For a time, Richard Wyatt, the star of the Discovery Channel’s American Guns reality TV show seemed to have it all. He was running a business in an industry he loved while receiving extensive national publicity and media exposure. Many store owners would have been incredibly jealous of Wyatt and his Gunsmoke, Inc. retail operation.
However, the glamor of the show apparently concealed certain improprieties that occurred behind the scenes. In 2012, before the show ever aired, Wyatt was accused of violating certain federal firearms rules and regulations. Following these allegations, Wyatt quietly surrendered his federal firearms dealer license. However, Wyatt apparently continued selling guns and firearms despite relinquishing his license.
Wyatt Fails to Report Income Due to Illegal Activities
Apparently Wyatt’s lack of a proper license did no deter him from negotiating a lucrative contract with the Discovery Channel. According to reports, the contract for the American Guns show brought in close to $500,000 for Wyatt.
Furthermore, Wyatt continued to sell firearms from his Gunsmoke store despite his lack of a license. Apparently, Wyatt came to agreement with several other gun store owners who did maintain a proper license. Under the agreement, these store owners acted as “shadow” dealers to facilitate Wyatt’s transactions. Customers who purchased a gun from Gunsmoke were required to go to a licensed dealer to actually secure the weapon. Store employees were directed to mischaracterize illegal gun sales as “miscellaneous” sales.
In order to conceal his fraud, Wyatt engaged in a number of practices. First, Wyatt submitted false records to the federal bureau of Alcohol, Tobacco, and Firearms. Wyatt also failed to report at least $1.1 million in income earned through the illegal sales of firearms in 2009, 2010, and 2012. In 2012, Wyatt willfully filed a false tax return showing an operating loss when he actually earned more than $350,000. Wyatt also faced charges that he did not file corporate income tax returns from 2010 through 2012.
Wyatt was convicted on 10 felony charges relating to the illegal gun sales, failures to report taxable income, and the false tax return. Wyatt is scheduled to face sentencing in July 2017 where he could be sentenced serve a federal prison sentence of up to 15 years.
Are Taxpayers Required to Report and Pay Taxes on Illegal Source Income?
While it may seem counterintuitive to a tax layperson, persons subject to the U.S. Tax Code are required to pay taxes on all forms of income – even illegal income. While it may border on a bromide, it is instructive to remember that Al Capone wasn’t convicted for racketeering, murder, or any other violent criminal charges. Rather, Al Capone was convicted for tax evasion due to not paying taxes on illegal source income.
Ordinary taxpayers who may have illegal gambling winnings due to playing online poker in foreign jurisdictions are just one type of taxpayer that can fall into this trap. In fact, the IRS instructs that a taxpayer’s illegal source income “must be included in your income on Form 1040, line 21, or on Schedule C or Schedule C-EZ (Form 1040) if from your self-employment activity.”
If you have earned illegal source income, do not compound the crimes you have already committed by making false statements on a tax return or otherwise also committing tax fraud or tax evasion. Some taxpayers will consider reporting their illegal source income after the authorities have already detected the scheme. In this scenario, the goal is to avoid getting charged for multiple crimes. Other circumstances may require different handling. Because this is a complex and nuanced factual and legal determination, it is prudent to only act after first speaking with a Criminal Tax Defense Tax Attorney.
Should I Talk to a Tax Lawyer or an Accountant if I’m Concerned About Illegal Gambling or other Illegal Source Income?
If you are concerned about underlying criminal issues, do not speak to an accountant about your concerns. To the extent that it is recognized, the accountant-client privilege is not robust enough to protect the information you disclose from a subpoena. Rather, if criminal issues are a concern, speak only to a Criminal Tax Defense Attorney because the attorney-client privilege is broadly recognized and robust enough to protect the information you may disclose. If the services of a forensic accountant or other financial professional is required, the Tax Lawyer can provide derivative attorney-client privilege to allow the accountant to assess your matter. To schedule a confidential, reduced rate consultation with a Criminal Tax Defense Lawyer from the Tax Law Offices of David W. Klasing, please call 800-681-1295 today.
Here is a link to our YouTube channel: click here!
Here is a link to our practice overview video on Criminal Tax Evasion.
