Timothy Stubbs, 52, formerly of Grand Junction, Colorado, was convicted in September of tax evasion, willful failure to file federal income tax returns, and willful failure to file corporate income tax returns. Though negligent failure to file can result in costly civil penalties, willful failure to file is a criminal act and as such, can lead to considerable prison time, as exemplified by Stubbs’ case. In October, Stubbs was sentenced to 88 months in federal prison, which equates to approximately 7.3 years. In addition to evading his tax obligations, Stubbs also attempted to evade sentencing authorities, which, ironically, was a contributing factor to the unusually long sentence he ultimately received.
According to a Department of Justice (DOJ) press release issued in September, Stubbs was convicted of eight criminal counts, including “two counts of tax evasion, three counts of willful failure to file an individual federal income tax return and three counts of willful failure to file a corporate income tax return.”
The following month, Stubbs was sentenced to more than seven years in prison by U.S. District Judge Christine Arguello. Sentencing was originally scheduled to take place in 2016, but was delayed by Stubbs’ unsuccessful attempt to avoid justice by fleeing to Costa Rica after illegally removing an ankle monitor and skipping bail, which was set at $500,000. Stubbs fled the United States in December 2015 to avoid sentencing in January 2016, but was extradited back to the U.S. from Costa Rica after being arrested in March 2017.
Bail-jumping alone is a serious criminal offense, particularly when the underlying crime is a felony, as is tampering with an ankle monitor. In Stubbs’ case, however, the most serious offenses were his tax crimes.
The DOJ press release, which was issued after conviction but prior to sentencing, noted that from 2005 to 2007, Stubbs owned National Rebate Fund, where he was also company president. During this period, the business generated over $7 million, while Stubbs himself earned more than $2 million. However, in an effort to avoid paying taxes on the income, Stubbs used National Rebate Fund accounts to cover more than $700,000 in personal expenses. Funds were spent on an array of extravagant luxury purchases, including, according to DOJ data, gold and silver valued at more than $370,000, as well as properties in Colorado and Hawaii, which had a combined value of approximately $2.9 million.
Prosecutors successfully proved that, not only did Stubbs fail to file corporate income tax returns for National Rebate Fund during the same time period, but in addition, had not filed a personal income tax return in more than 20 years, the last return having been filed in 1992. Prosecutors were also able to show that Stubbs had not paid any income tax since 1993.
Though failure to file tax returns is the more serious offense, both failures to file and failures to pay can have grave financial and legal consequences, as Stubbs discovered firsthand at sentencing. Though the maximum sentence established by sentencing guidelines is less than 88 months, nearly a full year was added to Stubbs’ sentence by Judge Arguello at the request of federal prosecutors.
Not only did Stubbs cheat the federal government – he also cheated many of his customers. Though National Rebate Fund ostensibly offered third-party rebates on energy-efficient home products to consumers, authorities stated that Stubbs only intended to repay 8% of the rebates promised. In Wisconsin, for example, National Rebate Fund distributed approximately $3.8 million in rebate vouchers, but Stubbs allocated less than $310,000 for their fulfillment. Stubbs operated a similar scheme in Colorado, leading to lawsuits in both states.
Interestingly, Stubbs chose to represent himself in court, a decision which likely sealed his fate in the justice system. Not only did Stubbs forego the benefit of aggressive and experienced legal representation by a tax attorney – he also cited anti-tax, anti-government beliefs as part of his unsuccessful defense strategy.
However, one may feel about the U.S. Tax Code and its validity, neither federal prosecutors nor IRS agents accept claims of “unconstitutionality” as a legitimate objection to the filing or paying of taxes. To quote one IRS document, “The courts have consistently held that disclosure of the type of routine financial information required on a tax return does not incriminate an individual or violate the right to privacy. Also, courts have consistently found that the First and Thirteenth Amendments do not provide rights to refuse to comply with federal tax laws.”
Stubbs’ case can teach two lessons: representing yourself is not in your best interests when you are up against the IRS Criminal Investigation Division, nor can you avoid your obligations by citing moral or constitutional objections. If you are under investigation by the IRS for suspected tax evasion or related offenses, or if you have received notice that you are being audited by the IRS and know for a fact you have cheated on the returns under audit, the best course of action is to immediately contact a highly experienced IRS Criminal Tax Defense Attorney. For a confidential, reduced-rate consultation concerning tax evasion, penalties for failure to file a tax return, or related matters, contact The Tax Law Offices of David W. Klasing online or by calling (800) 681-1295.