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Husband and Wife Business Owners Criminally Convicted of Filing False U.S. Income Tax Returns

Married couple Deborah Jean Underwood, 63, and Robert Mason Underwood, Sr., 72, co-owners of a Maryland scrap metal business, were convicted in June of filing false tax returns and conspiring to defraud the IRS, according to a Department of Justice (DOJ) press release. The Underwoods, who are scheduled to be sentenced later this month, are now, like other tax offenders, in danger of prison time and costly fines, possibly accompanied by a court-ordered period of supervised release. Sentencing, which will take place on September 30, is, within federal sentencing ranges, at the discretion of U.S. District Judge Theodore D. Chuang. However, according to the United States Sentencing Commission (USSC), the average tax offender faced a sentence of 17 months in 2017.

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Married Business Owners Found Guilty of Tax Fraud After Concealing Cash from IRS

At the time the charges were filed, Robert and Deborah Underwood owned and operated a Clinton, Maryland scrap metal business, B Underwood Used Auto Parts, LLC, which bought and broke down vehicles for parts. The issue was their preferred method of payment: cash only, “substantial amounts” of which they willfully worked to conceal from the IRS. (Indeed, it is precisely because of schemes like the Underwoods’ that, unfortunately, operating on a cash basis increases your business’ likelihood of being audited – even if you are in total compliance with federal tax regulations.)  For instances – a policy of only accepting cash publicly displayed in your business can dramatically increase your exposure to a Federal or California audit or criminal tax investigation.

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To conceal cash payments from the IRS, the Underwoods filed false personal income tax returns (i.e. Forms 1040) for the tax years 2011 and 2012, along with a false partnership return (i.e. Form 1065) for tax year 2012, deliberately omitting receipts from cash sales. In addition, the defendants filed a false amended return (i.e. Form 1040X) for the 2010 tax year.

The defendants were convicted of (1) one count of conspiracy to defraud the IRS, a federal felony violation of 18 U.S. Code § 371; and (2) four counts of filing false returns: the false amended return for 2010, the false personal income tax return for 2011, the false personal income tax return for 2012, and the false partnership income tax return for 2012. Filing false tax returns – an offense known as “willfully making and subscribing false returns” – is a felony violation of federal law under 26 U.S. Code § 7206(1), pertaining to fraud and false statements, which occurs when a taxpayer intentionally (“willfully”) prepares and files a U.S. income tax return “or other document” that the taxpayer knows or believes to contains untrue information. It is an element of the offense, or a point that must be proven by the prosecution, that the untrue information is “material,” or significant.

Another element of the offense is that the taxpayer made or filed the return or document “under the penalties of perjury.” As our federal tax evasion attorneys discussed in a previous article, the perjury component of this offense sometimes enables prosecutors to charge taxpayers with making and subscribing false returns in situations where tax evasion, as it is defined under 26 U.S. Code § 7201, cannot be charged successfully. In fact, making and subscribing false returns is also referred to as “tax perjury.”

At sentencing, the Underwoods will face harsh penalties: up to five years each for conspiracy, and up to three years each per count of tax fraud, which is the maximum sentence allowed under the statute. The same statute allows for criminal fines of up to $100,000 per violation.

IRS Audit Representation and Criminal Tax Defense for Cash-Only or Cash Intensive Businesses

If you are a small business owner who has been chosen for a tax audit or is at risk for an IRS criminal tax investigation, it is in your best interests to discuss the situation with a California tax lawyer as soon as possible. At the Tax Law Office of David W. Klasing, we possess more than 30 years of legal, tax, and accounting experience, including over a decade of auditing experience in public accounting, enabling our award-winning team to craft a robust strategy regardless of the challenges at hand. To arrange a reduced-rate consultation, contact us online today, or call the Tax Law Office of David W. Klasing at (800) 681-1295.

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