserts that she made deposits based on stolen client funds of over $724,465.

Once Christy had her client’s money in hand, prosecutors assert that she grossly understated her income and thus paid significantly less in taxes than the she should have. In addition to the tax underpayment, Christy is alleged to have made deposits at her local bank branch of cash that were purposefully just under $10,000. The government accuses her of structuring the deposits in such a manner in order to get around the federal laws that require bank personnel to notify to the federal government of cash deposits that exceed $10,000. And as if stealing from her clients and the federal government wasn’t enough, Christy is also accused of falsifying aid applications through Franklin County Job and Family Services to illegally obtain nearly $10,000 in government benefits.

The Importance of an Experienced Tax Attorney

Many of the charges came after an IRS criminal investigation uncovered incriminating information about Christy’s business and personal financial activities. Christy’s case is a prime example of why it is critical to have an experienced tax attorney present during any interactions with the IRS. Agents from the IRS and the DOJ are trained to delve deep into the affairs of those that they are interviewing and once they sense that they have stumbled across something, they are relentless in their endeavors to procure enough evidence to bring criminal charges that carry lengthy prison sentences. On many occasions, taxpayers feel as if they can talk their way out of an audit or even a criminal investigation, but in reality they find themselves attracting even more unwanted attention by auditors and investigators.

The tax and accounting professionals at the Tax Law Offices of David W. Klasing have years of experience representing taxpayers in audits, criminal investigations, and even criminal tax proceedings. When going through a time as stressful as being investigated for a potential tax crime, the last thing that you want to do is go at it alone. Let the experienced tax lawyers at the Tax Law Offices of David W. Klasing be the zealous advocates in your corner.  Contact us today for a reduced-rate consultation.

Update: California Sales Tax “Zapper” Law Carries Stiff Penalties

Update: California Sales Tax “Zapper” Law Carries Stiff Penalties

| May 12 | Tax Law Blog | No Comments

With California being the world’s eighth largest economy, there is a constant need for money to flow into the coffers of the state. This being the case, the California Board of Equalization (BOE) has every incentive to ensure that it is collecting the correct amount of state tax from California businesses. One of the larger challenges that the BOE faces is determining whether a taxpayer is actually paying their fair share of state taxes. That task becomes increasingly difficult when the businesses at issue are small to medium-sized and are largely cash-based.

In a prior blog posting, the Tax Law Offices of David W. Klasing reported on a new law that was being backed by the BOE that made it a crime to use “zapper” point-of-service programs. Zappers or phantom-ware are pieces of software that are integrated with the bookkeeping software and other point-of-service equipment at small and medium-sized establishments and will generally “skim” or “zap” and amount of cash transactions in order to create the appearance that the business is brining in less cash than they actually are. The programs typically create two sets of books: one that reflects the actual earnings of the company and one that is used for taxable revenue reporting purposes.

The Skinny on the New Law

Under the new law, convicted taxpayers could receive jail sentences of up to three years and face fines of up to $10,000 for each offense. The punitive penalties are levied in addition to any unpaid taxes on unreported income. Either taken apart or together, the financial implications of being found to have violated the new zapper law has the potential of being financially crippling both to the business and its owner.

Zappers are most commonly used by small restaurants and convenience stores that see a large amount of cash transactions. In a presentation at the Tax Administrators Technology Conference last year, it was estimated that over 2.3 billion dollars of tax revenue is lost each year in the U.S. with regard to the underpayment of taxes from restaurants alone. Convenience stores were also estimated be responsible for a 1.1 billion dollar cumulative shortfall in revenue due to the under-reporting of taxable income.

California isn’t the only state that has implemented laws to try and curb the practice. 16 other state legislatures have passed similar legislation making the use of zappers and phantom-ware illegal. The crackdown has even prompted state business associations to give their members a warning about the new laws. The California Restaurant Association issued a bulletin that explained the many benefits to having advanced point-of-service software but also cautioned business owners about both the potential for misuse and the very real possibility that there will be severe consequences for those business owners ho choose to break the law.

Undercover Enforcement

Enforcement of the zapper law draws on a traditional tactic used by the BOE and the IRS: sending agents to covertly monitor the cash intake at establishments suspected to cooking their books. And although it seems hard to believe that the government would send undercover investigators into businesses, convictions based on this type observation are common. In fact, a California business owner was sentenced to 10 years of formal probation and ordered to pay over $700,000 in restitution last week for under-reporting income by over $525,000. Although the Tracey businessman was not charged with regard to the new “zapper” law (because at the time of his prosecution, the law had not yet gone into effect), business owners who are being accused of under-reporting their income to the BOE or the IRS have a lot to worry about.

Another scary reality for business owners is the fact that the BOE has begun the criminal investigation of taxpayers who are suspected of using zappers, phantom-ware, and other point-of-service software and devices that help taxpayers manipulate their income in order to pay less tax. With the ball rolling on criminal investigations with regard to zappers, it is certain that criminal prosecutions for violating the law prohibiting such technologies will increase and the BOE will be relentless in its enforcement efforts.

Contact a Tax Lawyer with Audit and Zapper Experience

Whether you are a business owner who wants to come into compliance with the new zapper law, are fearful that you are being investigated, or are already subject to an examination or investigation, consulting with an experienced tax lawyer is likely the best move that you can make. The attorneys and tax professionals at the Tax Law Offices of David W. Klasing have years of experience in not only zealously advocating for our clients in audits and criminal investigations, but we also have experience in defending taxpayers that have been investigated under the new zapper law. When going up against the BOE or the IRS, nothing good can come out of taking the journey alone. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.

The IRS Will Pursue Enforcement Actions Against Sophisticated Investors, Businessmen, and Anyone Who Interferes with the Tax System

The IRS Will Pursue Enforcement Actions Against Sophisticated Investors, Businessmen, and Anyone Who Interferes with the Tax System

| May 12 | Criminal Tax Representation | No Comments
irs will pursue enforcement actions sophisticated investors

There are no shortage of justifications that people can come up with to make themselves feel as if a tax enforcement action cannot happen to them. A sophisticated head of an investment firm might consider himself or herself too clever to be caught by the IRS or he or she may feel that the IRS will focus on “easier targets.” Other business owners may believe that their simple restaurant, retail store, or other business is too small for the IRS to take notice. Still others may believe that their government office or other respected position will deflect suspicion and permit them to fail to satisfy the full extent of their tax obligations.

The following tax convictions or tax charges are intended to inform the public about the potential serious consequences a tax issue can create. If you think you may have made a mistake similar to the following on your taxes, don’t hesitate to contact an experienced tax professional today. The Tax Attorneys and CPAs of the Tax Law Offices of David W. Klasing, P.C. are dedicated to helping taxpayers resolve their serious tax concerns.

Brokerage & Investment firm CEO pleads guilty to tax charges
Following an investment scheme that lost about $4 million for about 60 investors, the former president and CEO of Sherman Oaks-based Morgan Peabody Inc. pleaded guilty to a number of crimes. According to the plea agreement, the executive admitted to using investor money to pay for personal expenses and luxury items. Furthermore he admitted to failing to file taxes for two tax years while also failing to disclose his fraudulent income.

While the former investment head was embroiled in a jury trial over the charges, that trial was cut short by his decision to enter a guilty plea. David Williams, a licensed securities dealer and investment adviser from Studio City, entered guilty pleas for three counts of wire fraud and two counts of tax evasion. Williams will be sentenced in September where he faces a federal prison sentence of up to 70 years and other penalties.

Former Denny’s owner convicted of sales tax evasion
Ownership of a restaurant or any business comes with certain financial responsibilities. One of those responsibilities is to collect, hold and pay over sales tax paid by customers of the business. Unfortunately some business owners simply see the government’s tax money as an easy way to pad their bottom-line. While a business may succeed in wrongfully converting these funds for a time, the State of California will eventually uncover the fraud and bring tax charges against the business owner.

On May 5th, 2015, the former owner of three Denny’s restaurants located in the San Joaquin Valley – Lathrop, Manteca, and Stockton — was convicted on tax charges. Appearing in San Joaquin County Superior Court, Abdul Halim of Tracy pleaded guilty to two felony counts of tax evasion and one misdemeanor count of tax fraud due to failure to pay over sales tax collected. He was sentenced to 10 years of probation, 3,500 hours of community service, and $790,428 in restitution. If he misses a single tax payment or otherwise violates terms of his parole, he will face a prison sentence.

Man arrested after allegations of tax fraud case jury tampering
The Mobile County License Commissioner Kim Hastie and her husband, John, have faced criminal tax charges due to what prosecutors have described as a conspiracy to not report $58,633 in income. According to allegations for the prosecutors, the Hasties used this money to balance their finances. While a deadlocked jury resulted in a mistrial, prosecutors allege that actions by John Hastie may have improperly influenced jurors.

Prosecutors allege that John Hastie attempted to influence potential jurors prior to the court proceedings. They believe that Hastie asked one of his employees to speak with the wife of a potential juror on the case. They believe that the juror may have been improperly influenced. The prosecutors also point to an alleged call by the Monroe Coutny Sheriff that occurred a day after potential jurors were announced. The prosecutors claim that the Monroe County Sheriff stated that sheriffs from two other counties called him to try and discover information about four other jurors.

The Hasties deny all charges. Jury selection for the re-trial is expected to begin at the end of June.

Tax trouble?
If you believe that you may have failed to file taxes, failed to pay your full share of taxes, have taken overly aggressive position, or have made other tax errors the Tax Law Offices of David W. Klasing may be able to help remove the risk of criminal prosecution. Our Tax Attorneys and CPAs can review your tax filings and fincial records to devise a solution to your tax compliance problems. To schedule a reduced-rate consultation, call 800-805-9718 today or contact us online.

Priests and others Claiming Illegitimate Religious Exemptions Cannot Escape Tax Enforcement Action

Priests and others Claiming Illegitimate Religious Exemptions Cannot Escape Tax Enforcement Action

| May 11 | Tax Law Blog | No Comments

For many, religion and belief in a higher power plays a central role in their worldview, actions, and beliefs. There are numerous protections built-in to the U.S. Constitution, state, and federal law to ensure that these sincere and closely-held beliefs are respected and can be practiced without government interference. For many, the freedom to worship and practice their religion as they choose to is one of the fundamental promises and benefits of being an American citizen.

Unfortunately, some attempt to use religion and others’ respect for fundamental beliefs to cloak their wrongful acts. This can include an individual’s failure to satisfy their tax obligations. However, the IRS has long been on the lookout for those who attempt to avoid their obligations through a religious tax argument. In fact, many arguments regarding religious exemptions to paying tax have already been determined to be frivolous by the tax courts. And if there was any doubt regarding the IRS’ commitment to enforcing the tax laws, consider this recent tax indictment against a 55-year-old California priest.

Florida priest indicated for alleged fraud and tax fraud

Msgr. Hien Minh Nguyen of the diocese of San Jose, California was arrested and charged at the end of April 2015. Msgr. Nguyen is facing nearly 20 counts of criminal charges including 14 counts of fraud on a financial institution and four charges of tax evasion. Prosecutors allege that from approximately 2005 to 2008, Msgr. Nguyen deposited, a minimum, of 14 checks payable to the Vietnamese Catholic Center into his personal bank account. These checks totaled to approximately $19,000. Furthermore, Msgr. Nguyen is accused of failing to disclose about $1.1 million in taxable income between the 2008 and 2011 tax years.

San Jose Bishop Patrick McGrath said that, to his knowledge, this is the first time a priest in this diocese had faced charges of this type. He states that the diocese has cooperated with federal prosecutors and, after learning of the investigation, the diocese launched its own audit. McGrath claims that the diocese audit did not find any irregularities. He further stated that, “[The diocese] feel[s] confident that the controls recommended by our auditors ensure that monies donated to the parish are properly put to use there. We will continue our own scrutiny of the parishes’ finances, and certainly learn more with the outcome of the IRS investigation.”

If he is convicted on all of the charges he faces, Msgr. Nguyen could be sentenced to a prison term of up to 35 years. However, the larger lesson presented here is that the IRS will pursue an enforcement action against anyone – including a priest that appeared to be cleared by an internal audit. If you thought that your standing in the community would protect you from tax prosecution, you have made a very serious and costly error.

The IRS is also on the lookout for other common frivolous religious tax exemption claims

While claims of this type have long been held by the tax courts to be frivolous, this hasn’t stopped a number of taxpayers from claiming that moral or religious grounds under the First Amendment exempt them from paying some or all taxes. The First Amendment to the Constitution states:

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

While the amendment certainly does prohibit Congress from establishing a state religion or otherwise legislating how people worship, it does not create a religious right to refusal to pay taxes. Furthermore the amendment does not permit a taxpayer to withhold taxes due and owing on the basis that the taxpayer disagrees with the program or expenditure or believes it to be in conflict with his or her religion.

Consider the 1980 tax case, U.S. v. Peister. In this matter Peister argued that by taking an oath of poverty following his ordainment as a minister, he was exempt from the income tax. The court rejected this argument finding that there was no violation of Peister’s First Amendment rights. In the 1985 case, Wall v. U.S., the court upheld the frivolous return penalty against Wall for taking a war tax deduction on the basis of his bona fide religious objection to war. And if you think that the IRS’ commitment to tax enforcement of this has waned with time in the 2007 case Jenkins v. Commissioner, the $5,000 penalty for a frivolous return was upheld. The court found that the collection of tax revenues for expenditures offending the religious beliefs of individual taxpayers was not in violation the Free Exercise Clause of the First Amendment, the Religious Freedom Restoration Act of 1993, or the Ninth Amendment.

Facing tax charges?

If you are facing serious tax charges due to alleged tax fraud or overly aggressive deductions or exemptions, the Tax Law Offices of David W. Klasing may be able to help. To schedule a reduced-rate consultation with an experienced Tax Attorney and CPA call 800-805-9718 today or contact our firm online.

A Person’s Office, Occupation or Reputation will not Immunize them from a Tax Enforcement Action

A Person’s Office, Occupation or Reputation will not Immunize them from a Tax Enforcement Action

| May 07 | Tax Law Blog | No Comments

U.S. citizens, legal permanent residents and others with sufficient links to the United States must file taxes, pay taxes, and otherwise ensure that they satisfy all aspects of their duties and obligations as a taxpayer. As taxpayers, we expect that everyone will pay their fair share and will dutifully file and pay taxes. Unfortunately, in practice, there will always be those who attempt to evade paying their fair share or paying at all. Typically, these individuals will try to conceal income or their failure to pay their full tax obligation through a variety of means. For some non-compliant taxpayers, they may believe that their social standing, occupation, or office will inoculate them from scrutiny and potential enforcement actions.


This belief is, however, wholly and completely unfounded. The IRS is a data-driven organization that bases its decisions to audit, investigate, or referral for criminal prosecution on the information it receives from a variety of sources. Data of this type has been used to indict the current auditor for Washington state on tax fraud. Furthermore, careful data analysis has led to other tax charges and convictions against community pillars such as doctors, lawyers and prominent individuals in the business community.

Federal prosecutors allege Washington state auditor committed tax fraud

Federal prosecutors believe that Washington state auditor, Troy X. Kelly, participated in a fraudulent scheme through his company Post Closing. This scheme involved the failure to return excess fees to the purchaser from the processing of mortgage and re-conveyance documents. Prosecutors alleged that Post Closing kept more than $2 million it was supposed to return to consumers.

After the civil part of this matter was settled for more than $1 million, prosecutors allege that Mr. Kelly began transferring the sum of $245,000 to another bank account under his control every year. While Mr. Kelly claims that these funds were from one of his other business ventures, prosecutors allege that these funds are the ill-gotten and concealed income from the Post Closing business transactions. Furthermore, prosecutors allege that Mr. Kelly wrongfully attempted to convert and claim nearly $70,000 in personal expenses as business deductions.

Mr. Kelly currently faces charges for corrupt interference with the administration of tax laws, two counts of filing false income tax returns, and one count of making a false statement to an IRS agent. Each of these charges includes the possibility of imprisonment with the charge of lying to an IRS agent carrying the harshest potential prison sentence of five years. For each of the other counts faced by Mr. Kelly, upon conviction, he could face up to three years in prison.

Doctors, attorneys and other respected leaders can face serious tax consequences

Elected officials are not unique; doctors, lawyers, businessmen and businesswoman will also find that their status does not create immunity from an enforcement action. Consider the case of Matthew Libous, the son of a state Senator and an attorney licensed to practice in New York. Mr. Libous was convicted of filing false tax returns because of his underreporting of his law firm’s income for the tax years between 2007 and 2009.  The unreported income totaled to nearly $70,000. Mr. Libous could face up to 9 years in prison when he is sentenced on each of the three years he failed to file accurately.

Further consider the tax conviction of emergency medical and urgent care doctor, Michael Mangold. Dr. Mangold was sentenced to an eighteen-month prison sentence after being convicted of tax evasion and making false statements. For roughly a ten-year period, from 1997 to 2007, Dr. Mangold filed false income tax returns to conceal his income. Furthermore, Dr. Mangold engaged in frivolous litigation

Finally, consider the tax case of attorney William Weisberg. Mr. Weisberg was convicted for a willful failure to pay tax due and owing and was sentenced to serve one year and one day in prison and to pay approximately $450,000 in restitution. Court filings show that Mr. Weisberg’s voluntary or intentional failure to satisfy this known legal duty was likely due to financing his extravagant lifestyle. When the IRS attempted to work out a payment plan with Mr. Weisberg, he instead sent a fraudulent document that purported to be from his law firm. The letter stated that the firm was already garnishing money from Mr. Weisberg’s paycheck to pay back the IRS, but no such action had actually been taken.

Worried about a tax issue?

If you are concerned that you may have taken overly aggressive tax positions or that you may have failed to satisfy the full extent of your tax obligation, The Tax Law Offices of David W. Klasing may be able to help. To schedule a reduced-rate consultation with an experienced Tax Lawyer call, 800-805-9718 today or contact us online.

Business Owners Beware: Tax Fraud and Concealment of Income can Result in Lengthy Prison Sentences and Hefty Fines

Business Owners Beware: Tax Fraud and Concealment of Income can Result in Lengthy Prison Sentences and Hefty Fines

| May 05 | Criminal Tax Representation, Non-Filer Assistance, Tax Law Blog | No Comments
Business Man Arrested

Individual businesses must fulfill all of their tax obligations. That obligation doesn’t just include filing and paying taxes; it also includes the accurate reporting of all income, timely filings, disclosure of certain foreign accounts, and proper treatment of payroll taxes. There are a variety of reasons why businesses owners may fail to file, pay or fulfill some aspect of their tax obligation. In some instances a difficult business environment or a business reversal may motivate a business owner to play with fire and attempt to balance his or her books by concealing taxable income or failing to pay taxes. In other circumstances, a lack of familiarity with the U.S. Tax Code can result in serious tax mistakes that can imperil the continued viability of the business.

In any case, the following will illustrate the harsh consequences faced by business owners who do not maintain full compliance with their tax obligations. If you have questions or concerns regarding your business’ tax compliance, seek an experienced Tax Attorney immediately. Taxpayer who voluntarily disclose past problems undertake remedial measures can often resolve a tax mistakes without facing criminal tax charges. However, if your willful failure to file or concealment of income is discovered by the IRS, the odds of a tax enforcement action being launched against you is extremely high.

Man convicted on tax fraud charges due to fraudulent tax filings for his and his wife’s business
John Fall, a Rhode Island-based real estate agent, bought and sold properties to make a living. Fall was also responsible for overseeing the financials and taxes of his wife’s company. The DoJ stated that rather than filing under the true identity of the business’ owners or principals, Mr. Fall used a number of nominee entities to conceal business transactions. Nominee entities are a person or entity that is only given limited authority for a usually limited amount of time – often at formation – to act on behalf of the business. The true responsible party remains the member, sole proprietor, partner or owner. The IRS has stated that it will pursue enforcement actions against those who misuse the nominee filing to obtain an employer identification number (EIN). Depending on the perceptions of the IRS agent, acts of this type can be considered willful if they involve a voluntary or intentional violation of a known legal duty. Willful violations of the tax code result in significantly more severe punishments.

Mr. Fall also had problems with filing taxes in some years and providing accurate tax information in many other years. DoJ said Fall filed false taxes for the 1998 and 1999 tax years. From 2000 to 2010, he did not file taxes at all. An IRS audit of Mr. Fall’s tax records for just 1998 through 2000 found that, then, he owed more than $70,000 in unpaid back taxes.
Mr. Fall was convicted by a federal jury on one count of tax evasion, one count of corrupt interference in the administration of the tax laws, and two counts of aiding and assisting the preparation and filing of untrue corporate tax returns. He now faces a federal prison sentence of 30 months followed by a 3 year supervised release period.

Pizza franchise owner and others snared in conspiracy to defraud the IRS
The owner and face of Happy’s Pizza, Happy Asker, and three others have been convicted or pleaded guilty to a bevy of charges related to the failure to file accurate tax returns, the failure to hold and pay over payroll taxes, and the obstruction of the IRS’s administration of the U.S. Tax Code. From this scheme Mr. Asker was convicted of a number of tax crimes including:

  • Conspiracy to defraud the government – For the conspiracy charges, Mr. Asker faces a prison sentence of no more than 5 years and a $250,000 penalty.
  • Filing a false income tax return and aiding or assisting in filing a false return – Each of these charges can be punished with up to a 3 year prison sentence and a fine of $250,000. These penalties can be imposed for each count.
  • Obstructing and impeding the administration of the tax code – Obstruction with the administration of the tax code can be punished by up to 3 years in prison and a fine of no more than $250,00.

In all, Mr. Asker was convicted on 32 counts of tax crimes. While the scheme may have temporarily netted Mr. Asker and his co-conspirators millions in ill-gotten gains, those benefits were shot-lived. Now, Mr. Asker and his associates face years to decades behind bars and hundreds of thousands of dollars to millions in fines and restitution.

Tax concerns?
Tax issues can lead to extremely harsh consequences including not only harsh financial consequences that can lead to the loss of the business, but also the loss of one’s freedom and liberty. To speak to an experienced Tax Attorney, call the Tax Law Offices of David W. Klasing. We can work with you to help you resolve your tax issues. Call (800) 805-9718 today to schedule a reduced-rate tax consultation or contact us online.

IRS & DOJ Warns Taxpayers that No Individual or Business Can Escape Tax Enforcement

IRS & DOJ Warns Taxpayers that No Individual or Business Can Escape Tax Enforcement

| Apr 28 | Payroll Tax Fraud, Tax Law Blog | No Comments
Warning - IRS

For many individual taxpayers and businesses, the days before April 15th can be lost in a flurry of activity as they attempt to resolve their long-neglecting, yearly tax reporting and payment duties. However at other homes and local businesses where taxes have not been filed for the 2014 tax year, things may be suspiciously quiet and subdued. In homes or businesses like these, some may make comments like, “I don’t pay enough in taxes for the IRS to miss it, anyway.” Others may begin to do their taxes and then realize that they do not have the funds or resources available to cover their tax liability. Then, they incorrectly believe that they are better off failing to file and pay taxes to conceal their liability.

In short, tax problems can arise through a number of actions or failures to take action. While the reasons for tax problems can change, the fact that the IRS is aggressively pursuing non-compliant taxpayers regardless of their size and resources does not. In fact, in the days immediately preceding the April 15th tax deadline, the US Department of Justice (US DJ) published a rundown of some of its more notable tax prosecutions from the past year. What is notable about these convictions is that they include criminal convictions against entities including large and well-connected businesses, professional service providers like accountants and lawyers, and individual taxpayers.

Willful failure to pay tax can result in a felony conviction
One of the tax convictions highlighted by the DOJ and IRS is that of attorney William M. Weisberg. Mr. Weisberg was sentenced to one year and one day in federal prison for his willful failure to pay taxes. Additionally he was ordered to pay back more than $450,000 in restitution due to the unpaid taxes. According to documents released during the trial, despite filing taxes for 2008, 2009 and 2010 Mr. Weisberg only paid a portion of his tax liability for the 2009 tax year. Taxes for 2008 and 2010 went entirely unpaid despite Mr. Weinberg making many lavish expenditures including:

  • $150,000 in school costs for his two children.
  • $250,000 to rent a home.
  • $35,000 for maid and house cleaning services.
  • $135,000 for travel and entertainment expenses.

The IRS attempted to work out a payment plan with Mr. Weinberg in 2010. But Mr. Weinberg compounded his legal liability by lying to the IRS. He falsified a document from his law firm to state that the firm was already withholding funds from his checks to turn over to the IRS when it was not. To the IRS agent, this act signified willfulness and led to the enhanced penalties that he faced. Typically a non-willful failure to pay taxes can be punished at a rate of one-half of 1-percent of the unpaid tax liability for each month or part of a month where the tax remains unpaid.

Businesses must disclose all income, accurately state expenses, and pay over payroll taxes
Also highlighted in the IRS and DOJ’s list of tax convictions is the conviction of Arkan Summa, the owner of a number of Happy’s Pizza franchises. Mr. Summa was convicted as a participant in a tax conspiracy that underreported income and overstated expenses of his franchises. Furthermore employee wages were underreported in a fashion that resulted in an underpayment of payroll taxes, also known as trust fund taxes. Businesses have an obligation to collect, hold in trust, and turn over payroll taxes to the federal government. When they do not, serious penalties can apply. Mr. Summa was sentenced to 18 months in federal prison and was also ordered to return nearly $200,000 in restitution. The founder of Happy’s Pizza and 3 other individuals who participated in this scheme have also been convicted and sentenced.

Furthermore consider the actions of Nick Jodha, the owner and operator of United HVAC Services, Inc. From 2007 to 2010, Mr. Jodha had cashed some checks written out to his company at a check cashing service and failed to notify his accountant. Mr. Jodha also failed to mention that these funds were used for both personal and business expenses. While it is unclear whether this was part of a scheme to evade tax or an honest mistake, the IRS agent clearly believed that Mr. Jodha’s actions showed a willful intent to evade taxes. Mr. Jodha was sentenced to 12 months and one day in prison and must also pay more than $200,000 in restitution.

Business tax problems? Unfiled or unpaid taxes?
The IRS is aggressively pursuing taxpayers who have failed to comply with their obligation to file and pay taxes. If you failed to file by this April 15th, the longer you wait the more severe the penalties you face will be. There is no taxpayer too big or too small to escape IRS scrutiny. Moreover, if you filed a fraudulent return for 2014 that intentionally understates income and have done so for several prior tax years you should contact us immediately. The Tax Law Offices of David W. Klasing can work to help you resolve your tax problems including potential exposure for tax crimes. Call (800) 805-9718 today to schedule a reduced-rate tax consultation or contact us online.

Taxpayers and Preparers Beware: Audit Season is Coming

Taxpayers and Preparers Beware: Audit Season is Coming

| Apr 23 | Criminal Tax Representation, Tax Law Blog | No Comments

As tax day has come and gone for most Americans, the unpleasant nature of tax season may be extended through a civil audit of your tax return. Every year, about 1.5 million tax returns are audited to ensure compliance. Although that number seems high, it actually only represents 1% of the tax returns filed in the United States every year. Many Americans go see a tax professional (usually a seasonal employee) to get their taxes prepared. Others attempt to take on the task own their own.

Regardless of the method of preparation, a taxpayer is responsible for the tax returns that they file. But what happens if your tax preparer, a professional that you trust, fudges your taxes? As a Texas couple that ran a tax preparation agency found out: they get to spend a hefty amount of their lives in a federal prison.

First, it is important to understand: not all tax preparers are crooks. In fact, most of them are extremely skilled and are very good at what they do. But like any profession, there are bad apples. But unlike every profession, when a job is done incorrectly with the intention of defrauding the U.S. government, a slap on the wrist is not likely to be sufficient. Unscrupulous tax preparers may fudge your return with or without your knowledge motivated by the belief that if they can generate higher refunds or lower balances due than the competition that they will have a more thriving business as a result.

Jacqueline and Gladstone Morrison were sentenced last month after they were found guilty of a myriad of tax-related crimes. The two operated Jacqueline Morrison & Associates in Arlington and Forth Worth between 2005 and 2010. Over the years, the Morrison’s created false expenses, claimed false deductions and credits and otherwise falsified thousands of tax returns. Because of their illegal activity, they had a booming business and collected over $2 million in fees over six year period that they were operating. In an attempt to grow their business even more, the Morrison’s applied for and received a franchise agreement from H&R Block.

A jury convicted both of the Morrison’s in October of last year and at their sentencing, they found out that they would treated to a stay at the not-so-luxurious Club Fed (federal prison) for 15 years each. In addition to the prison term, they were ordered to pay over $18 million to the Treasury in the form of restitution.

The timing of the sentence was likely not a coincidence. The IRS and Department of Justice find it effective to schedule their prosecutions and sentencing hearings in a way that will provide news of such convictions around tax time. They figure that if taxpayers see the potential penalties for falsifying returns or otherwise cheating on their taxes, they will be deterred from doing so. Although this is likely true, a large amount of taxpayers that are audited each year have either (1) nothing to hide or (2) have made a simple mistake without the intention to avoid paying taxes. This goes for tax preparers as well. As we mentioned above: mistakes are sometimes made and the reality is that sometimes the government will catch that mistake and induce a civil audit. The danger in an audit to a taxpayer is where the auditor interprets the actions taken to understate tax liability as willful tax evasion rather than mere negligence. Tax evasion is a felony punishable by jail time for both the taxpayer and preparer. Negligence in taken a position on a return, on the other hand, is punished via a civil penalty amounting to a mere 20% addition to the tax owed for the taxpayer and a possible preparer penalty for the tax preparer.

It is important (whether you are a taxpayer or a tax preparer) to have experienced representation with you during a civil audit where fraud may have occurred. Although many taxpayers or preparers have nothing to hide, trouble still may be looming during a civil audit. The revenue agents that conduct such examinations are trained to look for any inaccuracy in a tax return and even a simple mistake can result in significant inaccuracy penalties. Further, an accidental slip-of-the-tongue of a taxpayer or preparer could quickly turn a relatively simple civil examination into a criminal examination and investigation conducted by the IRS Criminal Investigation Division. As the Morrison’s learned last month (and will have the opportunity to think about over the next 15 years from behind bars) is that criminal investigations can escalate an investigation into something very serious, very quickly.

The tax attorneys and accounting professionals at the Tax Law Offices of David W. Klasing have a plethora of experience representing taxpayers in civil and criminal audits and investigations. In addition to representing taxpayers, our attorneys represent tax preparers in cases of fraud or other accusations of wrong-doing. Whether you are a taxpayer or tax preparer, if you are facing an audit or other investigation, remember that you do not have to go against the IRS or the Department of Justice alone. But also keep in mind: the longer you wait to seek representation, the harder it will for an experienced tax attorney to undo the statements that have already been made or protect evidence that has already been collected. Contact the Tax Law Offices of David W. Klasing today at 800-805-9718 or online for a reduced-rate consultation.

Ex-Pats Who Fail to File Tax Returns: Beware

Ex-Pats Who Fail to File Tax Returns: Beware

| Apr 16 | Non-Filer Assistance, Tax Law Blog | No Comments

Like it or not, paying taxes is one of the patriotic duties that most every American will become very familiar with. For the most part, U.S. citizens living in the country are good about filing their taxes and paying what they owe. Voluntary self-assessment has been successful during its use in the U.S. taxation scheme and saves the government plenty of money. Instead of attempting to calculate what taxpayers owe, tracking them down, sending them a bill, and collecting the revenue, the IRS simply allows taxpayers to determine what their liability is and is then able to focus their attention on non-compliance.

In fact, with the current system in place, estimates show that voluntary compliance fluctuates between 83 and 85 percent. This statistic is greater than most other nations and is not anything to balk at. Although some taxpayers will cheat the system, the threat of being caught, investigated, and criminally prosecuted tends to lead to such high compliance percentages.

With all of the above being true, the Internal Revenue Service has a problem on its hands. Taxpayers that reside in the United States are generally easy to keep track of. Their employers are in the States, their families are domiciled in the States, and the IRS usually knows exactly where you live and can easily collect from you if you owe. But for expatriates abroad, none of those factors are generally true. It is because of this that instead of upwards of an 80 percent compliance rate for domestic taxpayers, that percentage reflects the noncompliance rate among expatriates.

Recently, the lack of compliance by Americans living overseas that haven’t renounced their U.S. citizenship gained the attention of the Treasury but up until last month, there wasn’t any true method for information about U.S. citizens abroad to be effectively and accurately transmitted to the IRS. But that has now changed and it very well may be the end of the line for those ex-pats who have failed to file over the years.

Last month, we covered the unveiling and implementation of the new International Data Exchange Service. The new protocol was created in order to provide a means for foreign banking institutions to transmit information to the IRS in order to comply with the Foreign Account Tax Compliance Act (FATCA). The FATCA requirements were created in order to ensure that Americans living both domestically and abroad complied with the Foreign Bank Account Reporting laws that require that any foreign bank account with a balance of more than $10,000 at any point of the year be disclosed at tax time. It is the International Data Exchange Service that may bring the required data to the IRS needed to not only enforce FBAR requirements, but to also enforce compliance generally among those ex-pats overseas.

Through the International Data Exchange Service, banks will send account information that includes the personal data on ex-pats that the IRS had no way to easily retrieve prior to the protocol. In the event that an ex-pat’s information is transmitted through the Service and is gives off any red flags to an IRS agent, the Internal Revenue Manual (IRM) provides for a procedure in which the taxpayer’s information is turned over to the IRS Criminal Investigation’s Division. From that point, an additional investigation will be conducted and the case will be referred to the Department of Justice for prosecution, if deemed necessary.

Although many of the ex-pats living overseas who fail to file returns do so without malice or the intent to defraud the government, the failure to file a tax return or lying about the existence of foreign bank accounts can result in years in federal prison. In addition to the risk of incarceration, both types of convictions can come with heavy civil penalties that are large enough to wipe the average American out, financially.

If you are a ex-pat living outside of the United States who hasn’t filed a tax return or if you are a U.S. citizen generally and haven’t disclosed a foreign bank account, the best thing for you to do is to contact an experienced tax attorney for guidance. In many circumstances, a trained tax lawyer who is familiar with criminal and civil tax law will be able to minimize or even eliminate the damage caused by non-compliance before an investigation has commenced. If the government has already opened an investigation or audit with regard to your tax affairs, there is an even bigger reason to contact a tax attorney as soon as possible: when an investigator has you alone without an attorney, they know exactly what to ask in order to elicit incriminating responses. A trained and experienced tax attorney will provide you with the most effective advocacy, taking a heavy load off of your shoulders.

The tax professionals at the Tax Law Offices of David W. Klasing have years of experience helping taxpayers with a myriad of tax issues ranging from Offshore Voluntary Disclosure Program participation to audit defense and criminal tax defense. When you are going up against the IRS or Department of Justice, don’t go alone. Let us be your advocate, zealously fighting for you. Contact the Tax Law Offices of David W. Klasing online or by phone at 800-805-9718 today for a reduced rate consultation.

DOJ Brass: Swiss Banks to Turn Over Account Information Soon

DOJ Brass: Swiss Banks to Turn Over Account Information Soon

| Apr 15 | Tax Law Blog | No Comments

We have always kept our readers apprised of the latest news with regard to the crackdown on foreign bank accounts used to hide money from the IRS and the U.S. Treasury. True to form, we thought it important to share a message delivered by top brass in the Department of Justice. Delivered last week, Acting Assistant Attorney General Caroline D. Ciraolo delivered an address to the press at a Pen and Pad event where she detailed the government’s progress on the negotiations between Swiss banks and the State Department.

Swiss Banks Indicted For Undeclared American Accounts

With the very public indictments of Swiss banks in 2012 and 2013 (followed by the indictment-induced shutdown of Wegelin), banks around the world that had previously or even currently provided services that were used to harbor American taxpayer money were shaking in their boots. This reaction was likely warranted. In addition to the threat of criminal penalties, banks were facing hefty civil levies. To make matters even worse, they were witnessing some of their key employees being indicted for their role in the activity. The DOJ smelled blood in the water and used this fear to their advantage.

In late 2013, the Department of Justice announced a new program to allow Swiss banks that were not currently being investigated by the U.S. to come forward if they had been involved in any activity that the U.S. would deem to be criminal. In exchange for coming forward and cooperating, the banks would be eligible to receive the benefits of a non-prosecution agreement. The banks would also be required to pay a penalty.

The Terms of the Non-Prosecution Agreement

Playing on the fears of the Swiss banking community worked. Over 100 banks jumped at the opportunity and applied to be a part of the program. Though, the implementation of the program was not without some pushback. Attorneys for a number of the Swiss banks that had previously signed up to be a part of the program voiced concerns over the scope of the program requirements. Under the terms, the DOJ demanded nothing short of complete cooperation. And not only did the terms require the banks to comply with U.S. investigations, but they also suggested that cooperation in investigations of other nations could also be required. The underlying question prompting the attorney’s inquisition was exactly what would the banks need to do to cooperate? And for how long?

Through Ms. Ciraolo’s address last week, the Department of Justice attempted to answer some of the questions of the banks. The general terms of the agreement will last four years. The terms include the requirement that the participating banks close accounts that are being used to hide American’s money. Further, they will be required to cooperate with the federal and state governments with regard to accounts that were or are being used to hide money from the IRS. Lastly, the banks will need to take steps, including training and additional oversight, to ensure that this type of secrecy doesn’t happen again. Notwithstanding the four-year term of the agreement, participating banks will also be required to cooperate in any criminal investigation for matters that were not time-barred before August 29th, 2013.

A Clear Warning to Taxpayers

Ms. Ciraolo’s message was clear: Swiss banks will begin signing these agreements in the very near future. When that happens, the banks will be obligated to turn over account and other personal information of Americans to the IRS and the Department of Justice. The Foreign Bank Account Reporting (FBAR) laws require that any taxpayer report a foreign bank account with a balance of over $10,000. Those who do not comply with the law will be prosecuted and can be sentenced to lengthy federal prison sentences.

The federal government is encouraging taxpayers to voluntarily come forward and disclose their previously secret accounts. In return for the disclosure and the payment of a reduced penalty and any back-taxes owed, the government will not pursue criminal charges against you (much like the agreement that the Swiss banks are entering into). But the Offshore Voluntary Disclosure Program has a catch: if the government has already received information about your secret account, you will not be eligible for the OVDP. This essentially creates a race between the taxpayer and the Swiss bank that has taken part in the non-prosecution program. Though, the Swiss bank has nothing to gain by a taxpayer participating in the OVDP and a taxpayer has everything to lose.

Contact Us Today

Consulting an experienced tax attorney as soon as possible will provide you with your best chance at walking away from an undeclared account with the least damage done. At the Tax Law Offices of David W. Klasing, our tax and accounting professionals have years of experience in the OVDP process. Further, we have assisted our clients in tax matters ranging from audit defense to criminal investigation defense. When going up against the government, it is foolish to go alone. Let us zealously advocate on your behalf.

Contact the professionals at the Tax Law Offices of David W. Klasing today online or at 800-805-9718 for a reduced-rate consultation.

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