A string of frauds eventually caught up with defendant Cynthia A. Faulkner, 32, of Dayton, Ohio, who, appearing before U.S. District Judge Thomas M. Rose late in January 2019, admitted to “aiding in the filing of a false income tax return,” according to a Department of Justice press release. In addition to two counts of that offense, which is a common form of tax evasion (defined under 26 U.S. Code § 7206(2)), Faulkner also pleaded guilty to “three counts of making a false document… and one count of misprision of a felony” (i.e. failing to report a felony) in connection with unrelated SNAP fraud and bank fraud.
The first two sections of 26 U.S. Code § 7206 (fraud and false statements) set forth the definitions for two related but separate federal tax offenses, namely making or subscribing a false return (26 U.S. Code § 7206(1)) and aiding or assisting a false return (26 U.S. Code § 7206(2)), the latter of which was charged in Faulkner’s case. (As a perusal of our tax law blog reveals, these types of cases are filed somewhat frequently, with a few recent examples here and here.)
While the definitions contained in the Internal Revenue Code are of course more nuanced, the “short version” is that 26 U.S. Code § 7206(1) involves intentionally filing a tax return that contains false information, whereas 26 U.S. Code § 7206(2) involves helping another to do so. As one might infer, those charged with violating 26 U.S. Code § 7206(2) are often, though not always, CPAs and tax preparers, giving rise to the term “tax preparer fraud.”
Both definitions contain the phrase “material matter” (e.g. “fraudulent or… false as to any material matter”), which may be unfamiliar to taxpayers. “Material matter” refers to any important or significant information on the return, as opposed to minor or mathematically insignificant errors. For instance, if a taxpayer underreports personal or business income, this would generally be considered “material matter,” depending on the size of the discrepancy.
This was what occurred in Faulkner’s case. According to the press release, the defendant “aided in the filing of materially false income tax returns by underreporting business receipts by nearly $125,000 over tax years 2011 and 2012.”
In addition to the tax offenses, Faulkner also underreported rental expenses when applying for SNAP benefits and concealed “first-hand knowledge of a bank fraud scheme” which involved “receiving payment for fraudulent real estate appraisal reports.” The press release also notes that Faulkner later “submitted false documents to the Court asking for continuance on a court hearing,” providing paperwork for surgery she never underwent.
“The parties in this case,” the press release concluded, “have agreed upon a recommended sentence of up to 21 months in prison.”
The maximum prison sentence for aiding or assisting a false return is 36 months in federal prison, and/or a criminal fine of up to $100,000. Courts can also order defendants to pay restitution and undergo supervised release, while furthermore, tax professionals face the loss or suspension of critical licenses and certifications necessary to practice.
With the April 15 filing deadline swiftly approaching, some taxpayers might feel tempted to bend the rules in pursuit of lower tax bills or larger refunds. But as Faulkner’s case demonstrates – like many before hers – tax crimes never pay. The IRS works with the FBI, other federal agencies, and government organizations around the world, arming prosecutors with the tools to build cases quickly and aggressively. If you are under investigation by the IRS, or are worried that a tax audit could turn into a criminal investigation, it is urgent that you discuss the situation with an experienced criminal tax defense attorney right away.
At the Tax Law Office of David W. Klasing, our San Bernardino tax fraud lawyers have over 20 years of combined experience fighting felony and misdemeanor charges in federal court. With a strategic network of tax offices throughout Northern and Southern California, our dedicated team provides responsive, hard-hitting representation. Contact our income tax evasion attorneys right away to arrange a reduced-rate consultation, or call the Tax Law Office of David W. Klasing at (800) 681-1295.
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