Famously, Al Capone’s criminal empire was brought down not by violence, but by tax evasion. Capone – who ran gambling rackets, prostitution rings, and bootlegging operations during Prohibition – supposedly claimed, “They can’t collect legal taxes from illegal money.” Of course, as he later learned the hard way, Capone was mistaken on that point – and the same point holds true today, nearly a century later. All taxable income, legitimate or not, must be reported on your yearly returns – including, according to IRS Publication 525, “income from illegal activities, such as money from dealing illegal drugs.” Unsurprisingly, most taxpayers who commit crimes fail to comply with this directive, such as Montana tax defendant Willard Wilson White, III, former tribal police officer for the Fort Peck Tribes. According to a Department of Justice (DOJ) press release, White stole approximately $40,000 from members of the tribe by claiming the money was intended for “youth programs,” then failed to report the income on tax returns, leading to a criminal tax investigation.
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Federal law requires taxpayers to report cash transactions of $10,000 or more by filing Form 8300 (Report of Cash Payments Over $10,000 Received in a Trade or Business), as discussed in our article on “structuring.” There are also similar requirements relating to foreign income, such as the Foreign Bank Account Report or “FBAR” requirement mandating, under the Bank Secrecy Act (BSA), disclosure of certain offshore accounts exceeding $10,000 in aggregate value. Meanwhile, one of the major tax fraud indicators the IRS looks for is a mismatch between the taxpayer’s assets and reported income – for instance, reporting income of $20,000 despite owning luxury vehicles, or making disproportionate cash withdrawals.
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Considering these facts, it is unsurprising that the IRS took notice when White’s bank balance jumped from $32 to $40,000 virtually overnight, with the DOJ reporting, “Bank records indicated that White had $32.39 in his bank account before depositing the tribe’s money.” According to prosecutors, White obtained the funds by misleading members of the Fort Peck Tribes, promising one committee to develop “a facility and programs to help youth who were separated from families through incarceration.” White told committee members it would cost an estimated $40,000 to develop the project, described by the DOJ as a “Family Justice Center.”
Contradictory to his claims about how the funds would be put to use, White rapidly spent the money on a series of personal luxuries, including, according to the press release, “a local strip club… retail stores… a Jeep… [and a withdrawal of] more than $11,000 in cash,” which took place over a period of approximately two and a half weeks. None of the funds were used to create a Family Justice Center, nor were they directed toward any other tribal services or resources.
In addition to deceiving his investors, White also defrauded the IRS, willfully failing to report any portion of the $40,000 on his 2015 federal income tax return, likely in an effort to avoid being charged with theft or fraud. Ironically, White’s failure to report the income led to a tax evasion charge, as did various other tax violations. According to the DOJ, White fraudulently claimed dependents on several occasions, filing six tax returns “which were rejected because the claimed dependents already were claimed by someone else.” Making continued attempts, White eventually succeeded in illegally obtaining a tax refund exceeding $5,800.
In addition to tax evasion, White was also charged with wire fraud: respectively, violations of federal statutes 26 U.S. Code § 7201 and 18 U.S. Code § 1343. At sentencing, which is currently scheduled to take place on September 25, 2019, White may face a term of up to 20 years in federal prison, along with fines as high as $250,000. He also risks being placed on supervised release for up to three years after his prison sentence ends.
Tax evasion has serious criminal and civil consequences, including prison time, high fines, supervised release, restitution, and in some cases, career ending repercussions, particularly if you are a tax or financial professional or anyone with a moral character qualification to practice their chosen profession. If you are facing an egg shell audit or criminal investigation for tax fraud, have been contacted by the IRS to serve as a witness in another case, or are concerned about a tax audit turning criminal, make sure your rights are being protected by a vigilant and highly experienced criminal defense tax lawyer.
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At the Tax Law Office of David W. Klasing, we are award-winning tax attorneys and CPAs with over 20 years of experience representing U.S. citizens, residents, non-residents, business entities, and trusts throughout California. We are known for our innovative tax and legal strategies, our outstanding record of case results, and our unwavering commitment to our clients. Call us today at (800) 681-1295 to arrange a confidential, reduced-rate consultation, or contact the Tax Law Office of David W. Klasing online.
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