Guamanian couple Mario and Elaine Cortez have been charged with multiple federal tax felonies. They were indicted for failing to report more than $1 million in income they earned between 2009 and 2013 and did not pay an estimated $350,000 in gross receipts taxes, according to court documents. The couple will not face a trial, however, as Mario Cortez, 56, pleaded guilty to one count of attempt to evade and defeat income tax and one count of fraud and false statements for his fraudulent 2011 and 2012 tax returns.
Due to Mr. Cortez’s plea agreement, all charges against Mrs. Cortez have been dismissed. The unreported income is mostly from Mario Cortez’s engineering work for several construction companies in Guam. His employer paid his salary without providing form W2s or 1099s. Cortez reported that he and his wife earned $24,741 in 2011 when they had actually earned substantially more, according to the plea deal. Additionally, Mr. Cortez falsely claimed to have no taxable income for the year 2012.
The couple was also charged with claiming fraudulent Social Security disability on their taxes; claiming their high school aged son as qualified for college tuition deductions, and claiming refundable earned income tax credits. The Cortezes are required to pay restitution plus interest for the income taxes owed for the years 2009, 2010 and 2013, but the other charges have been dismissed as part of the plea agreement. The couple was aware as early as 2013 that they were suspected of tax evasion.
Mr. Cortez faces a maximum of eight years in prison and will be sentenced in November. Tax evasion is a serious crime in all parts of the U.S. and taxpayers should take extra precaution to ensure that they are compliant. If you feel that you may have committed tax evasion, whether intentionally or negligently, contact an experienced criminal tax defense attorney. The Tax Law Offices of David W. Klasing can deliver strategic guidance and aggressive advocacy on a broad range of California, Federal and International Tax Matters. To schedule a consultation with one our CPAs, EAs or attorneys, call (800)-681-1295 today or contact us online.
What Can Happen if I Claim False Deductions on My Tax Return?
Claiming false or “padded” deductions on your tax return has serious consequences. There are many methods of tax evasion that are utilized by Americans every year. Failing to report gambling winnings, exaggerating charitable deductions and improperly claiming a home office deduction are all ways to illegally reduce your tax liability and land you in serious trouble. Though it may sound outlandish, taxpayers have also been caught flat-out inventing dependents. This was such a common occurrence that the IRS began requiring taxpayers to include the dependent’s Social Security number on their returns and subsequently saw a drastic decline in claimed dependents. Though Mr. and Mrs. Cortez did not entirely invent a dependent, they still committed tax evasion by falsely claiming that their son was qualified for college tuition deductions.
Those who are suspected of tax evasion can face a criminal investigation, and penalties including years in federal prison and a fine of $250,000 (or both) if convicted. Tax crimes do not just affect the individual being prosecuted; they have a widespread impact on the rest of society. As stated in court documents from the Cortez case, “Their crimes have hit the government of Guam particularly hard as lawful taxpayers often wait several months or more for their refunds.”
When Can a Taxpayer Claim Innocent Spouse Relief in California?
As mentioned above, the terms of Mr. Cortez’s plea agreement with federal prosecutors dismissed all charges against his wife, Elaine. It is interesting to consider whether, in the absence of such an agreement, Mrs. Cortez could have filed for innocent spouse relief. According to IRS guidelines, a taxpayer must meet all of the following criteria in order to be eligible for innocent spouse relief:
- You filed a joint return that has an understatement of tax (deficiency) that’s solely attributable to your spouse’s erroneous item (income received by your spouse but omitted from the joint return. Deductions, credits, and property basis are also erroneous items if they’re incorrectly reported on the joint return);
- You establish that at the time you signed the joint return you didn’t know, and had no reason to know, that there was an understatement of tax and; and
- Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understatement of tax.
Court documents report that the income omitted from the Cortez’s tax return was “mostly” earned by Mr. Cortez. No matter how small the amount of income Mrs. Cortez may have earned during that period, she was still legally required to report it to the IRS. It is not entirely clear from court documents whether Mrs. Cortez had reason to know of Mr. Cortez’s deficiencies, but it can be inferred from the rest of the facts that Mrs. Cortez likely would not have qualified for innocent spouse relief.
Contact an Experienced California Tax Defense Attorney Today
Claiming false dependents, exaggerating charitable contributions, and the failure to report any income whatsoever are all forms of tax evasion that can be heavily prosecuted. If you have strayed from tax compliance in any way, it is critical to work with an experienced California criminal tax defense attorney. The Tax Lawyers, CPAs and EAs at the Tax Law Offices of David W. Klasing have decades of experience working with California, U.S. and International taxpayers on a wide variety of domestic and foreign tax topics. If you are facing an audit or criminal tax investigation, our team can provide guidance and aggressive advocacy. To schedule a reduced rate initial consultation with one of our tax professionals, call (800)-681-1295 today or contact us online.
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