Can the IRS Assess Additional Taxes After Fraud is Exposed?

As any taxpayer who has been audited by the IRS already knows from firsthand experience, there are only two ways an examination can resolve: either with a finding that the taxpayer has acted properly, or – as it is occurs in many cases – a finding that the taxpayer is, due to past errors, liable for additional taxes, interest, and/or penalties. Of course, in order to arrive at any sort of finding, the IRS must procure and evaluate the relevant records. Should an error or disagreement give rise to a dispute, these records – along with the taxpayer’s actions, and the actions of the taxpayer’s representative – will be scrutinized further, potentially in United States Tax Court. But what happens if a tax case or an IRS settlement is predicated on false information as a result of tax preparer fraud? That is the question at hand in the case of attorney Adam Wiensch, who, in his capacity as a former partner at law firm Foley & Lardner, engaged in fraud by falsifying documents, leading to a flawed settlement with the IRS. Wiensch, who is no longer with the firm, has since been disciplined by the Office of Lawyer Regulation (OLR), receiving a two-year suspension from the Wisconsin Supreme Court.

Attorney Suspended for 2 Years in Wisconsin Tax Fraud Case

According to the complaint, Wiensch began practicing as an attorney in Wisconsin in 1991. By 2018, the OLR was asserting that Wiensch had engaged in no fewer than “13 counts of misconduct,” requesting a two-year suspension which was granted in October. What happened during the intervening years?

The complaint, which can be read in full by following the link above, tells an elaborate story of deception, with Wiensch altering dates and forging signatures to commit and disguise fraud.

It began when Wiensch, who “provided estate planning services to a husband and wife who were owners of a privately owned business corporation,” created a trust for the couple’s children. Specifically, Wiensch “drafted an Installment Sale Agreement, pursuant to which the husband sold most of his stock in the company to the trust in exchange for a promissory note” worth over $50 million. As explained in the complaint, “The purpose of the stock sale was to transfer wealth to the clients’ children, via the trust, free of gift and estate taxes and to ensure that any future appreciation of the stock held by the trust would not become part of the husband’s estate.”

Upon the husband’s death, Wiensch prepared an estate tax return, which he then filed with the IRS on behalf of his clients. The IRS initiated an audit of the return, during which the auditor, as is true of any IRS audit, requested various documents. Wiensch responded – but not with completely truthful information.

According to the complaint, “In September 2012, in response to requests from the IRS attorney, Attorney Wiensch sent the IRS copies of an Installment Sale Agreement, a Collateral Pledge Agreement, and a Guaranty of Specific Transaction.” However, as the complaint later elaborates, Wiensch “altered and misdated” not only the Installment Sale Agreement, but further, the Guaranty of Specific Transaction. To accomplish this feat, Wiensch “copied the signatures of the clients’ children from a different document bearing a different date and pasted the signatures on the copy of the Guaranty he sent to the IRS attorney.”

Ultimately, the IRS issued a Notice of Deficiency, determining that it would seek “gift and estate taxes and negligence penalties against the husband’s estate in the sum of multiple millions of dollars.” During the same period, a Notice of Deficiency was also issued against the wife on the same basis.

Later, following her death, the children of the late couple approached Foley & Lardner for legal assistance. Their attorneys – who, it is critical to note, were not then aware of Wiensch’s actions – sought to dispute the IRS notices, and responded by “filing a petition on behalf of both the husband and wife’s estate seeking a redetermination of the deficiencies found by the IRS.” However, as the complaint quite rightly points out, these petitions relied on the documents Wiensch had, unbeknownst to either the IRS or the other attorneys at Foley & Lardner, deliberately falsified.

Eventually, “While the audit of the wife’s estate and gift tax returns was still underway, the IRS and the husband’s estate settled the issues presented in the petition filed on behalf of the husband’s estate.” However, the settlement was “induced by fraud, based on the altered and misdated documents that Attorney Wiensch had provided to the IRS attorney in September of 2012.”

By mid-2016, following a series of exchanges that sought additional documents, the IRS was unraveling Wiensch’s scheme. Particularly telling is the juxtaposition (and close proximity) of two events described in the complaint:

“In July 2016, the IRS attorney told Attorney Wiensch the IRS would need to interview the clients’ children in person. By letter dated August 22, 2016, the Foley firm informed the IRS that Attorney Wiensch was no longer with the firm…”

The firm also took another action: reporting Wiensch’s misconduct to the OLR – which, as our criminal tax defense lawyers mentioned earlier, successfully sought a two-year suspension period. The Wisconsin Supreme Court suspended Wiensch’s license “for a period of two years, effective November 27, 2018.” (Perhaps needless to say, Wiensch is also ordered to comply with court orders as a condition of reinstatement.)

There is at least one more critical detail contained in the complaint: the fact that, after the settlement, the IRS “did not move to reopen the cases after it was informed of Attorney Wiensch’s misconduct” (italics our emphasis).

As the Federal Tax Crimes blog points out, this opens up an interesting question: considering the applicable statute of limitations, could the IRS reverse gears? Indeed, what is the applicable statute of limitations? Under 26 U.S. Code § 6212(c)(1), pertaining to Notices of Deficiency, the government generally “shall have no right to determine any additional deficiency of income tax for the same taxable year, of gift tax for the same calendar year, of estate tax in respect of the taxable estate of the same decedent,” and so forth. (For the curious, the statute then goes on to list numerous types of taxes, such as Chapter 41 taxes, like the tax on “excess lobbying expenditures.”)

However, the statute also makes an important exception “in the case of fraud,” which would seem to apply in this case. For more information on that subject, our tax evasion attorneys would point interested readers toward the following articles:

Criminal Tax Defense Lawyers Representing CPAs and Return Preparers

It remains uncertain as to whether the IRS – which, increasingly, is as notorious for its budgetary problems as the dread its name evokes in taxpayers – will move to assess and collect additional taxes in this particular instance. Nonetheless, this case serves as a reminder that even the most sophisticated of maneuvers can and will be untangled. When they are, the penalties can be devastating – particularly for CPAs and tax attorneys, who risk professional sanctions on top of their civil and/or criminal penalties.

If you have been charged with tax evasion or other forms of tax fraud, it is imperative that you contact a dedicated, zealous, and experienced criminal tax defense attorney with a proven record of obtaining favorable case outcomes. At the Tax Law Office of David W. Klasing, we have extensive experience representing men and women accused of tax crimes, including professional tax preparers who are being audited or criminally investigated. Contact us online right away to arrange a reduced-rate consultation, or call (800) 681-1295 for a phone consultation today.







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