The Department of Justice (DOJ) has repeatedly proven its willingness to prosecute anyone for tax crimes – including politicians. For example, former Baltimore mayor Catherine Pugh recently pleaded guilty to tax evasion and other charges, as our IRS fraud defense attorneys wrote about recently. In a case that grabbed fewer headlines, but should be equally concerning to noncompliant taxpayers, another political figure was indicted on similar charges. This time, the defendant was Omaha councilman Vincent “Vinny” Palermo, who pleaded guilty in September 2019 to “three counts of willful failure to file income tax returns for the 2012, 2013, and 2014 tax years,” according to a DOJ press release. Though Palermo’s sentencing was scheduled to take place on December 9, the DOJ has not yet released updates. Our tax evasion lawyers will provide more information as it becomes available.
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Omaha Councilman Charged with Willful Failure to File Taxes
Appearing in district court in September 2019, Palermo, a Democratic city councilman elected in 2017, pleaded guilty to multiple counts of failing to file federal tax returns. This offense, which is a misdemeanor, is charged under 26 U.S. Code § 7203 (“willful failure to file return, supply information, or pay tax”). This statute broadly prohibits the intentional failure to:
- File a federal tax return
- Keep the required tax and financial records
- Pay any type of federal tax, including estimated tax
- Provide requested information to the IRS (or other government agencies)
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In this instance, the defendant was accused of, and later admitted to, failing to file three of his returns, despite earning from a family business “gross income… of $145,434, $220,400, and $129,612” for the years in question. Though Palermo acknowledged his actions in his request for a plea agreement, stating, “I failed to file my tax returns several years ago in a timely manner,” he also indicated that he “absolutely” had no intent to resign.
At sentencing, Palermo faces a maximum term of up to one year in prison per each count, which is the maximum allowable sentence for any misdemeanor offense (with some exceptions for misdemeanors that are charged at the state level, such as in Iowa and Pennsylvania). Additionally, the statute allows for a maximum criminal fine of $25,000 to be imposed; or, if the crime involves a corporation, a maximum fine of $100,000. These penalties, which are criminal, do not limit or reflect civil tax penalties, which may be additionally imposed.
For instance, under 26 U.S. Code § 6663(a), a taxpayer can face civil fraud penalties “if any part of any underpayment of tax required to be shown on a return is due to fraud,” in which case “there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.” Interestingly, under 26 U.S. Code § 6664(b), this particular penalty cannot be imposed in cases where the taxpayer has failed to file a return, meaning Palermo (who had unfiled returns) would not be at risk. He was, however, required to pay restitution totaling more than $21,000.
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“Mr. Palermo should have been more aware of his own financial obligations,” said Karl Stiften, Special Agent in Charge of IRS Criminal Investigation (IRS-CI), which investigates alleged tax fraud. Continuing, he stated, “This wasn’t an oversight or mistake. This was the willful intentional act of not filing federal tax returns as required under the law.”
When signs exist that a taxpayer acted willfully, he or she is in real danger of a criminal investigation – and subsequently, prosecution for tax fraud. This frequently occurs when, during a tax audit, an IRS auditor discovers red flags for tax evasion, at which point he or she refers the case to IRS-CI for further investigation. If you have been chosen for an IRS tax audit, have been contacted by IRS agents, or are worried about tax compliance errors and criminal tax exposure, get legal help – and peace of mind – by working with the experienced, award-winning tax attorneys at the Tax Law Office of David W. Klasing. Contact us online today for a reduced-rate consultation, or call (800) 681-1295 for 24-hour assistance.
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