On February 27, 2018, former salesman Ira Malkin, 48, of Hamden, Connecticut pleaded guilty to one count of felony tax evasion. The basis of the charges, a tax fraud scheme which was investigated by the Criminal Investigation Division of the Internal Revenue Service (IRS-CI), spanned multiple tax years and, according to government records, involved the willful underreporting of commission-based income, a deception furthered by the use of reimbursements for business-related postage expenses. At sentencing, which is currently scheduled to take place on May 22, 2018, Malkin will face the maximum statutory penalty provided by 26 U.S. Code § 7201 (Attempt to evade or defeat tax): up to five years of incarceration in federal prison, plus criminal fines as great as $100,000. In addition, Malkin has agreed to pay restitution to the IRS, with interest, having failed to pay nearly half a million dollars in federal income taxes over the life of his tax evasion scheme.
Prior to being criminally prosecuted by Assistant U.S. Attorney Christopher W. Schmeisser, Malkin was a successful salesman at the New Haven, Connecticut-based printing business Good Copy Printing Center Inc. (GCP), where the defendant earned commissions working with clients as large as Comcast. Unfortunately for Malkin, GCP’s Comcast account would later play a role in the IRS criminal investigation into his financial activities – and later, his prosecution and eventual guilty plea.
According to a Department of Justice (DOJ) press release, “Between approximately 2003 and 2012, GCP paid many of Malkin’s personal expenses.” To offset this expense for the company, Malkin agreed to take a reduction to his commissions. When GCP filed Forms W-2 (Wage and Tax Statement) for Malkin, as is required of most U.S. employers (with exceptions for businesses who use independent contractors, who instead file Form 1099 or its variants), the company reported that Malkin “earned substantially less income than he truly earned,” making it impossible for the IRS to assess tax properly.
Circling back to the Comcast account, Malkin took additional actions to reduce his commissions further still. Knowing that GCP would be reimbursed for mailing out flyers on behalf of Comcast, Malkin (1) arranged for GCP to pay for the postage, (2) arranged for Comcast to reimburse him personally for the postage, and (3) arranged for GCP to again reduce his commissions accordingly. This component of Malkin’s scheme spanned the tax years 2009 to 2012, during which GCP again underreported Malkin’s income on the Forms W-2 prepared for the IRS. DOJ records do not specify the amount of the commissions or the extent to which they were reduced, with the linked press release above noting only that the commissions Malkin earned were “substantial.”
As a result of Malkin’s pattern of chronically underreporting income – a common example of the various “badges of fraud” that IRS agents seek when initiating and developing their criminal investigations – the defendant underpaid federal income taxes by approximately $484,581.
Malkin’s sentencing hearing is scheduled to take place on May 22, 2018 before Chief Judge Janet C. Hall. At sentencing, Malkin faces up to five years in prison, up to $100,000 in criminal fines, and potentially, the prospect of supervised release, which is frequently ordered in criminal tax cases. A person who is on supervised release must comply with specific court requirements throughout the duration of the release period, which may last as long as three years.
Willfully underreporting income is only one example of the many ways in which a taxpayer can commit tax evasion, an offense broadly defined as any deliberate action undertaken, or statement made, for the purpose of concealing income and thus avoiding the taxes which are owed. Other ways by which a taxpayer commits tax evasion include inflating deductions, inflating expenses, or concealing income or assets located offshore, frequently in tax havens such as Switzerland, Singapore, or Bermuda, to provide just a few examples. Criminal charges can result regardless of whether such action is successfully completed, or is merely attempted by the taxpayer. Tax evasion is sometimes confused with the concept of tax avoidance, which is the legitimate strategic use of credits, deductions, and tax deferral plans. Tax avoidance can sometimes lead to civil penalties, but is not a criminal offense.
With Tax Day 2018 almost here, the IRS is on high alert for badges of fraud that could indicate tax evasion. In fact, the IRS is arguably more likely to initiate a civil tax audit or criminal investigation during tax season than at any other time of the year. If you or your spouse is worried about the information you submitted on a previous tax return, needs to catch up on back taxes after a failure to file one or more tax returns in previous years, or simply has questions about how best to lawfully take advantage of the U.S. Tax Code when filing this year’s return, look to the Tax Law Office of David W. Klasing for guidance. Whether you are in need of an aggressive tax evasion attorney, have questions about appealing the results of an IRS tax audit, or just want to ensure that your family or business is utilizing the Tax Code strategically, our zealous, award-winning team of CPAs, EAs, and tax attorneys is ready to provide the skillful assistance your case deserves.
Don’t face the IRS without professional support. For a reduced-rate consultation, contact the Tax Law Office of David W. Klasing online, or call today at (800) 681-1295. We proudly serve individuals and business entities in California, out of state, and abroad.
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