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In recent memory, most tax-related stories that feature a celebrity involve that person committing tax evasion. This story involves two prominent music stars who were taken for a ride on a fraudulent investment. Now, their business manager has been convicted of a slew of felony charges including tax evasion and filing a false tax return. This story evidences the need for those who have been involved in crimes involving unlawful enrichment (or attorneys representing such clients) to consult with an experienced tax attorney to determine the tax implications of the crime(s) and their legal dispositions.
According to a press release by the Department of Justice, Kevin R. Foster, 42, of Montclair, NJ was convicted on 16 counts relating to a fraudulent investment scheme. Foster was convicted of wire fraud, money laundering, bankruptcy fraud, as well as the tax charges discussed above. Foster faces more than a decade in federal prison.
Court documents revealed that Foster served as the business manager to musical artists Ne-Yo and Brian McKnight. During his time managing their business affairs, Foster encouraged and persuaded the artists to invest in OXYwater, a sports beverage, under false pretenses. OXYwater was being developed by Imperial Integrative Health Research and Development, a company operated by Thomas E. Jackson and Preston J. Harrison, who were already prosecuted for fraudulently raising money for their company.
In addition to lying about material facts to induce his clients to invest in OXYwater, Foster funneled money from their accounts into accounts used to pay for OXYwater’s operating expenses. Additionally, Foster used his clients’ money to support his own lavish lifestyle. The latter is the basis for government’s tax-related charges against Foster.
When Foster stole his clients’ money, he was legally obligated to report the funds as gross income on his annual tax return. The Internal Revenue Code provides that gross income is made up of income from whatever source derived, which includes illegal sources.
Although many of our readers may understand that money earned illegally must be reported as a part of gross income, many are unaware of this application of the tax law. Whether you are being investigated for a crime involving unlawful enrichment or you are an attorney representing a client who is, tax implications relating to reporting income earned in the commission of a crime should be considered. For instance, pleading guilty to embezzling funds could implicate a defendant in criminal tax charges if he or she failed to report the embezzled funds as income on their tax return.
An experienced tax attorney is trained in both tax and criminal law and will be able to advise on the tax implications of non-tax crimes. Not considering the tax laws and their application to non-tax crimes is a huge misstep that could lead to a defendant facing a whole new set of criminal charges.
The tax and accounting professionals at the Tax Law Offices of David W. Klasing have extensive experience representing taxpayers from all walks of life who find themselves in a myriad of situations related to tax compliance and planning. From assisting clients with a pending tax examination or coming into compliance with Foreign Bank Account Reporting (FBAR) laws, our team of zealous advocates are standing by to assist you develop an effective approach to help resolve your tax issue. Don’t lose another night of sleep worrying about the IRS or state tax authorities. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.
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