Court Denies Defendant’s Request for Lesser Charges in Felony Tax Fraud Appeal

Texas Couple Sentenced for Tax Skimming Case
October 6, 2019
Oklahoma Man Attempts to Discharge Tax Debt in Bankruptcy, Pleads Guilty to Fraud
October 8, 2019

Court Denies Defendant’s Request for Lesser Charges in Felony Tax Fraud Appeal

The Federal Tax Crimes blog recently highlighted an interesting case. In July of 2015, business owner John Rankin, who operated a restaurant, a software development company, and other entities, was criminally charged with the following tax offenses: (1) one count of tax obstruction, in violation of 26 U.S. Code § 7212; (2) nine combined counts of making, filing, and subscribing various false returns, in violation of 26 U.S. Code § 7206(1); and (3) seven counts of willful failure to collect or pay over FICA taxes (payroll taxes), in violation of 26 U.S. Code § 7202. After being convicted on all counts, Rankin raised several disputes on appeal, notably a request to be indicted on the lesser offense of “willful failure to file return, supply information, or pay tax” (26 U.S. Code § 7203) – a misdemeanor – rather than willful failure to collect or pay over tax (26 U.S. Code § 7202), which is a felony. On appeal, Rankin asserted that “the district court should have instructed the jury on his proposed lesser-included offense,” which could have shortened his sentence. However, the U.S. Court of Appeals rejected Rankin’s argument, reasoning that, due to the wording of the statutes in question, there was no basis upon which a jury could have found Rankin guilty under 26 U.S. Code § 7203, but not guilty under 26 U.S. Code § 7202.

See our Criminal Tax Law Q and A Library

What Are the Tax Crimes the Defendant Was Convicted Of?

The Internal Revenue Code distinguishes between dozens of tax crimes – some of which are more serious than others, as this case highlights well. Rankin was convicted of several distinct offenses, which taxpayers, particularly business owners, should understand the differences between. These offenses, which are commonly charged, include the following:

  • 26 U.S. Code § 7202 – Willful Failure to Collect or Pay Over Tax
    • This is a felony offense charged when employers, payroll companies, or other “responsible parties” intentionally fail to collect and remit payroll taxes, such as Medicare and Social Security taxes. Maximum criminal penalties include five years in prison and fines of $10,000 – plus, in terms of civil penalties, the Trust Fund Recovery Penalty (TFRP).
  • 26 U.S. Code § 7206(1) – Willfully Making and Subscribing a False Return
    • A taxpayer commits this offense, which is a felony, when he or she deliberately files a tax return (or related document) that is both (1) “made under the penalties of perjury,” and (2) “not believe[d] to be true and correct as to every material matter” by the taxpayer. Maximum criminal penalties include fines of $100,000 and three years in federal prison.
  • 26 U.S. Code § 7212 – Attempts to Interfere with [the] Administration of Internal Revenue Laws
    • More commonly known as “tax obstruction” or “IRS obstruction,” this offense is a misdemeanor charged when a taxpayer tries to “intimidate or impede any [IRS] officer or employee” – for instance, in an effort to interfere with a tax audit or IRS criminal investigation.

The higher court dismissed the appellant’s arguments, explaining in the opinion that, “because all violations of § 7203 for failing to pay a tax necessarily constitute violations of § 7202,” Rankin was unable to show sufficient differences between the statutes which would have enabled a jury to “consistently acquit [i.e. find “not guilty”] on the greater offense [i.e. 26 U.S. Code § 7202] and convict on the lesser [i.e. 26 U.S. Code § 7203].”

 

Under Investigation by the IRS? Contact Our Tax Evasion Defense Attorneys for Legal Help

On a closing note, it is worth pointing out that, as stated in the opinion, “The IRS investigated Rankin and his businesses, first civilly and then criminally.” Taxpayers should be advised that what start as civil examinations or audits can transition into criminal tax investigations in cases where indicators (“badges”) of tax fraud are uncovered. This may result in sudden termination of the audit as the case is referred to the IRS Criminal Investigation Division (IRS-CI), unless the IRS conducts a reverse eggshell audit, which is a concurrent civil and criminal investigation.

Critically, Rankin filed multiple false amended returns after becoming aware of the investigation, an action that can only further hurt any taxpayer’s defense. Being under investigation is a high-pressure situation – but lying to the IRS by filing false amended returns will only make it worse. If you are being investigated for tax evasion, payroll tax fraud, filing false tax returns, IRS tax obstruction, or other misdemeanor or felony offenses, or just worry that your audit may lead to criminal tax charges, it is critical to remain calm, refrain from making any false or unnecessary statements to the IRS, and contact an experienced tax defense lawyer in California for help. For a reduced-rate legal consultation, call the Tax Law Office of David W. Klasing at (800) 681-1295, or contact us online for assistance. We will keep your information confidential.

Embed Video   2 column format

 

 

 

 

 

See our Audit Representation Q and A Library

Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles, the Tax Law Offices of David W. Klasing now have offices San BernardinoSanta BarbaraPanorama CityOxnardSan DiegoBakersfieldSan Jose, San FranciscoOakland and Sacramento.

 

Note: If you have concerns about the privacy of our initial or subsequent communication and are unable to easily travel to our Irvine / Orange County Main Office, consider scheduling a GoToMeeting to safely and securely establish an initial or maintain an existing attorney client relationship.  With end-to-end encryption, strong passwords and top-rated reliability, no one is messing with your meeting. To schedule a reduced rate initial consultation via GoToMeeting follow this link.   Call our office and request a GoToMeeting if you are an existing client. We are generally happy to travel to any of our appointment only satellite offices for a subsequent meeting in appropriate circumstances once a relationship is established via a signed engagement letter and the payment of an initial retainer or where enough retainer is available where a current client to cover the reasonable travel time and time required for the meeting.

Will it cost me more to hire the Tax Law Offices of David W. Klasing, who’s main office and the vast majority of the firm’s staff is located in Irvine California, but an appointment only Satellite office is close to my location, as opposed to a local company?  Absolutely not!  See our policies that address this issue here