If you visit our blog on a regular basis, you might have noticed a pattern: the defendants indicted on criminal charges are often attorneys themselves, frequently with expertise in the same laws they are accused of breaking. Fitting this pattern is James Roy McDaniel, 66, who, appearing in in Los Angeles federal court this October, admitted to one count of felony tax evasion following his indictment in 2018. McDaniel, who will face sentencing early next year, was a tax lawyer in California until approximately 2005, when he was forced to shut down his practice following a prior tax conviction – in that instance, related to making and subscribing a false return. Our California tax defense lawyers compare these offenses – and the consequences they can lead to – while taking a closer look at both of McDaniel’s cases.
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Specializing in the area of estate planning, McDaniel was licensed to practice as a California tax attorney for more than 20 years. Unfortunately, his career was cut short in 2004, when McDaniel pleaded guilty to tax crimes in his first, but not final, encounter with the Tax Division of the U.S. Department of Justice (DOJ).
In the 2004 case, which would resolve with a sentencing hearing the following year, McDaniel was charged with a tax crime that is widespread yet unknown to most taxpayers: making and subscribing a false tax return. In contrast to the more recent charge of tax evasion, which our tax attorneys will discuss shortly, making and subscribing a false return specifically involves the act of intentionally signing and filing (“willfully making and subscribing”) a federal tax return, such as a U.S. income tax return, despite knowing the return might not be “true and correct” with respect to all of its important (“material”) details – for example, the amount of income reported on the return. In addition, the return must be “verified by a written declaration that it is made under the penalties of perjury,” a condition which has given rise to the term “tax perjury” as an alternative name for the same offense.
There are several differences between tax perjury and tax evasion, the latter of which was alleged (and admitted) in McDaniel’s more recent case. To begin with, they are charged under separate tax statutes: respectively, U.S. Code § 7206(1) and U.S. Code § 7201. The reason they exist under separate statutes is because they are defined differently. In a tax perjury case, the DOJ must prove the existence of the details or elements described above, such as the fact that the return (or relevant document) was signed and filed under penalty of perjury. Under U.S. Code § 7201, tax evasion has a much broader definition, encompassing any and all deliberate attempts “to evade or defeat any tax imposed by… [federal law] or the payment thereof.” Significantly, there is no perjury requirement in the tax evasion statute, which can influence the way prosecutors decide to approach a given case. For example, in a case where the taxpayer has technically met all filing requirements but lied about the nature or source of the income reported, the taxpayer has debatably engaged in perjury, even without engaging in tax evasion.
Another key difference lies in the way these offenses are penalized. While both are extremely serious charges, with each designated as a felony, tax evasion is punishable by a longer prison term. The maximum sentence for making and subscribing a false return is three years in prison, compared to a maximum of five years in prison for tax evasion. However, both offenses are punishable by the same maximum criminal fine of $100,000 (which, in cases involving tax evasion, may increase to $500,000 for corporations). Of course, as with any tax crime, these already substantial fines can be further compounded by civil tax penalties. Particularly devastating is the civil fraud penalty, which is equivalent to 75% of the taxpayer’s total tax liability.
In addition to tax evasion, the more recent indictment also alleged “that McDaniel failed to file a federal income tax return for 2012 and failed to pay $45,725 in taxes due for that year.” The tax evasion charge involved “two shell companies” McDaniel used to “mislead federal tax authorities and conceal his income,” intentionally “directing other people to sign documents identifying themselves as the sole managing members of the shell companies.”
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In the 2004 case, McDaniel admitted to cheating the IRS out of more than $677,000 – a crime for which, somewhat unusually, he was given the full three-year sentence. Sentencing in the more recent case, which involves a tax loss exceeding $1.5 million, is scheduled for February 3, 2020, at which time McDaniel will face up to five years in prison in accordance with U.S. Code § 7201.
If you have been charged with tax evasion (or merely at risk of being charged), tax perjury, or related offenses, it is in your best legal interests to contact an experienced tax fraud defense attorney for help right away. Contact the Tax Law Office of David W. Klasing online to schedule a reduced rate consultation or call our tax office at (800) 681-1295 for immediate assistance.
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