Concealing income is a deceptive tactic individuals use to evade taxes and avoid their financial obligations to the federal and state governments. This strategy often involves keeping cash proceeds off the books, manipulating expenses, and underreporting earnings to tax authorities. Such actions can lead to serious legal repercussions when discovered by law enforcement agencies.
For example, a former restaurant owner in Snohomish County, WA has been sentenced to prison for tax evasion after failing to report over $1.7 million in income from his establishments. Despite receiving government aid during the pandemic, the individual used the undisclosed funds for personal expenses, leading to a significant tax loss. In addition to a prison term, the defendant is also being ordered to pay substantial fines.
The Tax Evasion Case of Si Yong Kim
A 45-year-old former restaurant owner from Snohomish County has been sentenced to 10 months in prison, a $10,000 fine, and two years of supervised release for tax evasion, as announced by Acting U.S. Attorney Tessa M. Gorman.
Si Yong Kim failed to report over $1.7 million in income from his two sushi restaurants, Oshima and Si Joy, leading to a tax loss exceeding $500,000. During sentencing, U.S. District Judge James L. Robart expressed dismay at Kim’s acceptance of government aid through Paycheck Protection Program loans while evading taxes. Kim’s failure to pay taxes was not due to financial hardship but rather his use of the money for personal luxuries like expensive watches, designer shoes, and jewelry, along with investments and mortgage payments.
Kim underreported income between 2016 and 2020 by keeping cash proceeds, paying employees off the books, and manipulating expenses. Despite meticulous record-keeping to conceal his scheme, law enforcement uncovered his fraud during a search of his home and businesses in June 2022.
Assistant United States Attorney Lauren Watts Staniar emphasized the need for punishment to deter tax evasion, noting Kim’s deliberate actions and lavish lifestyle. Despite Kim’s sale of one restaurant, he faced serious consequences for his fraudulent activities.
Avoiding Criminal Tax Prosecution if you have Acted Similarly.
This case underscores the importance of upholding tax integrity. Fortunately, if you are worried that you may encounter a tax-related legal issue, then our Dual-Licensed Tax Lawyers & CPAs can help you identify the proper steps to take.
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 audit, eggshell audit, reverse 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 being 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 Attorneys, KovelCPAs 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 worth. See our Testimonials to see what our clients have to say about us!
Common Examples of Tax Evasion
Concealing income is, unfortunately, a very prominent form of tax evasion. Still, several different forms of tax evasion may occur.
Concealing Income
As previously discussed, concealing income involves deliberately failing to report earned income to tax authorities. This can be achieved by keeping cash proceeds off the books, underreporting earnings, or manipulating financial records to show lower profits than actually earned.
Overstating Expenses
Overstating expenses is another form of tax evasion where individuals intentionally misrepresent their deductible expenses to reduce their taxable income. This can include inflating expenses or claiming personal expenses as business-related to lower tax obligations.
False Deductions
False deductions involve claiming deductions or credits to which one is not entitled. Taxpayers may falsify deductions by fabricating expenses or overstating the value of charitable contributions, business expenses, or other deductible items.
Offshore Tax Evasion
Offshore tax evasion occurs when individuals or entities hide income or assets in offshore accounts to evade taxes. This can involve transferring funds to foreign bank accounts, creating offshore shell companies, or investing in offshore assets to conceal income from tax authorities. Offshore tax evasion schemes are often complex and involve international banking secrecy laws, but tax authorities are increasingly cracking down on such practices to combat tax evasion.
Employment Tax Evasion
Employment tax evasion occurs when employers intentionally misclassify workers as independent contractors or underreport wages to avoid paying payroll taxes. This can involve paying workers under the table, failing to withhold payroll taxes, or falsifying payroll records.
Employment tax evasion defrauds the government of tax revenue and deprives workers of benefits such as Social Security and Medicare contributions. Tax authorities closely monitor employment tax compliance and prosecute employers found engaging in tax evasion schemes.
Falsifying Records
Falsifying records involves altering financial documents or creating fraudulent records to misrepresent income, expenses, or other financial transactions. This can include forging invoices, receipts, or bank statements to inflate expenses or underreport income. Falsifying records is a common tactic used in tax evasion schemes to create the appearance of legitimate business activities while concealing the true financial picture from tax authorities.
How Does the U.S. Government Catch Tax Evaders?
The government employs various methods and strategies to catch tax evaders and ensure compliance with tax laws.
One primary method is through data analysis and technology, where tax authorities use sophisticated software and algorithms to identify anomalies, inconsistencies, and patterns indicative of potential tax evasion. This includes analyzing tax returns, financial transactions, and other relevant data to detect discrepancies or suspicious activities.
Additionally, the government conducts audits and criminal tax investigations to scrutinize taxpayers’ financial records and verify the accuracy of reported information. Audits can range from random selections to targeted examinations based on specific red flags or risk factors.
Furthermore, the government relies on information sharing and cooperation with other agencies, financial institutions, and international partners to gather intelligence and evidence related to tax evasion. This includes exchanging data on financial transactions, offshore accounts, and cross-border activities to track down individuals or entities attempting to conceal income or assets. Moreover, whistleblowers play a crucial role in uncovering tax evasion schemes by reporting fraudulent activities to tax authorities in exchange for rewards or protections.
Call Our Attorneys and CPAs Today for Assistance with Your Tax Issue
Get help from our Dual-Licensed Tax Lawyers & CPAs by calling the Tax Law Offices of David W. Klasing at (800) 681-1295.
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