Dr. Pepper is known for its closely-guarded secret recipe. However, even a Dr. Pepper executive cannot hide any secrets where the Internal Revenue Service (IRS) is concerned. On Tuesday, February 27, 2018, 52-year-old Michael Lynch of Newport, Rhode Island, a former national sales executive for Dr. Pepper Snapple Group subsidiary Dr. Pepper/Seven Up Inc., pleaded guilty in United States District Court to wire fraud, a federal felony offense defined under 18 U.S. Code § 1343, and filing a false income tax return, another federal felony described at 26 U.S. Code § 7206. By failing to report income from professional services that were never provided, Lynch, whose sentencing hearing is currently scheduled to take place June 1, 2018 before U.S. District Court Chief Judge William E. Smith, caused a tax loss of more than $386,000 over the course of a decade.
A press release issued by the Department of Justice (DOJ) recreates how Lynch, speaking at a court appearance in Rhode Island late last month, described the years-long course of his tax fraud scheme. Lynch laid its foundation in April 2003 with the incorporation, in his wife’s name, of an entity called Seacoast Unlimited Marketing and Promotions, LLC.
Approximately four years later, in January 2007, Lynch, using Seacoast as a vehicle, began to submit the first of over 200 fraudulent invoices to his employer, Dr. Pepper, for services which were never actually rendered by Seacoast. According to the press release, these phantom services included “promotional signs and banners, delivery of sample products to retail stores and the offering of discount prices to retail stores.”
In aggregate, the invoices — the last of which was submitted on November 29, 2017, more than 10 years after the scheme was initiated — totaled $1,716,949. However, Dr. Pepper was not the only victim. Having failed to disclose income — which, despite its unlawful origins, was required to be indicated on the joint tax return Lynch filed with his wife — earned from Seacoast’s “services,” the defendant also caused a tax loss of $386,320. (For a detailed explanation of how tax loss is calculated in court, see our criminal tax defense attorneys’ article and short video addressing this subject.)
Like virtually all of the defendants profiled in our tax law blog, Lynch will face the possibility of a lengthy prison term when he appears for sentencing in June. In accordance with the federal wire fraud statute, 18 U.S. Code § 1343, offenders may be “imprisoned not more than 20 years,” and/or fined up to $250,000, unless special circumstances exist — to say nothing of the collateral consequences a felony conviction so often brings.
In addition to the wire fraud sentence, Lynch faces an additional sentence of up to three years for the tax offense: the maximum statutory sentence permitted under 26 U.S. Code § 7206. The same statute also permits sentencing judges to impose a fine of up to $100,000, “together with the costs of prosecution.” Moreover, Lynch will likely be ordered to pay restitution to the IRS, making the financial fallout even costlier. Finally, there is the possibility of supervised release, during which offenders live under strictly monitored conditions, similar to probationers or parolees, generally for a period of up to three years.
With Tax Day 2018 creeping ever closer, some taxpayers may feel tempted to “cheat the system.” After all, criminal investigation statistics (which you can view more of here) reveal that in FY 2016 alone, the IRS initiated nearly 60 investigations into abusive tax schemes, more than 60 investigations into corporate fraud, nearly 140 investigations into employment tax evasion, over 200 investigations into failures to file, more than 250 investigations into tax preparer fraud, nearly 500 investigations into questionable tax refunds, and almost 1,200 investigations into general tax fraud.
Do not allow yourself to become one of these numbers. With its Criminal Investigation Division under new leadership, the IRS has recently made a concentrated effort to hire more investigators and ramp up examinations. If you have any doubts about the information you submitted on prior tax returns, need to get caught up on unfiled taxes or “back taxes,” have been chosen to undergo a civil audit, or are worried about the possibility of a criminal investigation, it is imperative that you seek immediate help from an experienced tax attorney who can answer your tax questions, protect your rights as a taxpayer, and work to minimize the fallout of past mistakes or misunderstandings.
The IRS does not care if you are a high-earning corporate executive, a stay-at-home parent, a successful business owner or entrepreneur, a retiree, a graduate student, a military servicemember, or even a celebrity — regardless of your personal background, compliance with the U.S. Tax Code is closely monitored and aggressively enforced. However, strategic tax planning can help you avoid problems before they start. To discuss a tax issue in a confidential, reduced-rate consultation with the award-winning tax lawyers, EAs, and CPAs at the Tax Law Office of David W. Klasing, contact us online, or call (800) 681-1295 today. We provide criminal tax defense, tax planning and preparation, cryptocurrency tax support, tax audit representation, and an array of other financial services for taxpayers and business entities in California and beyond.
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 in San Bernardino, Santa Barbara, Panorama City, and Oxnard! You can find information on all of our offices here.
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