Appearing in January before U.S. District Judge Arthur J. Schwab, Pennsylvania anesthesiologist James G. Allen Jr., 54, was sentenced to more than two years in prison and ordered to pay the Internal Revenue Service over $1 million in restitution. Allen, who admitted to filing more than a dozen false joint tax returns with his wife from 2010 through 2017, concealed from the IRS more than $3 million in income that the couple, both anesthesiologists, earned during that period. By taking willful steps to conceal the pair’s income, Allen caused a tax loss exceeding $900,000. While fraud on this scale is virtually guaranteed to attract IRS notice, much smaller violations can also trigger tax audits – and in many cases, costly penalties. If you are facing an egg shell audit or have unreported foreign bank accounts, unreported cryptocurrency transactions, or unreported domestic or offshore income, overstated deductions, claimed credits you were not entitled to etc., you are advised to consult an experienced tax lawyer immediately to discuss a voluntary disclosure. Otherwise, you could find yourself in the same position as Allen.
See our Criminal Tax Law Q and A Library
Pennsylvania Anesthesiologist Sentenced After Concealing Over $900K from IRS
Allen pleaded guilty in June 2019, at which time he also “agreed to pay restitution to the IRS in the amount of $902,721.45,” according to an early press release from the U.S. Department of Justice (DOJ). A more recent DOJ press release indicated that, additionally, Allen was sentenced to 30 months in federal prison, to be followed by a year of supervised release.
The act of filing a false tax return is colloquially known as “tax perjury” and formally called “willfully making and subscribing a false return.” This offense is defined under 26 U.S. Code § 7206(1), which provides that a taxpayer commits tax perjury when he or she “willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he [or she] does not believe to be true and correct as to every material matter.” In simpler terms, it is a crime to deliberately (“willfully”) file (“make and subscribe”) any tax return that the filer knows to contain seriously inaccurate information (“not… true and correct as to every material matter”), such as underreported or omitted income.
Every U.S. income tax return is, as the statute describes, “verified by a written declaration that it is made under the penalties of perjury.” This is clearly stated in the “Sign Here” section near the bottom of Form 1040, which reads as follows immediately above the space for the taxpayer’s signature:
“Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.”
For a deeper discussion of this subject, refer to our article about giving the IRS false information.
Several other aspects of Allen’s case are also worth briefly highlighting to our readers, notably the following:
- According to the Department of Justice, Allen used an “offshore bank account held in the Bailiwick of Jersey” to conceal income from the IRS. Schemes of this nature are among the IRS’ top investigative priorities. Just like U.S. income, worldwide income must be reported to the IRS if you are a U.S. person and meet certain financial thresholds. Compliance may entail filing an FBAR (FinCEN Form 114), Form 8938 (Statement of Specified Foreign Financial Assets), and additional forms, which our international FBAR attorneys can assist you with.
- The DOJ also noted that Allen bought “cryptocurrency and gold” in furtherance of his efforts to conceal taxable income. Virtual currencies like Bitcoin, along with gold and precious metals, are subject to unique tax reporting requirements, making it crucial to consult with a cryptocurrency tax attorney or CPA for assistance.
In an unusual detail that distinguishes this case from others like it, Allen claimed that his tax fraud scheme was inspired by a book titled Cracking the Code – The Fascinating Truth About Taxation in America, published in 2003. Its author, Peter Hendrickson, who was written about in Forbes last year, “was sentenced [in 2015] to serve 18 months in prison… for criminal contempt… [after] he violated an injunction [i.e. court order] involving federal tax obligations.” According to the Department of Justice, Hendrickson and his spouse “falsely claimed they earned zero wages” for 2002 and 2003, causing the IRS to improperly issue refunds. The DOJ’s Tax Division subsequently sued the Hendricksons in an effort to recoup the funds, leading a judge to issue the injunction Hendrickson would later violate.
In a previous, separate case from 2009, Hendrickson was found guilty of filing false returns, “including the 2002 and 2003 returns” noted above. In that instance, he received a 27-month prison sentence.
IRS Audit + Tax Fraud Defense Attorneys in California
In an era where the IRS estimates the national tax gap to range anywhere from around $380 billion to $440 billion annually, the government takes an aggressive approach to investigating – and in many cases, eventually prosecuting – individuals and corporations that exhibit red flags for tax fraud. If you have unfiled tax returns, may have failed to report 100% of your taxable income for previous tax years, have been contacted by the IRS or state taxing authorities concerning an audit, or need assistance resolving other tax compliance issues, protect yourself by retaining the services of a skilled and effective IRS tax attorney from the Tax Law Office of David W. Klasing. For a reduced-rate tax consultation, call our main office in Irvine at (800) 681-1295, or contact the Tax Law Office of David W. Klasing online.
See our Audit Representation Q and A Library
In addition to our staffed main offices in Irvine, the Tax Law Offices of David W. Klasing has unstaffed (conference room only) satellite offices in Los Angeles, San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland, Carlsbad and Sacramento.
Note: If you have concerns about the privacy of our initial or subsequent communication and are unable to easily travel to our Irvine / Orange County Main Office, consider scheduling a GoToMeeting to safely and securely establish an initial or maintain an existing attorney client relationship. With end-to-end encryption, strong passwords and top-rated reliability, no one is messing with your meeting. To schedule a reduced rate initial consultation via GoToMeeting follow this link. Call our office and request a GoToMeeting if you are an existing client. We are generally happy to travel to any of our appointment only satellite offices for a subsequent meeting in appropriate circumstances once a relationship is established via a signed engagement letter and the payment of an initial retainer or where enough retainer is available where a current client to cover the reasonable travel time and time required for the meeting.
Will it cost me more to hire the Tax Law Offices of David W. Klasing, who’s main office and the vast majority of the firm’s staff is located in Irvine California, but an appointment only Satellite office is close to my location, as opposed to a local company? Absolutely not! See our policies that address this issue here.
