In February, Joseph Smith, a New Yorker in charge of the New York Bagel franchise, pled guilty in federal court to charges stemming from a fraudulent scheme relating to the business. Smith allegedly misled potential franchisees about the profitability of the business and the startup costs that it required and used franchise fees for his personal benefit.
Smith failed to file a personal or corporate tax return with the IRS for multiple years while the scheme was ongoing, which signaled to the federal government that the matter required their attention. No matter what situation you are in, you should never avoid filing your tax returns. If you have already missed your deadline, you must act quickly to rectify the potential damage.
The dual-licensed Tax Attorneys and CPAs at the Tax Law Offices of David W. Klasing are uniquely qualified to help taxpayers who have civil or criminal exposure concerns about their past or upcoming filings. To learn more about our services, call our offices today at (800) 681-1295.
Note: As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed foreign information returns coupled with affirmative evasion of U.S. income tax on offshore income) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosurebefore the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply.
It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.
Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.
As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, KovelCPAs and EAs, our firm provides a one stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!
New York Franchiser and Partner Plead Guilty to Tax Evasion and Wire Fraud
On Friday, February 11, the Department of Justice announced via press release that Joseph Smith of Fishkill, New York, pled guilty to charges of tax evasion and wire fraud in federal court. Smith, the CEO of New York Bagel, was charged with the offenses based on his role in orchestrating a scheme to materially deceive franchisees in an effort to win business.
According to allegations and statements made in court, Smith conspired with partner Dennis Mason to mislead potential franchisees about the business. This included overstating the number of other franchisees, exaggerating the financial success that they were having, and suggesting that startup costs were much lower than they actually were. Smith refused to issue refunds on fees when franchisees learned of the misrepresentations.
The co-conspirators charged potential franchisees anywhere between $7,500 and $44,500 for the right to open a New York Bagel franchise. Contrary to what the name might suggest, most franchisees opened stores in locations in Pennsylvania and Maryland rather than New York.
Between 2014 and 2016, Smith personally deposited over $1.3 million in franchise fees into bank accounts under the New York Bagel name that he controlled. Smith proceeded to use these funds for his personal enrichment rather than anything to do with the business. This included rent payments, vacations, car lease payments, and everyday living expenses.
During this same period, Smith failed to file both corporate and individual income tax returns or pay any taxes that he rightfully owed for his personal or business income. Smith also failed to comply with a cease-and-desist order on franchise sales, issued in 2015 to New York Bagel by Maryland’s securities commissioner. The order claimed that Smith and Mason had violated the anti-fraud, registration, and disclosure provisions of the Maryland Franchise Law.
Mason had previously pled guilty to wire fraud and conspiracy to commit wire fraud in June of 2020, so the parties were aware that these charges were pending well in advance.
Smith faces sentencing in U.S. federal district court on May 24. The maximum penalty for each charge of tax evasion, conspiracy, and wire fraud carries a potential maximum prison sentence of five years, plus a supervised release period, restitution, and other monetary penalties.
Cause for IRS Scrutiny of the New York Bagels Franchising Scheme
Based on the cease-and-desist letter that New York Bagels received in 2015, we can assume that the shady franchising tactics that Smith employed had already invited the ire of state business fraud enforcers. However, what really turned the IRS’ gaze onto the case was Smith’s failure to file or pay any taxes across three years.
Missing filings entirely is almost always sure to draw the attention of the federal government’s tax watchdog, particularly when the failure occurs in multiple consecutive years or where an individual fails to file a return for both their individual and business income.
If you do not know how to file a particular tax return for either your individual or small business income, the answer is not to disregard your filing requirements entirely. Instead, to avoid the onset of a government audit or criminal investigation, you should discuss your situation with a dual-licensed Tax Attorney and CPA so that you don’t cause any unnecessary issues to worsen.
How Can You Avoid Past Tax Filing Noncompliance from Harming You in the Future?
Even if you have already missed a deadline for filing taxes, there are ways that you can remedy the situation by acting now. The IRS allows taxpayers who are delinquent or have become aware of inaccuracies in prior filings to amend those filings through a process known as voluntary disclosure. In exchange for participating in the voluntary disclosure program, the IRS is often willing to reduce or waive penalties altogether, as it saves them the time and money of having to track down the noncompliance themselves.
Voluntary disclosure is a delicate process. If the government is already aware of the inconsistencies in your tax situation and is actively pursuing these issues, your disclosure may fall on deaf ears. Moreover, if your past noncompliance suggests certain willful violations of the tax code and an audit or criminal tax investigation is already underway, you may face criminal tax charges that cannot be helped through the IRS’s voluntary disclosure practice.
You should always get a consultation from a dual-licensed Criminal Tax Defense Attorney and CPA before wading into these potentially dangerous waters. This way, you can identify what steps you could take to help your situation before it is too late, without making a mistake that makes your problems even bigger.
The Tax Law Offices of David W. Klasing Can Help You Today
If you have failed to file a tax return for one or more years or have taken a position on a tax return that could not be supported upon an IRS or state tax authority audit, eggshell audit, reverse eggshell audit, or criminal tax investigation, it is in your best interest to contact an experienced tax defense attorney to determine your best route back into federal or state tax compliance without facing criminal prosecution.
Whether you are concerned about past filings or find yourself facing a government audit, eggshell audit, reverse eggshell audit or criminal tax investigation, our dual-licensed Tax Lawyers and CPAs are ready willing and able to help. Get in touch with the Tax Law Offices of David W. Klasing today by calling (800) 681-1295 or scheduling online HERE.
More Commonly Asked Tax Audit Questions
- How should Tax Audits be Handled by Criminal Tax Counsel?
- How to survive audit when I cheated on return being audited
- What is an eggshell audit?
- What is a reverse egg shell audit?
- Why is a reverse egg shell audit dangerous for a taxpayer?
- Warning signs of a criminal referral from an IRS audit
- Effective tax defense counsels goals in an egg shell audit?
- How are the 4 goals and outcomes 1 and 2 best obtained?
- What are the possible outcomes of an egg shell audit?
- Is it my right to know why I was selected for examination?
- What can I do to prepare for an audit?
- What is an IRS civil examination?
- How IRS decides which tax returns are audited
- What are my appeal options if I disagree with IRS?
- What are my basic taxpayer rights if the IRS audits me?
- Options if I am unable to pay at the conclusion of audit
- What a 30 or 90-Day Letter from the IRS means
- What is involved with appealing disagreements?
- Rights to disagree with IRS tax auditor’s findings
- Can I stop the IRS from repeatedly auditing me?
- Can I have the examination transferred to another area?
- Can I record my IRS interview and is it a good idea?
- How many years of returns are at risk during an audit?
- Common reasons for the IRS to conduct a tax audit
- How to avoid negative consequences from an IRS interview
- Have to agree to interview by taxing authority directly?
- Are all audits the same?
- What should I do if the IRS is investigating me?
- What if I don’t respond to a taxing authority audit notice
- Your rights during an IRS tax audit
- Risks of attending an IRS audit without a tax lawyer
- Most common audit technique used by taxing authorities
- Don’t go into an IRS audit without representation
- Why hire an attorney to represent me in an audit?
- Why hire David W. Klasing to represent me in an audit
Questions and Answers for Criminal Tax Representation
- When tax defense counsel parallels tax crime investigation
- Guilty of tax obstruction by backdating documents?
- To be found guilty of tax obstruction must a person actually be successful in impeding the IRS’s functions?
- Help! The Document I Gave the IRS Had False Information
- Tax crime aiding or assisting false return IRC §7206(2)
- What is the crime known as tax obstruction § 7212?
- What is the difference between tax perjury and tax evasion?
- What is the tax crime commonly known as tax perjury?
- What is a Klein Conspiracy?
- Increased possibility of civil action in IRS investigation
- Am I Guilty of Tax Evasion if the Law is Vague?
- What happens if the IRS thinks I committed tax crimes?
- What are ways to defend against a tax evasion charge?
- Difference between criminal tax evasion and civil tax fraud
- What accounting method does the IRS use for tax fraud
- Can I Change Accounting Method to the Accrual Method
- What is the willfulness requirement for tax evasion?
- I didn’t know I committed tax fraud. Can I get off?
- Concealed assets from IRS. Can I avoid tax evasion charges
- How government proves I willfully engaged in tax evasion
- What is the venue or court where a tax crime case is heard?
- Must the IRS prove tax crimes beyond a reasonable doubt?
- Is it a crime to make false statements to the IRS?
- Will the IRS overlook my tax evasion if it’s minor?
- Failed to tell IRS about my nominee account
- Audit risk with cash based business transactions
- How to defend a client charged with tax evasion
- Is it tax evasion if I didn’t file income tax return?
- Government says I attempted to evade my taxes. Now what?
- I forgot to pay my taxes or estimated tax. Is this a crime?
- Government proof I “willfully” failed to pay taxes
- 5 Ways to Respond to Tax Evasion Charges
- Being audited after using a tax professional
- Rules for what an IRS agent can do while investigating me
- How tax preparers, attorneys and accountants are punished
- How the IRS selects tax crime lead for investigation
- How does the IRS prosecute suspected tax crimes?
- Does IRS reward informant leads for suspected tax crimes?
- How the government proves deficiency in a tax evasion case
- Do prior tax crimes factor into new IRS tax convictions?
- Requesting conference before investigative report is done
- Requesting conference after IRS Special Agent Report
- What are my rights during an IRS criminal investigation?
- Avoid prosecution for tax crime with voluntary disclosure?
- Defense tactics that make it hard for to prove willfulness
- How a tax attorney can stop your criminal tax case?
- What can you generally tell me about tax crimes?
- Continuing filing requirement with investigation pending
- Federal criminal code crimes that apply to tax issues
- Penalty for making, subscribing, and filing a false return
- CID special agent’s report for criminal prosecution
- What is the discovery process in a criminal tax case?
- What the IRS includes in indictment for tax case
- What is the hardest element of a tax crime to prove?
- IRS methods of gathering evidence to prove tax crime
- What does a grand jury do in IRS tax crime prosecution?
- Failure to keep records or supply information
- Failure to make a return, supply information, or pay tax
- What is attempting to evade payment of taxes?
- What is income tax evasion and how is it punished?
- What is attempted income tax evasion?
- What is the crime of failure to pay tax? What is punishment
- Crime of making or subscribing false return or document
- Criminal Investigation Division investigation tactics
- Tax crimes related to employment tax forms and trust funds
- Tactics to defend or mitigate IRS criminal tax charges
- How the IRS generates leads about suspected tax crimes
- What is the crime ”evasion of assessment” of tax?
- Specific examples of “attempting” to evade tax assessment
- What is the so-called Spies evasion doctrine?
- Does overstating deductions constitute tax evasion?
- Is it tax evasion if my W-4 contains false statements?
- IRC §7201 attempt to evade vs. common-law crime of attempt
- What are the penalties for Spies tax evasion?
- How government proves a taxpayer attempted tax fraud
- What is a tax that was “due and owing.”
- What is evasion of assessment for tax liability?
- Is evasion of assessment different from evasion of payment
- Does the IRS have a dollar threshold for tax fraud?
- What is the IRS burden of proof for tax fraud convictions?
- Are Tax Laws Constitutional?
- What is the source of law that defines tax evasion?
- Does section 7201 create two distinct criminal offenses?
- Does tax evasion definition include partnership LLC
- What if I helped someone else evade taxes?
- Is it illegal to overstate deductions on my tax return?
- Is it illegal to conceal bank accounts from the IRS?
- Do later losses justify prior deductions?
- Common reasons the IRS and DOJ start investigations
- What is the Mens Rea component of tax crimes?
- What is a proffer agreement and what are the risks?
- Why to have an attorney to review a proffer agreement
- Why enter into a proffer agreement?
- Limited use immunity from proffer agreements
- Difference between civil and criminal fraud allegations
Questions and Answers on Unfiled Back Taxes
- What are the common issues that non-filers face?
- Risk of audit after filing delinquent prior year returns
- Can substitute return deficiency be discharge in bankruptcy
- Substitute return modified by subsequent delinquent return?
- Do I file every delinquent return for each missing year?
- How does the IRS identify non-filers?
- How important is it to the government that I didn’t file?
- Delinquent tax return criminal prosecution likelihood
- Will I get a refund on a delinquent tax year?
- What happens after enforcement action has begun?
- Should I use an attorney, EA or a CPA to represent me when I re-enter the tax system?
- Why do people drop out of the tax system?
- What happens after the IRS identifies me as a non-filer?
- IRS has not previously filed substitute returns
- Tax attorney representation when re-entering tax system
- How will the government force me to file returns?
- What penalties can IRS impose on delinquent tax filings?
- What should I do to re-enter the tax system?
- Can Law Office of David W. Klasing help me re-enter system?
- Will tax collection taken by authorities affect my credit
- I concealed bank accounts from the government
- Forgetting or failing to file tax return
