On this blog we frequently write about all of the factors and characteristics that people believe will protect them from a tax audit, investigation, or prosecution. Unfortunately, time and time again, these characteristics fail to provide the protections people believe they do. They soon find themselves facing an IRS audit or other tax enforcement action. While the consequences that can apply are dependent on the specific fact and circumstances and the actions or failures of the taxpayer, large fines and a potential prison sentence are not outside of the realm of possibility.
In a newly announced guilty plea to federal tax charges, three characteristics that people believe will provide protection from prosecution have again been shown ineffective. If you are relying on living in a remote location, being a successful business person, or holding public office to immunize yourself from the IRS and federal tax prosecution, think again.
Dan Henry is a longtime member of the Skagway Assembly and is a successful business owner of a restaurant known as the Skagway Fish Co. Despite Mr. Henry’s relative remoteness from the rest of the United States and his status as a respected member of his community, he faces four counts of federal tax charges for his alleged conduct.
According to news reports and federal court documents, Mr. Henry allegedly failed to file income taxes from 2004 to 2012. Furthermore, federal prosecutors alleged that Mr. Henry took steps to conceal his income and failure to file taxes. In filings with the Alaska Public Offices Commission, Mr. Henry indicated that his restaurant earned at least $529,000 per year with a maximum of $665,000 reported. However, bank records indicated that, from the end of 2008 until November 2012, approximately $170,000 in deposits were made to Mr. Henry’s accounts.
According to a federal prosecutor Mr. Henry did not make these deposits on his own behalf. Rather, the prosecutor stated that on at least 18 occasions, Mr. Henry would ask a family member to make a deposit between $9,000 and $9,900. The prosecutor alleges that these attempts were intended to evade cash reporting requirements via Form 8300 of cash transactions greater than $10,000.
It appears that Mr. Henry was wise to sign the plea agreement back in January. Thus, prosecutors have stated that they will refrain from pressing additional charges. However, the above information only came to light through recent IRS investigations. Had prosecutors been aware of these acts, it is highly likely that Mr. Henry could have faced additional charges.
The failure to fulfill one’s obligation to engage in cash reporting of transactions greater than $10,000 by breaking the transactions into smaller deposits can result in structuring charges. Charges for structuring transactions, as defined, by § 220.127.116.11.1 of the Internal Revenue Manual defines structuring as “A person acting alone, in conjunction with others, or on behalf of others [who] conducts or attempts to conduct one or more transactions in currency in any amount at one or more financial institutions on one or more days in any manner.” Structuring charges under the BSA can be pursued by the IRS.
Herein, due to prosecutors allegations that the acts were willful (making bank deposits between $9,000 and $9,900), Mr. Henry potentially could have faced tax evasion charges under 26 U.S. Code § 7201. Under the statute, willful tax evasion occurs when a person willfully attempts to evade or defeat tax in any manner. The penalties for willful tax evasion include a potential prison sentence of up to five years. Significant monetary penalties and restitution for the unpaid taxes can also apply.
As charged, Mr. Henry only faced four counts of a willful failure to file tax returns. Under 26 U.S. Code § 7203, any individual who willfully fails to “to make a return, keep any records, or supply any information, who willfully fails to pay such estimated tax or tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations” can be convicted of a misdemeanor. Upon to conviction, he or she can face up to one year in federal prison and monetary fines including the costs of restitution.
The taxpayer’s decision to plead guilty via a plea deal early in the process likely saved him from facing significantly more severe charges and potential penalties. If you have been contacted by the IRS regarded allegedly unpaid taxes or other conduct, contacting an experienced tax lawyer immediately can often mean the difference between mitigating the charges and penalties and facing the worst-case scenario. To schedule a reduced-rate consultation with an experienced tax lawyer contact the Tax Law Offices of David W. Klasing by calling 800-681-1295 or contact us online.