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!
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.
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.
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.
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.