Many people are surprised when tax enforcement actions hit close to home. However, the simple fact is that IRS, California Franchise Tax Board, and other tax enforcement agencies are closely watching Los Angeles and its surrounding communities. Tax auditors and investigators understand that they need to secure a return on their tax investigation activity. Therefore, they typically focus their efforts on areas with significant economic activity including numerous small businesses and substantial amounts of wealth. Thus, it should come as no surprise that potential tax fraud and tax evasion is frequently targeted in Los Angeles County and surrounding communities like Beverley Hills, Long Beach, Hollywood, West Hollywood, and others.
Stolen identity income tax fraud schemes have been a favored method of bilking the government for scammers for several years. The basic premise of the scam is that the individuals obtain the identity of others through fraudulent means. They then submit false income tax returns under these identities where large refunds are claimed due to fraudulent deductions, credits, and losses. The fraudulent tax returns are directed back to a mailbox or electronic account under the scammers’ control.
While, for a time, the IRS and federal government seemed paralyzed by scams of this type, their ability to identify the perpetrators and secure convictions has drastically improved. Recently, IRS agents form the Criminal Investigations division and Department of Justice prosecutors collaborated to secure convictions in a fraud scam that fraudulently obtained $2.6 million in tax returns using stolen identities.
Essentially the scheme ran from December 2008 and continuing through March 2010. During the course of the false tax return scheme, the individuals filed at least 275 fraudulent tax returns with the IRS. The individuals apparently worked with an co-conspirator who worked as a bank manager. The bank manager would provide the name and Social Security number of individuals in exchange for 20-percent of the fraudulent refund. The bank manager was later identified as Michael Rodriguez who has since pleaded guilty to charges related to the scheme.
The scam was run by father and son Adel Cotton, 64, and Heber Cotton, 40. Adel Cotton pleaded guilty to one count of conspiracy to defraud the federal government by obtaining the payment of fraudulent tax refunds in 2012. He was sentenced to more than four years of prison following this guilty plea. Heber Cotton also pleaded guilty to conspiracy to defraud the federal government by obtaining the payment of fraudulent tax refunds but only last year.
Carl A. Kemp, 43, owner of the public relations firm The Kemp Group, was a well-respected lobbyist who handled an array of matters for Los Angeles-area businesses. Unfortunately for Kemp, his tax compliance failures have brought to light an array of illegal activity and called his reputation into question. Kemp’s tax and other schemes began to fall apart when IRS CI took notice of his activities and launched an investigation. According to Anthony J. Orlando, IRS Criminal Investigation acting special agent in charge, “All forms of income are taxable, including cash payments received from illegal marijuana dispensaries and fees paid for lobbying services Those Americans who file accurate, honest and timely returns can be assured that the government will hold accountable those who don’t.”
Apparently, Kemp had done lobbying work for a number of illegal marijuana dispensaries. In an apparent attempt to conceal this work, Kemp failed to report taxable income to the IRS. Furthermore, he failed to file a tax return for the 2012 tax year. Kemp recently stated that he will plead guilty to the charge and furthermore he admitted to receiving more than $750,000 from 2007 to 2012 that he failed to report and pay taxes on. Kemp did not dispute the fact that he owes $210,661 in federal taxes or that a civil fraud penalty should apply. Aside from the financial penalties Kemp can face, submission of a false tax return can also result in a prison sentence of up to three years.
If you’re facing a tax audit, it is important to handle the audit professionally so as to avoid the potential of a more thorough investigation, fines and penalties, or even criminal tax charges. If you are already facing criminal tax charges, you understand that your freedom and reputation is at stake.
The lawyers and CPAs of the Tax Law Offices of David W. Klasing can address your tax concerns professionally. We can handle your audit or work to mitigate the consequences you face in a tax enforcement action. To schedule a reduced-rate consultation at our Los Angeles or Orange County law offices, call 800-681-1295 today or contact us online.