California Tax Law Blog

Understanding the Net Tax Gap and Its Causes

Understanding the Net Tax Gap and Its Causes

| Sep 02 | Audit Representation, IRS, IRS Audits, Tax Law Blog | No Comments
Net Tax Gap

The net tax gap or the tax gap is a term that frequently appears in the news media following political discussions regarding the IRS, government spending, and budget shortfalls. It seems that everyone has a different idea as to how large the tax gap truly is, the causes behind the tax gap, and how to reduce and eliminate it. These are all complex topics without, necessarily, clear answers. However, there are three main schools of thought regarding potential fixes for the tax gap These schools of thought are the objective public service view, ideological perspectives, and the view of an actor working within the two-party system.

The Net Tax Gap Deprives the Government of Necessary Tax Revenue and Is Growing

The net tax gap is a straightforward concept: it is the difference between the amount of taxes owed to the government by individuals and companies and the amount that is actually paid to the IRS. Unfortunately, despite advances in technology that allows the IRS to review more tax returns and other tax filings with less manpower, the net tax gap has grown since at least 2001. In 2001, the tax gap totaled $290 billion. By the 2006 tax year, the gap had increased to $385 billion. While the IRS has declined to provide tax gap information for more recent years, if the average rate of increase between 2001 and 2006 remained constant, the tax gap in 2015 would be in the neighborhood of about $550 billion dollars. Since 2001, Americans have been cheated out of a total of about $4.56 trillion in tax revenue that could have been used to provide social services, build infrastructure, or provide for the national defense.

And yet despite the growing amount of tax revenue going uncollected each year, Congress has decided to cut the IRS’ funding year-over-year. In fact, since 2010 Congress has cut funding to the IRS by an, inflation-adjusted, 17 percent despite a reviving economy and an increased workload due to new filing obligations created by FATCA. The budget woes at the IRS have become so dire that taxpayers cannot even speak to someone at the agency when the call in. While quality scores for call center representatives were 83 percent in 2007, the quality score had fallen to 64 percent with average waits of almost nine minutes. A Taxpayer Advocate Service report shows that phone service has fallen even further. For calls made to the IRS customer service line from the beginning of January 2015 until April 18, 2015, only 37 percent of the calls actually reached an IRS representative. For those who were able to reach a human, the wait time was 23 minutes. Everyone else – 8.8 million taxpayers – received what the IRS calls a “courtesy disconnect.”

What Are the Proffered Reasons Behind the Tax Gap?

In light of the burgeoning tax gap and plummeting levels of service provided by the IRS it can be difficult to envision why we have not addressed this issue. In her report the Taxpayer Advocate warns, “For a tax system that relies on voluntary self-assessment by its taxpayers, none of this bodes well. In fact, there is a real risk that the inability of taxpayers to obtain assistance from the government, and their consequent frustration, will lead to less voluntary compliance and more enforced compliance.”

The objectivist perspective to the tax gap would undoubtedly find these facts to be a real problem demanding a solution. In fact, allowing these problems to develop is highly irrational and troubling from this perspective. However the objectivist solution is more difficult to predict because it does not adhere to traditional left-right political ideology. Rather, the objectivist view simply seeks the best fit solution for the identified problem or problems. An objectivist solution could include anything from increased IRS funding, to outsourcing, to a complete overhaul of the tax system.

In opposition to this perspective are the politically charged ideological viewpoints. A liberal ideologue would likely believe the IRS data and propose a budget increase to address the problems. In contrast, a conservative ideologue is unlikely to believe the IRS’ data, that a problem exists, and may believe that the actions of the IRS are illegal or unconstitutional. From a conservative perspective, funding increases at the IRS are nearly unfathomable. However, before you assume that we are blaming conservatives for the situation, the true culprit behind the problem is the next perspective.

Those who view the world, more or less, through the lens of the two-party system – that is, our politicians – are the real parties deserving blame. While conservatives may be more aligned with the two-party-system perspective, it is the elites that drive the two party system who are behind the tax gap. For some reason, those elites seem to want an IRS that is ineffective in catching the largest tax cheats. In fact, as budgets have plummeted the extremely wealthy, those with incomes greater than $10 million, have come under decreasing scrutiny and now face a decreased audit risk. The elites drive policy in the two party system and under this policy it is the poor, middle class, and individuals that are merely wealthy that are left to face audits and tax enforcement actions even in light of decreased support and resources from the government.

Rely on Our Tax Experience for Audits and Other Enforcement Actions

If you are doing well for yourself and your family, but you are still working on making it into the economic elite you need to protect yourself from an increased audit risk. Furthermore, the reduced resources available to taxpayers may mean that your questions may go unanswered unless you seek help from other sources. The tax professionals at the Tax Law Offices of David W. Klasing can provide guidance and options regarding your tax concerns and issues. To schedule a reduced-rate consultation call us at 800-681-1295 or contact us online.

California Law Explicitly Criminalizes the Use of “Zappers.”

California Law Explicitly Criminalizes the Use of “Zappers.”

| Sep 01 | Audit Representation, California Sales Tax Audit Attorney, IRS, IRS Audits | No Comments
Zapper software illegal in California

In the retail sales tax collection arrangement businesses are charged with an obligation to collect, hold , and pay over sales tax revenue generated due to sales at the business. At its core, this system relies heavily on self-reporting by businesses. In fact, due to the way the system is arranged, it is not always immediately apparent when a business has failed to remit all or some of the collected sales tax. When businesses take advantage of the system and perpetrate a fraud on the government, it is the state government that sees decreased revenues and the citizens of the state that suffer. Tax evasion, including sales tax evasion, costs state governments millions of dollars each year.

California’s Board of Equalization is a close approximation of the IRS for the State of California. The BoE is responsible for an array of tax duties including the collection and administration of taxes in the state. California’s BoE estimates that the loss from sales tax fraud in the state costs more than $210 million every year. The BoE has repeatedly issued strong statements against zappers and has taken action to discourage their use. When these measures fail, the BoE will not hesitate to pursue a business or taxpayer that it finds using software or other means to commit tax evasion or tax fraud. In fact, one family now faces a collective 123 years in prison for using a zapper to skim cash.

What is a Zapper?

A zapper is a certain type of software program that can surreptitiously alter records of transactions and sales. The zapper program is loaded onto a retail point of sale (POS) system typically via a USB drive. Once it is installed and configured the zapper program allows business owners to reduce the amount of revenue that they attribute to sales. By reducing income, the business can illicitly reduce its sales tax burden. The owner then pockets or disburses the ill-gotten gains to others participating in the scheme.

Zappers are most effective when the sale is made in cash because of the lack of other or corroborating records regarding the transaction. When the transaction is paid for via a credit card, the processing company generates and holds a record of the transaction typically making this practice unnecessarily risky. However some more resourceful fraudsters have taken to editing invoices with Photoshop and other tools to cover their tracks. According to state officials in California and throughout the nation, a sufficient number of businesses are committing fraud on these cash transactions and states are feeling the squeeze of reduced revenues.

California and Other States Pass Laws to Criminalize Zappers

California’s BoE sponsored a bill that was adopted by the California legislature that criminalized the mere possession of a zapper device or the software contained on it. In California, any business that is detected using a zapper can face serious penalties that include a potential three years in California state prison. Furthermore, owners of businesses who are caught using zapper software are held financially liable for the unpaid taxes and all fines and penalties that may be associated.

However, California is not the only state to take action against the practice of evading taxes through the use of a software device. In 2013, Washington State Department of Revenue advocated in favor of the passage of 2013 Senate Bill 5715. The bill makes is a Class C felony for individuals and business owners to commit tax fraud by electronic means such as with a zapper. Manufacturers or providers of the electronic device can face a penalty that is equal to the greater of $10,000 or the value of the lost tax revenue. Kentucky legislators also passed a law that criminalizes the possession of a zapper or zapper-like device as a Class D felony.

Facing Tax Evasion or Fraud Charges?

If you are facing serious tax charges advanced by the California Board of Equalization or the IRS, you face serious consequences. The prosecutors of these agencies are experienced, dedicated, and aggressively pursue convictions. You deserve to have an experienced, strategic, and knowledgeable tax attorney and CPA in your corner. To schedule a reduced-rate tax consultation, contact the Tax Law Offices of David W. Klasing today by calling 800-681-1295 or contact us online today.

Prison Time For Maine Businessman Who Claimed to Be Exempt From Tax

Prison Time For Maine Businessman Who Claimed to Be Exempt From Tax

| Aug 31 | Audit Representation, IRS, IRS Audits, Non-Filer Assistance, Tax Law Blog | No Comments
Maine Businessman faces prison sentence

If polled, many Americans may opine that federal taxes are too high. A smaller amount may go as far as to say that federal taxes should be abolished, as a whole. And then there are a very small group of U.S. residents who believe that there is a legal argument to be made that would abrogate their duty to pay income tax. Typically, proponents of such views claim that federal income taxes are unconstitutional or that the jurisdictional arm of the U.S. tax system does not reach them. These arguments are almost always losing ones. Such was the case in Maine last week, where a businessman was sentenced to serve a year and a day in federal prison for committing various tax crimes.

According to a Department of Justice press release, F. William Messier, 71, and David E. Robinson, 78 of Brunswick, Maine, were found guilty back in April after a week-long federal jury trial. The duo was convicted of conspiracy to defraud the United States and corruptly endeavoring to impede the lawful administration of the Internal Revenue Code. Messier was sentenced to spend a year and a day in a federal prison, followed by three years of supervised release. Furthermore, he was ordered to pay a $15,000 fine and file and pay back taxes from 2005 to the present. Robinson will be sentenced in early October.

According to court documents, Messier received rental income stemming from leases for space on his property that was being used for cell phone communication towers. Doing business as Oak Hill Communications, Messier did not pay taxes on his income for tax years 2000-2004. When the IRS made an assessment for the taxes owed during those years, Robinson asserted that he was the “Interim Attorney General” of the “Maine Republic Free State” and could not be forced to pay taxes. While conducting their business, the IRS alleged that the two taxpayers performed several acts that were meant to impede the administration of Internal Revenue laws by engaging in the excessive use of cash and providing clients with false tax documents.

The Department of Justice states that evidence presented at trial shows that when the IRS sent notices to Oak Hill Communication’s customers instructing them to make payments directly to the IRS, Messier sent his own correspondence that threatened legal action if the customers complied with the garnishment. In fact, evidence that the government at trial showed that at least filed one frivolous lawsuit against a customer for complying with the request by the IRS.

Although some of the defenses that were proffered by the defendants seem laughable, being investigated for, and accused of tax evasion or conspiracy to defraud the government is no joke. Although one of the defendants in the case at hand was only sentenced to a year in prison, the potential repercussions are much greater. When a taxpayer attempts to defraud the government, he or she can be sentenced to up to five years in prison and ordered to pay up to $250,000 per count and typically, those investigated for tax fraud or other tax crimes are alleged to have engaged in continuous fraudulent activity.

When taxpayers first receive word that the IRS is questioning the validity of their tax affairs, it is in their best interest to contact an experienced tax attorney as soon as possible. Many taxpayers attempt to figure a way out of tax troubles on their own, but can inadvertently make matters much worse. An experienced tax attorney has the ability to assess a situation and determine the right course of action to take in order to minimize or completely avoid criminal or civil repercussions.

The tax and accounting professionals at the Tax Law Offices of David W. Klasing have extensive experience representing taxpayers in tax matters ranging from examinations, investigations, and litigation. Your personal and financial freedom is our top priority. When the IRS comes knocking, ensure that you have an experienced and zealous advocate to go to battle for you. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.

San Diego Tax Preparer Indicted on 36 Counts of Tax Preparation Fraud

San Diego Tax Preparer Indicted on 36 Counts of Tax Preparation Fraud

| Aug 31 | Audit Representation, IRS, IRS Audits, Tax Law Blog, Tax Preparer Fraud | No Comments
San Diego tax preparer indicted

Each year, most Americans diligently prepare their taxes or pay a tax professional to prepare it for them. The vast majority of Americans want to avoid the potential consequences of being caught making false assertions on an income tax return and expect that hiring a professional will aid them in avoiding this problem. Even innocent mistakes can result in penalties and interest due to the IRS. That being said, there will always be taxpayers and tax preparers who make it their goal to obtain every dollar that they can off of the IRS, whether the means are legal or not. This type of unlawful behavior is alleged to be present in a case recently filed by the Department of Justice against a Southern California tax preparer.

According to a Department of Justice press release, Marla Lynn Cunningham was the proprietor of Cunningham’s Tax Service, a tax preparation business that operated out of El Cajon, California. She is alleged to have fraudulently decreased tax liabilities and procured refunds that weren’t owed by claiming various types of false expenses, charitable deductions, and medical expenses. The indictment further alleges that Cunningham fraudulently claimed educational credits in an attempt to secure additional refunds.

Each individual count of aiding and assisting in the preparation of false federal income tax returns carries a potential prison sentence of three years. Furthermore, each count also could result in a monetary fine of up to $250,000. Together, the potential criminal penalties could see Cunningham spend a large portion of her life behind bars and devastate her financial life for years to come.

There is no doubt that tax preparation fraud should not be condoned, but not every tax preparer that is investigated or prosecuted for engaging in it is guilty. Over the past year, a cursory review of the Department of Justice’s actions shows that indictments against tax preparers have increased exponentially. This uptick in prosecutions could lead a reasonable person to believe that investigations into innocent tax preparers have also increased. Just because a tax preparer is being investigated, doesn’t automatically mean that they have committed a crime.

When an investigation into a tax preparer begins, an initial reaction may be to try and explain away whatever behavior triggered the IRS to investigate. Although trying to talk your way out of a line of government questioning may be successful once in a blue moon, it is not recommended. Typically, a tax professional or taxpayer that doesn’t consult with an experienced tax attorney prior to a meeting with the IRS or other government investigators finds themselves digging themselves holes that they are unable to get out of or giving away information that will later be used against them. When the potential for a federal prison sentence and substantial fines and penalties are staring you in the face, you can’t afford to not contact a tax attorney.

The tax and accounting professionals at the Tax Law Offices of David W. Klasing have a plethora of experience representing taxpayers in an array of tax matters. From examinations, to investigations, to full-blown criminal or civil litigation, our attorneys will ensure that your best interests are always prioritized. When the IRS and the Department of Justice come to the table to investigate or negotiate, they are sending their best. Ensure that you have a zealous legal team to advocate on your behalf. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.

Former Real Estate Professional Sentenced in Mortgage and Tax Fraud Case

Former Real Estate Professional Sentenced in Mortgage and Tax Fraud Case

| Aug 27 | Criminal Tax Representation, IRS, IRS Audits, Tax Law Blog | No Comments

Tax fraud can come in many shapes and sizes. Sometimes, it can appear in a vacuum and involve a taxpayer or another person filing a tax return with false or erroneous information. But in a large number of federal criminal cases that involve tax fraud, there is another type of fraud or illegal activity present. In a recent hearing, a federal judge sentenced a former mortgage professional to a lengthy prison sentence for both tax and mortgage fraud.

The Scheme

According to a Department of Justice Press Release, Charise Stone, 46, was convicted of tax fraud, mortgage fraud, and passing fictitious financial instruments on May 27th. Last Friday, Stone was sentenced to serve a five-year prison sentence in a federal penitentiary. After her release, she will be required to serve a three-year supervised release and pay back over $2 million in restitution to the financial institutions that she crossed, as well as the IRS.

Court documents show that Stone targeted homeowners who were underwater in their home mortgages, meaning that the home’s market value was less than the amount of the home loan. Stone was found to have induced desperate homeowners into transferring the property to her or to one of the entities that she controlled. Stone then would negotiate a short sale with the mortgage lender, which set an agreed-upon price that the house would be sold for but would subsequently sell the home for more, pocketing the difference. Prosecutors proved that Stone was able to illegally collect over $2 million using the method described above.

In order to keep the scheme looking legitimate from a documentation standpoint, Stone enlisted the help of Jose Marinay, the owner of an escrow company that exclusively handled the short sales that were a part of the scheme. According to the DOJ press release, Marinay falsified HUD-1 documents and destroyed others after the closing period ended for the properties that were sold. He pleaded guilty to conspiracy to commit wire-fraud.

The tax fraud charges that were levied against Stone stemmed from fictitious bonds that were sent to the IRS in an attempt to settle her tax debt. In a further act of fraud, she sent fake international promissory notes to her creditors. Stone’s crimes came to light after an FBI investigation uncovered her fraudulent mortgage activities. Once the Bureau had begun investigating, the IRS Criminal Investigation Division was called upon to look into Stone’s tax affairs.

Government Investigations Can Lead To Tax Troubles

Although we don’t expect that any of our readers are engaged in mortgage fraud, we do think it important to identify the reality that the different governmental investigative agencies work very closely together. If any branch of the federal or state government is investigating a taxpayer, the individual is at risk with regard to any other government agency and their investigative officials. Thus, if you are currently being investigated for any wrongdoing, regardless of the type, and also have uncertainties about your tax compliance, it is in your best interest to contact an experienced tax attorney as soon as possible. As soon as criminal investigations begin, it is imperative that counsel be present during any questioning or examinations.

Contact an Experienced Tax Attorney

The tax and accounting professionals at the Tax Law Offices of David W. Klasing have extensive experience representing taxpayers that are going through an examination, investigation, or full-blown civil or criminal litigation. When the IRS or DOJ come knocking, they are bringing their best attorneys and investigators, make sure that you have an effective team of zealous advocates on your side when you answer. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.

Father-Son Tax Preparers to Spend a Combined 7 Years in Prison Over Secret Foreign Accounts

Father-Son Tax Preparers to Spend a Combined 7 Years in Prison Over Secret Foreign Accounts

| Aug 27 | Criminal Tax Representation, FBAR Compliance and Disclosure, IRS, IRS Audits, Tax Law Blog, Tax Preparer Fraud | No Comments
7 years in prison for tax preparers

In the recent past, we have covered a few stories that dealt with tax preparers that have been investigated and charged with crimes that relate to lying on a client’s tax return about the amount of income that he or she received or the extent to which the taxpayer had a business loss or expense. The IRS takes all instances of tax preparer fraud very seriously, but as you will see in this story, when a tax preparer’s illegal actions extend overseas, the government wastes no time and spares no muscle in its criminal investigations and prosecutions.

Last week, a Federal District Court Judge sentenced David and Nadav Kalai to a combined 86 months in federal prison for their role in a tax preparation company that hid their clients’ funds in secret overseas accounts. Last winter, a federal jury found that the Kalai father and son duo had committed conspiracy to defraud the Internal Revenue Service and counts related to failing to file a Report of Foreign Bank and Financial Accounts (FBAR). David Kalai was sentenced to serve three years in a federal prison, followed by three years of home confinement. His son, Nadav, was sentenced to serve 50 months in prison and serve three years of supervised, thereafter. Finally, the two were ordered to pay a combined fine of $296,000.

According to a Department of Justice Press Release, the Kalai’s owned and operated United Revenue Service (URS), a business that assisted taxpayers with the filing of their tax returns. URS was based in Newport Beach but also had offices in Costa Mesa and Maryland. Evidence that was presented at trial showed that URS would not only prepare tax returns for clients, but would also help them hide their money in foreign bank accounts. The Department of Justice states that the company would assist customers in the setting up of nominee corporations in Belize that had an interest in bank accounts that were set up through Israeli banks. URS falsely categorized the funds that were leaving the United States and being placed in the Israeli bank accounts as a business loss or expense.

Taxpayers are required to not only tell the truth about how much money they are earning, but are also required to disclose to the government the existence of foreign bank accounts that exceed a certain dollar amount. In fact, federal law requires that those filers that have signature authority or ownership in accounts at foreign financial institution with more than a $10,000 balance disclose it on their personal tax return (Form 1040) and in addition, file a Report of Foreign Bank and Financial Account. The IRS has been heavily cracking down on taxpayers that have taken steps to hide their money overseas, so the vigorous investigation and steep sentences for the Kalai’s are no surprise, considering that URS helped hide millions of client dollars overseas.

When taxpayers find themselves with money overseas in an account that hasn’t yet been declared, many panic. It is very possible that some visit a tax preparer like URS that makes promises that the money will never be found and if it is, the penalty will be a simple slap on the wrist. Many taxpayers that believed those types of pitches now reside in a federal prison. Many later came to realize that the willful failure to file an FBAR to disclose a foreign bank account is a felony and punishable by a lengthy prison sentence and a fine that could equal 50% of the high balance in the hidden foreign account. As you can tell, a tax preparer or other adviser that promises to keep your foreign account a secret for a fee is not the way to go, unless you are seeking an extended stay in a federal penitentiary.

What many taxpayers do not realize is that there are options that involve coming clean with the government about a foreign bank account that hasn’t yet been disclosed without facing all of the negative repercussions that come with being caught red-handed. The Offshore Voluntary Disclosure Program (OVDP) allows taxpayers to come forward and pay a reduced penalty in order to avoid criminal prosecution. But the OVDP is limited to those taxpayers that have not yet been investigated by the IRS. For instance, a taxpayer that has an open investigation or audit against him or her for any reason is not eligible to enter into the OVDP. This reality creates a very real incentive to seek out the advice and assistance of an experienced tax attorney immediately.

Contact an Experienced OVDP Tax Attorney Today

The tax and accounting professionals at the Tax Law Offices of David W. Klasing have extensive experience in helping clients determine whether the OVDP is right for them, and if it is, assisting them through the sometimes-complicated process. Much like the father and son from the story detailed above, if the government comes to find out about your offshore activity through their Criminal Investigation Division, they will prosecute you to the fullest extent of the law. In an age where investigations can uncover incriminating evidence overnight, there is no time to lose. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.

Former Trucking CEO Pleads Guilty to Tax Evasion, Fraud Continues to Await Sentencing

Former Trucking CEO Pleads Guilty to Tax Evasion, Fraud Continues to Await Sentencing

| Aug 26 | Criminal Tax Representation, IRS, IRS Audits, Payroll Tax Fraud, Tax Law Blog | No Comments
Tax Evasion and Fraud

For roughly 30 years under the stewardship of co-founder Jim Pielsticker, Arrow Trucking Company not only survived but also thrived and employed thousands of people in Tulsa and beyond. But, the successful chapter in the company’s history seemed to come to a close with the tragic death of Jim Pielsticker in a small plane crash during a hunting trip in 2001. His son, Doug Pielsticker, took over as company CEO.

Under Doug Pielsticker’s leadership, the company would hardly make it through the decade. Only three days before Christmas in 2009, Arrow’s lender decided that the reversal in the company’s fortunes made it imprudent for the bank to loan the trucking company any more money. That day, company executives told employees to go home and closed the company. By January 2010, the company declared bankruptcy. Arrow truck drivers on the road were apparently not informed of the company’s closure and found out when their gas cards would not work and they were left stranded.

Employees allege that Doug Pielsticker was nothing like his father who, originally, was a truck driver & a lawyer. While the younger Pielsticker claims he attempted to keep the company in growth mode, employees tell a different story. One employee alleged that Doug Pielsticker lived extravagantly and hired college friends to replace dependable workers and managers. It appears that the employee’s allegations had at least some merit. Last December Doug Pielsticker was indicted on 23 tax and other fraud charges.

Pielsticker Pleaded Guilty to Payroll Tax and other Fraud Charges

According to allegations leveled by federal prosecutors, Pielsticker improperly used company funds to finance his lavish lifestyle. The scheme by Pielsticker involved the violation of the company’s duties and obligations associated with the payroll tax. Under the U.S. Tax Code businesses have an obligation to account for, hold, and pay over employment payroll taxes to the government.

Under the scheme, Pielsticker and other Arrow Trucking executives conspired to and actually defrauded the United Stated by failing to account for and pay over greater than $9 million in trust fund taxes. Trust fund taxes that went unaccounted for and unpaid included Medicare, Social Security, and federal income tax payments for employees.

After initially pleading not guilty to the 23-count indictment in December 2014, Pielsticker reversed course and decided to plead guilty to the tax evasion charges regarding his personal income tax filing in February 2015. The former CEO pleaded guilty under 18 USC 371 and 18 USC 7201. 18 USC 371 sets forth the crime of and criminal penalties for conspiracy to defraud the United States. 18 USC 7201 sets forth the crime of and penalties for criminal tax evasion. Criminal tax evasion can occur whenever a taxpayer willfully endeavors to or actually defeats the assessment of tax or fails to pay over tax established as due and owing.

As part of the plea, Pielsticker admitted that Arrow Trucking Company funds were used to make payments on behalf of the conspirators for:

  • A $65,000 payment to a conspirator.
  • Payments to Porsche Payment Center.
  • Payments to AIU Holdings.
  • Deposits into a Citizen’s Bank account.
  • Payment to a conspirator’s former spouse.
  • Payments on a personal FIA Card Services credit card.
  • Payments on a Bentley automobile.
  • Payments on a Maserati.

As part of the plea agreement, Pielsticker also admitted to providing the Transportation Alliance Bank with inaccurate and fraudulent invoices that resulted in the company being compensated in excess of the c contractual agreement between the companies.

Tax Evasion and Fraud Sentencing Hearing Rescheduled by the Court

Since pleading guilty, Pielsticker has been on the hook for up to a 10-year federal prison sentence. Furthermore, Pielsticker also faces monetary judgments against him to recover the fraudulent proceeds of the bank and tax fraud scheme. While PIelsticker was scheduled to be sentenced this month, a scheduling conflict has pushed the sentencing hearing back until October. And thus, a once prominent CEO is now left with the anxiety and uncertainty of what exact sentence he will face and serve once the court reconvenes.

Facing Tax Evasion or Tax Fraud Charges?

If you are facing serious tax fraud or tax evasion charges, the stakes are too high to go it alone. A tax fraud conviction can result in the loss of your freedom and can cause significant damage to your standing and reputation. The experienced and dedicated tax professionals of the Tax Law Office of David W. Klasing provides taxpayers accused of serious crimes with potential legal options to mitigate the charges you face. To schedule a reduced-rate tax consultation, call 800-681-1295 or contact us online today.

Recent Changes to the IRS Offer In Compromise Program Could Help Taxpayers Settle Their Tax Debt

Recent Changes to the IRS Offer In Compromise Program Could Help Taxpayers Settle Their Tax Debt

| Aug 25 | California Sales Tax Audit Attorney, IRS, IRS Audits, Tax Law Blog | No Comments

Taxpayers in the United States typically cringe at the idea of owing the government money that is above and beyond what is withheld throughout the year. Although most Americans grin and bear it while making jokes about Uncle Sam siphoning their bank account, there are some that are unable to pay the amount that they owe in full, if at all. Because the Internal Revenue Service’s business is collecting taxes that are owed, Congress has allowed them to take the mentality that “something is better than nothing” and accept payments that are less than the full amount owed, in full satisfaction of a taxpayer’s assessed taxes. And thanks to a few changes made to the Offer In Compromise program, it is more feasible for those who are facing large amounts of tax debt to settle for much less than they owe.

What is the Offer In Compromise program?

Under Internal Revenue Code §7122, the IRS is permitted to accept a payment that is less than the amount owed, in full satisfaction of a taxpayer’s debt. That Code provision is embodied in the IRS Offer In Compromise (OIC) program. The goal of the program is to assess a taxpayer’s assets and ability to pay over time to determine whether it is a wise move for the government to take a guaranteed amount of money immediately, or take their chances with the collections process. An offer made through the OIC program is sent to the IRS and if accepted, the taxpayer will agree to pay off the offer amount within 24 months, although the agreement could be tailored to require a payment period of less than two years.

As stated above, the IRS will first determine the value of a taxpayer’s assets once it receives an offer to settle a tax debt. The asset value analysis includes placing a monetary value on most of a taxpayer’s personal and real property. The thinking is that if a taxpayer has sufficient equity in his or her property to pay the full amount of the tax bill, the IRS has no reason to accept an offer. During the second part of an OIC offer analysis, the IRS will determine whether the taxpayer is capable of paying his or her entire tax bill with future income. This analysis can be quite tricky because for most American families, the money that comes in each month is nowhere near the amount that is left over after bills and other necessary expenses.

These sometimes-rigid analyses with regard to a taxpayer’s ability to pay back a tax debt drew tough criticism from the National Taxpayer Advocate Service (TAS). Reports from the TAS argued that many of the assets that the IRS took into account when determining a taxpayer’s equity in personal property should be excluded because it would not be feasible for a taxpayer to give up every piece of property or dollar that they had in order to pay back Uncle Sam. Furthermore, the TAS asked the IRS to change its policy on considering other types of debt when determining a future ability to pay.

2012 Changes Were Aimed to Help Taxpayers

In 2012, the IRS introduced a Fresh Start initiative, which purports to help taxpayers more easily qualify for an Offer In Compromise. The IRS took many of the TAS’s suggestions to heart in their changes to the OIC program. Some of the changes include excluding an amount of money in a taxpayer’s bank account when calculating their cash-on-hand. Furthermore, the IRS will disregard a portion of the  value of a personal vehicle if it is used for the health and welfare of a taxpayer and their family. Finally, one of the notable changes that was a part of the Fresh Start initiative directs IRS agents to consider the amount of money that will be used to repay student loan debt or state or local tax debt in the future.

These changes have proven to be extremely effective and have caused the acceptance rate of Offers In Compromise to jump from a 30% maximum in 2010 to 42% in 2013. For taxpayers who are struggling to get by, but still want to stay compliant with their tax debt, the Offer In Compromise program may be an excellent way to get right with the government. The OIC program isn’t for everyone, but for the taxpayers that qualify, it is a lifesaver. An experienced tax attorney will be able to sit down with you and determine your eligibility as well as any other options that may help achieve your goals.

Contact an Experienced Tax Attorney for Assistance

The tax and accounting professionals at the Tax Law Offices of David W. Klasing have years of experience helping taxpayers come into compliance with the IRS and California Franchise Tax Board. Although the thought of paying back a large amount of money to the IRS or other tax authority may be unpleasant, the repercussions of an IRS lien, levy, or wage garnishment are much more so. Contact the Tax Law Offices of David W. Klasing today for a reduced rate consultation.

Alabama Co-Conspirator Sentenced to 87 Months for Tax Refund Scheme

Alabama Co-Conspirator Sentenced to 87 Months for Tax Refund Scheme

| Aug 25 | Criminal Tax Representation, IRS, Tax Law Blog, Tax Preparer Fraud | No Comments

Identity theft has been a major point of concern for many Americans over the last decade. Target and other major retailers have experienced data security breaches that have caused consumers concern about unauthorized purchases or other theft of financial assets. But what happens when an identity theft victim’s information is used not to funnel money from the victim themselves, but from the government? That is the scenario that gave way to an 87-month federal prison sentence last week for an Alabama resident, demonstrating that the government does not play games when it comes to stolen identity refund fraud.

According to a Department of Justice press release, Talashia Hinton, also known as LayLay, played a large part in a large-scale scheme that involved stolen identities and fraudulent tax refunds. Last week, she pleaded guilty to one count of aggravated identity theft in an Alabama federal court. In court documents, Prosecutors alleged that Hinton and other co-conspirators illegally obtained more than 7.5 million dollars by falsely filing over 3,000 tax returns that were purportedly due refunds. Unsurprisingly, the tax returns were filed using stolen identities. The indictment also alleged that co-conspirator Keisha Lanier provided Hinton with several stolen and phony IRS electric filing identification numbers that were used to process the bogus returns.

Many of the stolen information came from Tamika Floyd, yet another co-conspirator who stole names and other identifying information from Alabama state databases. Floyd was sentenced to serve more than seven years in a federal prison for her role in the scheme. Lanier is due in court this week to be sentenced. Although Hinton’s sentencing hearing date has not yet been scheduled, she faces many years behind bars and will be subject to the Federal Sentencing Guidelines with regard to charge of aggravated identity theft. In addition to a lengthy stay in a federal penitentiary, Hinton will undoubtedly be ordered to pay penalties, fines, and restitution to the IRS for the refund theft.

Identity Theft Refund Schemes Often Yield the Biggest Prison Sentences

This news provides an adequate warning to taxpayers who feel as if they may have had their identities stolen, as well as to those who have engaged in a stolen identity tax refund scheme. The IRS and Department of justice will swiftly and mightily bring down the hammer on those that they believe are engaged in fraud involving tax refunds. The self-reporting nature of the U.S. taxation system requires that U.S. residents be honest when filing their own taxes or while filing on the behalf of others.

When the IRS believes that tax refund fraud may be present, a taxpayer’s file will be transferred to the Service’s Criminal Investigation Division, a specialty group that is trained to sniff out tax criminals. If the CID believes that there is enough evidence to build a criminal case against a taxpayer, the Department of Justice will be called in and a federal indictment will be obtained, leading to a potential showdown in federal court, a place that no taxpayer wants to be.

Many taxpayers think that they can simply talk their way out of a criminal investigation. But in reality, most people give up more information than they should at meetings with examiners or auditors and dig their proverbial hole deeper and deeper. The only way to ensure that you have the best shot of coming out of an IRS criminal investigation unscathed is retaining an experienced tax attorney. IRS CID agents are trained to ask questions that can result in incriminating responses. A tax attorney can help a client stay quiet when he or she ought to.

Contact an Experienced Tax Attorney Today

The tax and accounting professionals at the Tax Law Offices of David W. Klasing have extensive experience in representing taxpayers in examinations, criminal investigations, and even litigation. The IRS and DOJ send their best to do battle against those who they investigate, a taxpayer should make sure that they have zealous advocacy on their side of the table, as well. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.

Nifty Fifty’s Accountant Sentenced for Role in Tax Fraud Scheme

Nifty Fifty’s Accountant Sentenced for Role in Tax Fraud Scheme

| Aug 21 | Criminal Tax Representation, IRS, IRS Audits, Tax Law Blog, Tax Preparer Fraud | No Comments
Tax Fraud Scheme

In a criminal tax matter apparently stretching all the way back to 1986, the accountant for Nifty Fifty restaurants pleaded guilty to criminal tax and other charges in January 2015. The charges concerned an array of improper and illegal actions concerning the company’s income, the company’s taxes, and the accountant’s personal income taxes. This week, the accountant was sentenced on the tax fraud and other charges he faced.

For nearly 30 years, accountant William J. Frio provided accounting and tax preparation services for the restaurant chain. However, during that time the accountant was engaged in multiple schemes to avoid paying taxes. He pleaded guilty to a decades-long scheme where he and other principals of the restaurant would significantly undervalue or otherwise fail to account for gross receipts. In all, this tax evasion scheme resulted in the evasion of more than $2.28 million in taxes. Furthermore, Frio also faced criminal charges for submitting false personal income tax returns and embezzling more than $4 million dollars from the company while structuring the transactions in an attempt to evade detection. Frio pleaded guilty to all charges and faced a potential 57 years in federal prison, millions in restitution, up to $2.75 million in fines, and criminal forfeiture.

How are the Tax Charges the Accountant Pleaded Guilty to Defined?

William J. Frio faced a number of extremely serious charges and tax charges. The crimes he was charged with and pleaded guilty to are:

  • 18 U.S.C. § 371 Conspiracy to defraud the United States – Under the statute, any two or more individuals who conspire to commit and offense against the United States or to defraud the United States are guilty of a criminal offense. The defraud clause creates a separate offense. In general, activities that swindle the government out of money – such as tax revenue, interfere or obstruct with legitimate government activity, or make improper use of government instrumentalities can face charges under this provision.
  • 26 U.S.C. § 7206(1) Fraud and false statements under penalties of perjury – Tax returns are filed under the penalty of perjury. Frio falsely filed income tax returns for himself, other individuals, & the restaurant which grossly understated income. Individuals who willfully file false, incomplete, or fraudulent tax returns open themselves up to serious criminal penalties. Individuals convicted under this statute can face up to three years in federal prison, a fine of up to $100,000.
  • 18 U.S.C. § 1014 Loan & credit application fraud – While not strictly a tax offense, Frio used false tax documents to defraud the bank when seeking a loan to purchase a home. Any person who knowingly makes a false statement — including the willful overvaluing of land, real estate, or other property – to certain federally affiliated banks and other government agencies can face up to 30 years in prison and significant monetary fines.
  • 31 U.S.C. § 5324(a)(3) Structuring transactions to evade reporting requirement – It is illegal to intentionally avoid cash and other reporting laws. Likewise, it is a crime to fail to satisfy one’s reporting obligations. Frio pleaded guilty to aggravated structuring charges totaling more than $2.6 million. Aggravated structuring charges can be punished by a prison sentence of up to 10 years and doubled fines.

Furthermore, per 31 U.S.C. § 5324, Frio was also subject to forfeiture of his ill-gotten gains which included the $2.6 million in cash implicated in the structuring charges.

What Was Frio Sentenced to After Pleading Guilty to Tax Crimes?

In light of the potential 57 years in prison originally faced by Frio, the sentence that was imposed was harsh, but relatively slight in comparison to the maximum. The 58 year old Frio was sentenced to five years in prison and four years of supervision following his release from federal prison. Additionally Frio faces a restitution payment of $1.7 million and a special assessment of $700.

If you are facing criminal tax charges due to violation of federal or state tax obligations, the experienced tax professionals of the Tax Law Offices of David W. Klasing can help. The lawyers of the firm are dedicated to offering strategic options to combat criminal tax charges. As this tax matter makes clear, prosecutors from the Department of Justice are aggressive and will prosecute to the fullest extent of the law. When the stakes are too high to go it alone, the experienced tax professionals of the Tax Law Offices of David W. Klasing can help. To schedule a reduced-rate consultation, call 800-681-1295 or contact us online.

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