Tax Crimes

Ever wonder what it would take to be convicted of a tax crime? It’s probably less than what you would think. Hopefully you continue reading this post to satisfy your curiosity and not because you have any real need to know. Obtaining tax relief early in the game will usually help you avoid criminal investigations.

So for inquiring minds, here are some of the more common tax violations:

1. Evasion of Assessment

2. Evasion of Payment

3. Failure to Collect or Pay over Tax

4. Failure to File

5. Fraud & False Statements

All of these offenses require wilfulness, or criminal intent. Take “Failure to File,” for example. You may be guilty under Internal Revenue Code section 7203 for failure to file a return if (1) you are required to file a return, and (2) you willfully fail to file the return when it is required to be filed. Simple as that. If convicted, the penalty can be as high as $25,000, or imprisonment for up to one year, or both.

The “Evasion of Assessment” and “Evasion of Payment” crimes may be applicable even if the tax assessment or payment was not ultimately evaded. For example, you may be found guilty under Internal Revenue Code section 7201 for attempting to evade or defeat a tax if (1) a tax is due and owing, and (2) you willfully attempt to evade or defeat a tax or the payment of a tax. If convicted, the penalty can be as high as $100,000, or imprisonment for up to five years, or both. See the IRS Tax Crimes Handbook for more information.

The silver lining here is that wilfulness is usually a subjective standard in the tax code, meaning that a defendant’s good faith belief that he is not violating the tax laws, no matter how objectively unreasonable that belief may be, is a defense in a tax prosecution.

Lawyer Indicted for Tax Evasion

Who: Knoxville attorney, John Threadgill

What: Indicted by Federal Grand Jury for paying personal expenses out of his law practice and deducted them as legitimate business expenses.

How Much: Threadgill was charged with evading $1.4 million in Federal income tax during the period of 1986-2004.

More Info: If convicted, Threadgill faces a fine of up to $100,000 and 5 years imprisonment. Clickhere for full article.

This is a very blatant example of tax fraud. I’m sure that the magnitude of the offense and the fact that the offender is an attorney played a major role in the IRS deciding to pursue him criminally. I suppose the legitimate forms of tax relief just did not seem as attractive to him at the time.

Bad Deductions in Iowa

Who: Tax preparers, Howard & Jill Musin

What: Judge ruled in favor of government, stating that the Musins (on their clients’ behalf) “took numerous, unrealistic positions as to business deductions for … quintessentially personal expenses.”

How Much: $21 million in bad deductions

More Info: The couple has already been prohibited from practicing before the IRS; they now face further sanctions.

IRS Chasing Ghosts

The Internal Revenue Service (IRS) recently announced it will be sending letters to taxpayers who appear to have had tax preparation assistance by ghosts. Such “ghost preparers” are paid tax preparers who attempt to elude IRS oversight programs by not signing the tax returns they prepare. The IRS warns taxpayers that they should never rely on a paid tax preparer that refuses to sign their tax returns and fails to enter a Preparer Tax Identification Number (PTIN).

In the letter to be sent to taxpayers, the IRS will inform such taxpayers of how to file a complaint against their paid tax preparers who failed to sign their returns and explain how to choose a legitimate tax preparer in the future. According to the IRS, the goal of the letters is to protect taxpayers by ensuring that all paid federal tax return preparers are registered with the IRS, and that such authorized preparers sign the tax returns they prepare, and use their identifying number when required to do so.

Additionally, on July 7, 2011, the IRS began to send approximately 100,000 compliance letters to tax preparers who failed to comply with regulations governing third-party tax preparation. All compensated tax return preparers must obtain a PTIN and, when required to do so, sign their names and include their PTINs on the returns and refund claims they prepare for compensation. Compensated tax preparers who are not tax attorneys, certified public accountants, or enrolled agents, must pass a competency exam and suitability check.

The approximately 100,000 paid tax return preparers under scrutiny may have used outdated PTINs or social security numbers as identifying numbers on returns they prepared this past filing season. The letters sent by the IRS explain a new oversight program and informs preparers of how to register for a new PTIN, or how to renew an old PTIN.

New Orleans Tax Assessor in Deep

Identity: Betty Jefferson, former New Orleans tax assessor

Offense: conspiracy to commit mail fraud money laundering, and tax evasion; and now the subject of a state tax audit that raises questions about suspicious / undocumented expenses.

Amount of Money Involved: $113,796

More Info: see story

Another Tax Bust

Due in part to the state of our economy, there are many people who don’t pay their taxes because they can’t afford to pay. Many of these people can find the tax relief they are looking for by enlisting the assistance of a CPA or tax attorney. However, the IRS seems to be very interested in pursuing criminal charges lately. The IRS has been known to make an example of a few high-profile cases to encourage compliance with the tax laws among average citizens. Here is yet another example:

Identity: Arvind Ahuja, Wisconsin neurosurgeon

Offense: 4 counts of hiding money in offshore accounts & 4 counts of filing false tax returns

Amount of Money Involved: $8.7 million in accounts & $1.2 million of unreported interest income

Other Players: HSBC India has helped other clients like Ahuja hide funds offshore

More Info: USA v Arvind Ahuja, No. 11-cr-135, in U.S. District Court for the ED-WI

IRS-impersonation Scam Emails

The IRS has emphatically stated that they do not send out unsolicited emails. So, if you receive an email that appears to be from the IRS, but requests personal / financial information, then chances are it is a scam. People who fall prey to these emails may become victims of identity theft if they give up the requested information to the scammer or if they unknowingly open up their computers to malicious software.

If you receive an email requesting personal information that appears to be from the IRS, do not open it and do not click on any links. You should immediately forward the email to, then delete the email. If you believe you have become a victim of identity theft, contact our tax relief firm and we may be able to help you.

Smooth Criminal

Raymone Bain, former general manager of Michael Jackson, pleaded guilty for failing to file her 2008 tax return. She faces possible 1 year in prison and $100k fine. As part of the plea agreement, she will also have to pay back up to $400k that she owes for tax years 2006-2008.

So-Cal Pilot School Case

The owners of a Southern California test pilot school pleaded guilty to filing a false 2008 tax return. They transferred money from their corporation to several offshore accounts, then deducted the transfers from their corporate and individual income tax returns. Then they failed to report the interest on the foreign accounts. Maybe it goes without saying, but this is not allowed. Now they will have to pay upwards of $2 million in penalties on top of their $710,000 tax bill. I think its safe to say that their options for tax relief are limited at this point. If they don’t have the cash to pay it all at once, that’s going to be one big installment payment!