Federal Circuit Court Holds that Unfiled Tax Returns Can Still Be Fraudulent

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Just last month, the Sixth Circuit released an opinion on an appeal from a conviction under several tax violations for an Ohio man who was accused of skimming cash off his business. The defendant appealed his conviction on several grounds, including that the court should not have found him guilty of aiding and assisting in filing a false tax return since the IRS could not produce the actual return.

The Court disagreed, holding that the text of the statute includes the preparation stages of filing a tax return, meaning that the fraud does not have to be found in an actual return to secure a conviction under the statute. This will likely have serious implications on how taxes are prepared across the country.

If you are concerned about making a costly mistake and need tax preparation help now, contact the Dual Licensed Tax Lawyers and CPAs at the Tax Law Offices of David W. Klasing today by calling (800) 681-1295.

Sixth Circuit Affirms Convictions Under § 7206(2) for Ohio Car Salesman

In a decision released late last month, the Sixth Circuit affirmed the conviction of Gregory Van Demark, a successful car salesman and owner of the Used Car Supermarket located in Amelia, Ohio.

Case Background

In court documents, Van Demark was described as a “millionaire car salesman who tried to hoodwink the IRS.” According to allegations, Van Demark skimmed cash receipts from his business and used the majority of the ill-gotten gains to pay the mortgage on his personal home.

From evidence presented at trial, it was fairly clear that Van Demark was aware of what he was doing. Van Demark asked the bank that held the mortgage what the IRS reporting threshold was (anything over $10,000 in cash) and proceeded to make all payments toward the mortgage slightly under that figure, sometimes through several payments within the same month. The bank employee reported the conversation that she had with Van Demark to her Bank Secrecy Act officer, who in turn submitted it to the IRS.

IRS Investigation

Once the IRS was aware of the potential impropriety, they dispatched an undercover agent to ask Van Demark about potentially purchasing his business. In their conversation, Van Demark allegedly made several damaging admissions. The IRS then proceeded to execute search warrants on Van Demark’s residential properties as well as his business locations.

While executing the warrant, IRS agents found Van Demark at one of his properties and interviewed him for more than three hours. Van Demark did not request an attorney, and allegedly told agents that all of his business records were contained in QuickBooks files and stated that his employees deposited everything into the business’ bank account.

According to court documents, these were lies. Van Demark apparently also used ledger books that he did not disclose to agents and frequently instructed employees to direct cash to other locations. This is a violation of 28 U.S.C. § 1001, of which Van Demark was convicted at the trial level.

Conviction and Appeal

In addition to § 1001, Van Demark was also convicted of violating 26 U.S.C. § 7206(2). This section refers specifically to making fraudulent or false statements in a tax return. However, the IRS never received Van Demark’s 2013 tax return, which was the filing in question. According to court documents, Van Demark’s tax preparer completed his 2013 return and tried to file electronically but failed to do so. He then mailed the filing instead, but the IRS does not have a record of the filing. Therefore, Van Demark argued, he could not be found guilty of filing a fraudulent tax return without an actual return.

The Sixth Circuit was not particularly compelled by the argument. According to the opinion, “Van Demark, through his tax preparer, completed every step just shy of placing the return in the IRS’s hands. However narrow or broad the scope of ‘preparation’ may be, it surely applies here.”

According to the text of the statute, § 7206(2) imposes liability on “[a]ny person who . . . [w]illfully aids or assists in, or procures, counsels, or advises the preparation or presentation” of a fraudulent return. The Sixth Circuit interpreted this to mean that, even if the fraudulent return is not presented (or filed), aiding or assisting in fraudulent preparation of a return is enough to convict under § 7206(2).

This is not the first time a circuit court has ventured into this area. The Eighth Circuit had a similar case in 2011 where it was determined that liability under § 7206(2) can attach even if a return is never filed. The Eleventh Circuit also issued an opinion in 2008 where they sustained a conviction because “a person may be convicted . . . under 26 U.S.C. § 7206(2) if that person either prepares or presents the relevant return,” and defendant “[did] not dispute her involvement in the preparation of the return in question.”

Significance of the Sixth Circuit’s Decision in Van Demark

The key piece of the Sixth Circuit’s opinion affirming Van Demark’s conviction is the effect that it will have on the application of § 7206(2) in future cases. The opinion strengthens the IRS’s ability to capture other forms of tax noncompliance under this serious statute. This gives tax investigators more leeway to levy serious penalties for forms of tax noncompliance that might not even make its way to your ultimate filing.

This makes the tax preparation stage even more critical. If you have questions or concerns about your future filings in a time of rapid development in the tax code, it is essential to have the help of a seasoned Dual Licensed Tax Attorney and CPA.

The Tax Law Offices of David W. Klasing Can Help You with Your Tax Preparation Today

To learn more about the services that we can offer you, schedule a reduced rate consultation with one of our Dual Licensed Tax Attorneys and CPAs by calling (800) 681-1295 today.

Concerned About Criminal Tax Charges? Call the Tax Law Offices of David W. Klasing

If you are dealing with serious tax matters, you deserve tax assistance that you can rely on. Schedule your first reduced-rate case evaluation with our Criminal Tax Defense Lawyers by calling (800) 681-1295 today or schedule online here.

If you have failed to file a tax return for one or more years or have taken a position on a tax return that could not be supported upon an IRS or state tax authority audit, eggshell audit, reverse eggshell audit, or criminal tax investigation, it is in your best interest to contact an experienced tax defense attorney to determine your best route back into federal or state tax compliance without facing criminal prosecution.

Note:

As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed foreign information returns coupled with affirmative evasion of U.S. income tax on offshore income) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosure before the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply.

It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.

Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.

As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, Kovel CPAs and EAs, our firm provides a one stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!