Many likely believe that police officers and other government officials are above the law. Although we can’t speak for each government employee or public servant, today’s story evidences that police officers are not immune from tax prosecution by the Department of Justice. This week, former Massachusetts police sergeant Glenn Pearson was sentenced to serve four years in prison for a laundry list of federal charges including wire fraud and obstructing the IRS.
According to a press release by the Department of Justice, Pearson owned and operated FTS Tax Services, a company that provided tax preparation and filing services for paying customers. While preparing tax returns for others, Pearson inflated the deductions and fraudulently reduced the income of his clients with the intent to secure a higher refund than actually payable. When the IRS performed audits on Pearson’s clients, he attempted to obstruct the IRS investigation by providing his clients with false documentation to support the fraudulent tax return positions.
Pearson also spent his time as a fiduciary for military veterans. Through a government program, Pearson managed funds provided from the Department of Veterans Affairs for use by a handful of retired veterans that were unable to manage their own financial affairs. Prosecutors alleged and Pearson pled guilty to embezzling over $250,000 of funds issued by the Department of Veterans Affairs. Finally, between tax years 2012 and 2015, Pearson lied on his own taxes. According to prosecutors, Pearson failed to include income and inflated deductions that caused a tax loss of more than $1.5m.
Earlier this year, Pearson pled guilty to preparation of fraudulent tax returns, obstructing internal revenue laws, misappropriation by a federal fiduciary and wire fraud. In addition to the 48-month sentence imposed, the federal judge hearing the case sentenced Pearson to serve an additional three years of supervised release and pay restitution of over $1m to the federal government to cover the stolen VA funds and the lost tax revenue that resulted from his personal and professional fraudulent tax activity.
This story exemplifies the fact that the commission of any crime can open up a can of tax worms. It is unclear whether Pearson’s activity was first discovered by the FBI, the VA, or the IRS, but one thing is for sure: when one government agency discovers financial wrongdoing, the IRS is only a quick call away.
As we have stressed extensively in the past, a taxpayer must include all income from any source on their yearly income taxes. Gross income includes income from illegal sources. Additionally, assisting another taxpayer cheat the tax system will create immense problems for the taxpayer and the preparer. It is important for professional tax preparers to ensure they are following the letter of the law while receiving compensation for tax preparation. Likewise, it is crucial for taxpayers who utilize paid tax preparers to perform a sanity check on the preparer’s work. A sanity check can be as easy as a smell test: if you feel like the preparer is breaking a rule or law in order to attain a higher refund, it may be worth asking some additional questions to make sure that the position taken on the return is legally defensible. If you’re still in doubt, running the inquiry through an experienced tax attorney may provide you with adequate comfort.
Whether you find yourself with questions prior to filing your taxes or have been contacted by the IRS or state taxing authority regarding an audit or investigation, it is in your best interest to contact an experienced tax defense attorney. Not only does tax counsel have the technical tax knowledge required to answer your questions, they also have critical training in the areas of criminal defense, criminal tax procedure, Constitutional law, and rules of evidence. Such training proves invaluable when tax authorities are hurling questions and demands for documentation your way and it is unclear what you are required to provide and what may cause you to have regrets later.
The tax and accounting professionals at the Tax Law Offices of David W. Klasing have extensive experience in representing taxpayers from all walks of life in a myriad of different tax situations. Knowing your responsibilities and rights as a taxpayer are a critical element of a successful case strategy. Don’t lose sleep over the threat of an IRS or state tax audit or investigation. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.
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