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Former Orange County Tax Preparer Sentenced to 10 Years for Massive Tax Fraud Scheme

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    To some people, the allure of a shady tax evasion scheme may be too much to bear. The risk of getting caught may seem minuscule when perpetrators are envisioning their potential rewards. However, the U.S. government is strongly committed to tracking down and punishing tax evaders. Those who are caught may face life-changing criminal and civil consequences, such as costly fines and prison time.

    For instance, a former Orange County tax preparer, Stephen Jake McGonigle, has been sentenced to 10 years in federal prison for orchestrating a significant tax evasion scheme involving stolen identities and fraudulent tax returns. The scheme spanned several years and continents, ultimately defrauding the Internal Revenue Service (IRS) and multiple state tax authorities.

    The Case Against Stephen McGonigle

    The case against Stephen McGonigle is yet another example of how the U.S. government will treat tax crimes very seriously. Fortunately, if you encounter a tax-related legal issue, our Dual-Licensed Tax Lawyers & CPAs can fight for you to avoid civil and criminal tax penalties similar to those assessed against McGonigle.

    Overview of Case

    A former tax preparer from Orange County has been sentenced to 10 years in federal prison after being convicted of orchestrating a tax fraud scheme that targeted the IRS and multiple state tax authorities. Stephen McGonigle was also ordered to pay $1.2 million in restitution to victims, including the state of California and several other states. His conviction stems from charges of conspiracy to defraud the United States, conspiracy to commit wire fraud, and aggravated identity theft.

    Details of the Scheme

    McGonigle, drawing on his extensive experience in tax preparation, masterminded a sophisticated fraud operation that spanned several years and continents. Prosecutors described it as a “massive fraud scheme” where McGonigle utilized stolen Social Security numbers to file fraudulent tax returns, aiming to claim millions of dollars in refunds. The scheme, which began in 2013 and lasted over half a decade, involved filing false returns from an office space in Costa Rica, as well as obtaining fake identification documents in Thailand using stolen identities.

    Execution of the Fraud

    To receive the fraudulent refunds, McGonigle directed that they be deposited into prepaid debit cards sent to various commercial mailboxes across Orange County and other locations. Additionally, he instructed that funds be deposited into bank accounts controlled by himself and his co-defendants. Investigators were able to trace the IP address used for filing the fake returns back to the office space leased by McGonigle in Costa Rica. Surveillance and travel records confirmed that he had hired employees in Costa Rica to assist in filing the false returns.

    Sentencing and Reaction

    During the sentencing hearing at the federal courthouse in Santa Ana, McGonigle chose not to speak, other than to acknowledge his understanding of the court filings related to his sentencing. The judge, James V. Selna, opted not to impose the longer sentence requested by prosecutors, citing McGonigle’s age and the fact that a longer term would essentially be a life sentence. While several victims were present in the courtroom gallery, none chose to speak during the hearing.

    Potential Consequences Faced by Tax Evaders

    As evidenced by the aforementioned case, there are significant penalties that may be handed down for tax crimes. For example, defendants who are convicted of such offenses may face any of the following:

    Costly Fines

    Tax evasion can result in substantial financial penalties imposed by tax authorities. These fines are typically calculated based on the amount of taxes evaded and can be significantly higher than the original tax liability. The fines serve as a punitive measure to deter individuals and businesses from engaging in tax evasion practices.

    Prison Time

    Individuals convicted of tax evasion may face imprisonment as a consequence of their actions. The length of imprisonment can vary depending on the severity of the offense and the amount of taxes evaded. Individuals may sometimes serve several years in prison for deliberate and large-scale tax evasion schemes. Imprisonment not only punishes defendants but also serves as a deterrent to others considering engaging in similar misconduct.

    Reputational Damage

    Tax evasion can tarnish an individual’s reputation, both personally and professionally. Public knowledge of tax evasion can lead to social stigma and damage to one’s standing within their community or industry. This reputational damage can have long-lasting effects on personal relationships, business partnerships, and future career prospects. Once an individual’s reputation is marred by involvement in tax evasion, rebuilding trust and credibility can be challenging.

    Professional Consequences

    Tax evasion can have serious professional consequences, especially for individuals in positions of trust or authority. Professionals such as accountants, lawyers, and financial advisors found guilty of aiding or abetting tax evasion may face disciplinary action from their respective regulatory bodies. This can include revocation of professional licenses, fines, and even disbarment from practicing in their field. Additionally, businesses implicated in tax evasion may suffer damage to their brand reputation, leading to loss of customers and business opportunities.

    Civil Penalties

    In addition to criminal consequences, tax evasion can also lead to civil penalties imposed by tax authorities. These penalties may include asset seizure, wage garnishment, and liens on property. Tax authorities have the power to enforce the collection of unpaid taxes through various means, placing an additional financial burden on the tax evader. Civil penalties serve as a means of recovering tax revenue owed to the government and further incentivize compliance with tax laws.

    Loss of Government Benefits

    Lastly, individuals convicted of tax evasion may also face the loss of government benefits and entitlements. Depending on the jurisdiction, tax evaders may be disqualified from receiving certain social welfare programs, subsidies, or government contracts. This loss of benefits can exacerbate the financial consequences of tax evasion and further limit the individual’s ability to recover from their legal and financial troubles.

    Contact Our Legal Team for Assistance with Your Tax Problems

    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 auditeggshell auditreverse 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 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 AttorneysKovelCPAs 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 worthSee our Testimonials to see what our clients have to say about us!

    We Are Here for You

    Regardless of your business or estate needs, the professionals at the Tax Law Offices of David W. Klasing are here for you. We are open for business and our team will help ensure that your business is too. Contact the Law Offices of David W. Klasing today to discuss your business with one of our professionals.

    In addition to our fully staffed main office in downtown Irvine California, the Tax Law Offices of David W. Klasing has unstaffed (conference room only) California-based satellite offices in Los AngelesSan BernardinoSanta BarbaraPanorama CityOxnardSan DiegoBakersfieldSan JoseSan FranciscoOaklandCarlsbadSacramento. We also have unstaffed (conference room only) satellite offices in Las Vegas NevadaSalt Lake City, UtahPhoenix, Arizona & Albuquerque, New MexicoAustin, TexasWashington DCMiami, Florida and New York that solely handle Federal & California Tax issues.

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