According to a press release by the Department of Justice, Alita Baker Edeker was sentenced to serve 46 months in prison for embezzling over $700,000 from her employer and failing to report the stolen funds as income on her individual tax returns. This story evidences the need for taxpayers to report of all of their income, regardless of where it came from.
According to court documents, Edeker, a resident of Valley, Alabama, worked in a position that gave her access to her employer’s books and records. Additionally, Edeker had ready access to the company’s customer information, including payments made to the company. Prosecutors alleged that between 2011 and 2013, Edeker diverted payments made by the company’s clients onto credit and debit cards that she controlled.
When it came time for Edeker to prepare and file her tax returns for the years at issue, she failed to include the money that she embezzled in gross income. This resulted in her federal income tax return being intentionally false. Investigators estimate that the IRS was shorted by more than $100,000 over the three years Edeker was engaged in her embezzling scheme.
In addition to being sentenced to serve nearly four years in federal prison, Edeker was ordered to serve three years of supervised release upon the completion of her physical incarceration. Finally, Edeker was ordered to pay restitution to her former employer in the amount of $819,497 and to the IRS in the amount of $101,604.
A commonly overlooked characteristic about the tax law is that when it comes time to filing your yearly tax return, gross income includes nearly every accession to wealth, including monies from illegal means. It seems counterintuitive for a taxpayer to include money that they stole as a part of their taxable income, but it is nonetheless captured by the definition of gross income in Section 61 of the Internal Revenue Code. Willfully or recklessly failing to include items of income can give rise to an investigation into whether the taxpayer engaged in filing a false tax return or tax evasion.
Many taxpayers find themselves charged with filing false tax returns when they have been investigated and charged with other crimes related to unjust enrichment. Embezzlement, theft, and many types of frauds are common crimes that can prompt additional criminal tax charges if the defendant failed to include their loot as gross income in the year of the crime. But being charged with an unrelated criminal offense is not the only route to a criminal tax investigation.
When a taxpayer’s return is selected for examination, an IRS field agent follows a predetermined set of guidelines in reviewing the return. Part of those guidelines involves looking out for “badges of fraud”. These badges are typically facts or other indications that raise suspicions about the validity and truthfulness of the information contained on the tax return. If a tax return contains badges of fraud, the IRS field agent (Revenue Agent) can escalate the examination by consulting with a technical fraud advisor whose sole job is to work up the audit for hand off to the criminal investigation (CI) division of the IRS, resulting in additional scrutiny, potentially leading to criminal charges being filed by the Department of Justice. CI has over a 90% conviction rate once they choose to investigate.
If the IRS or state taxing authorities selects your tax return for examination, it is in your best interest to seek the representation of an experienced tax defense attorney from the outset. A tax defense attorney can represent you in all interactions with the IRS in an attempt to solve any problems or issues as they arise, without the need for escalation.
The tax and accounting professionals at the Tax Law Offices of David W. Klasing have extensive experience representing taxpayers from a diverse set of backgrounds in a myriad of tax situations. From wage-earners facing an examination of their individual tax returns to business owners facing sales or employment tax audits, our zealous advocates have assisted our clients develop a tax and legal strategy aimed at coming into tax compliance while attempting to minimize the risk of excessive civil penalties or criminal prosecution. Do not let the threat of the IRS or state taxing authorities keep you up at night. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.
Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles, the Tax Law Offices of David W. Klasing now have offices San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland, and Sacramento.
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