Readers who follow the art world may already be familiar with Manhattan gallerist Mary Boone, who attracted controversy with a pair of criminal charges filed last year in connection with false tax returns. According to a Department of Justice press release issued September 2018, Boone, appearing in federal court before U.S. District Judge Alvin K. Hellerstein, pleaded guilty to two counts of filing a false income tax return, having filed false corporate and personal tax returns in 2009, 2010, and 2011. Boone’s offenses, detailed in the criminal information describing her conduct, constitute violations of the Internal Revenue Code at 26 U.S. Code or IRC § 7206(1). While our criminal defense tax lawyers often write about defendants faced with similar charges, what makes this case interesting (other than Boone’s minor celebrity status) is the role of tax whistleblowers, who are speculated to have triggered the IRS’ investigation of Boone by providing tips to the government. Read on to learn more about IRS tax whistleblower laws – and how they can seriously endanger individuals who engage in tax fraud.
In September 2018, Boone “admitted to cheating the U.S. tax system by blatantly lying about her expenses and playing a shell game with bank accounts to hide her true assets,” in the words of U.S. Attorney Geoffrey S. Berman. Boone – a 66-year-old gallery owner who, prior to her tax troubles, was embroiled in a dispute with actor Alec Baldwin concerning a painting that Boone allegedly passed off as a different artwork – took a series of deliberate actions in furtherance of her scheme, including:
Boone, who faces a sentence of up to three years in federal prison, has already agreed to IRS restitution payments totaling nearly $3.1 million.
Our tax evasion defense lawyers often discuss IRS criminal investigations in the context of auditors, or revenue agents, who refer cases to special agents from the IRS Criminal Investigation Division (IRS-CI) if “badges” (indicators) of fraud are detected. However, auditors aren’t the only people who can alert the IRS’ CI special agents to possible tax fraud.
In many cases criminal tax investigations are triggered by everyday taxpayers who are in no way affiliated with law enforcement or the IRS. Any taxpayer – perhaps a friend, a family member, an employee, or a business partner – can easily report suspected tax fraud to the IRS simply by filing the appropriate form. For example, the IRS directs taxpayers to use Form 3949-A (Information Referral) if they “suspect or know of an individual or a business that is not complying with the tax laws” regarding filing requirements, tax payments, tax deductions, recordkeeping, or other issues.
Why might a taxpayer go through the hassle of completing and submitting a non-mandatory IRS form? In this case, the answer is simple: there can be generous financial rewards for whistleblowers who bring tax fraud to the IRS’ attention – provided, of course, that the tip is not a “false alarm” and actually results in IRS action.
The monetary award for reporting tax fraud, known as an “Informant Award,” is equivalent to as much as 30% of whatever tax liabilities, including penalties and interest, the IRS successfully collects due to receiving the tip. This substantial reward, though not always the full 30%, nonetheless strongly incentivizes taxpayers to report known or suspected instances of fraud – as we saw, for instance, in the case of one UBS whistleblower who received $104 million for his role in reporting a massive fraud case worth over $5 billion in tax revenue.
Note: Before paying an informant reward, the IRS is very likely to decide if the Whistleblower’s hands are clean themselves and in no way a party to the tax fraud so think twice about blowing the whistle if you participated in the tax fraud in any way.
At least one attorney has speculated that Boone’s downfall was triggered by a “disgruntled employee” who communicated with the IRS (which can also lead to a worker classification audit). Whether a tax investigation is spurred by an anonymous whistleblower or an IRS auditor who discovers that fraud has likely occurred or by CI’s own detection and enforcement efforts, the end result is the same for the taxpayer: serious legal and financial peril, including the risk of criminal tax fraud prosecution, prison time, steep financial penalties, supervised release, a criminal record, reputation damage, lost opportunities and potential career ending ramifications if your profession, licensing or insurance / bonding prohibits and or disciplines acts of moral turpitude.
If you believe you are in danger of facing criminal tax charges, or if you are already undergoing a tax audit or IRS criminal tax investigation, speak to an experienced tax attorney for help right away. Contact the Tax Law Office of David W. Klasing online for a reduced-rate consultation or call us today at (800) 681-1295. Our San Francisco IRS fraud defense lawyers handle criminal tax cases throughout California. Note: Or San Francisco office is by appointment only.
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