Western Iowa farmer Kurt Neldeberg, 64, appeared in Sioux City federal court on February 28, 2018, where he pleaded guilty to making a false and fraudulent income tax return, which violates the U.S. Tax Code under 26 U.S. Code § 7206 (fraud and false statements). Neldeberg, who directed the proceeds from grain sales into personal accounts while concealing the funds from his tax preparer and bookkeeper, was sentenced for his crimes on August 20. Our tax evasion attorneys provide updates on Neldeberg’s sentencing, and discuss some information about the unique tax requirements that apply to professional farmers and fishermen – who, after all, are major drivers of California’s economy. According to the Bureau of Labor Statistics (BLS), California has the highest employment rate for farming, fishing, and forestry in the country, potentially making thousands of California taxpayers subject to special IRS rules and requirements.
Probation, IRS Restitution Ordered for Farmer Who Failed to Report Income on Tax Return
Rural Iowa may not seem like an obvious site for tax crimes, but the reality is that tax fraud can occur anywhere in the United States – even in a town with a population of less than 800. For a real-world example, one need only look to the case of Whiting, Iowa farmer Kurt Neldeberg, who in February entered a guilty plea in response to charges of filing false returns.
According to the U.S. Department of Justice (DOJ), Neldeberg concealed hundreds of thousands of dollars of income from the Internal Revenue Service over a period spanning 2009 to 2012. Specifically, Neldeberg failed to report on his tax returns income totaling approximately $315,512, which the defendant earned by selling grain. Rather than disclosing these earnings to his bookkeeper and tax preparer so that the proper amount of tax could be paid, Neldeberg “willfully did not inform his bookkeeper nor his tax preparer of these farm grain sales and deposits into personal accounts.”
For farmers, reporting income is generally more complex than simply filing a Form 1040 (and in California, a Form 540, which is the California Resident Income Tax Return). At the federal level, farm income (and farm expenses) are reported on Schedule F (Profit or Loss from Farming), which should be attached to one of the following, as applicable:
- Form 1040 (U.S. Individual Income Tax Return)
- Form 1040NR (U.S. Nonresident Alien Income Tax Return)
- Form 1041 (U.S. Income Tax Return for Estates and Trusts)
- Form 1065 (U.S. Return of Partnership Income)
- Form 1065-B (U.S. Return of Income for Electing Large Partnerships)
Schedule F prompts farmers to provide information about a range of agricultural expenses (Part II), such as feed, plants, and fertilizers. It also asks farmers to describe sources of farm income (Part I) – including, at Line 2, “Sales of livestock, produce, grains, and other products you raised” (italics our emphasis). However, Neldeberg acted to conceal farm income resulting from the grain sales, knowingly reporting inaccurate data on Schedule F. According to the DOJ’s press release, “Neldeberg knew that the farm receipts reported on Schedule F of his joint federal tax returns were incorrect, resulting in underreported income for each of the tax years 2009-2012 and tax losses therefrom.” By failing to report approximately $315,512 in proceeds from grain sales, Neldeberg avoided paying his true tax liabilities, which exceeded $100,000.
Appearing before U.S. District Court Judge Mark W. Bennett on August 20, 2018, Neldeberg was sentenced to two years of federal probation, plus 120 hours of community service – a lenient sentence, considering that, according to the United States Sentencing Commission (USSC), “More than half of tax fraud offenders were sentenced to imprisonment only (59.1%)” in fiscal year 2017. The same year, “The average sentence length for tax fraud offenders was 17 months.” (For more data on how tax fraud is punished at the federal level, see our 2017 tax crime statistics.)
However, while Neldeberg may have avoided a prison sentence, he will still face debilitating financial penalties. According to the press release, “Neldeberg was ordered to make full restitution to the Internal Revenue Service, including any and all interest and penalties determined to be due and owing.”
California Tax Attorneys for Farmers, Ranchers, and Agribusiness Owners
The U.S. Tax Code contains various provisions to help alleviate the financial burden on farmers. For example, as discussed in IRS Publication 505 (Tax Withholding and Estimated Tax), there are unique rules surrounding the underpayment of estimated tax. Working with an experienced tax attorney can help to ensure that you are using the tax code to your greatest financial benefit, while remaining in compliance with state and federal regulations.
If you failed to report all of your income on a previous tax return, forgot to list certain sources of income, or failed to file a return, discuss your options right away with the knowledgeable, zealous tax lawyers and accountants at the Tax Law Office of David W. Klasing. With offices throughout Northern and Southern California, we are proud to serve commercial farms, ranches, fisheries, and other agribusinesses statewide. For a reduced-rate consultation concerning a California or federal tax issue, contact the Tax Law Office of David W. Klasing online, or call today at (800) 681-1295
Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles, the Tax Law Offices of David W. Klasing now have offices San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland and Sacramento.
Helpful Q and A libraries
https://klasing-associates.com/topics/audit-representation-faq/
https://klasing-associates.com/topics/criminal-tax-representation-faq/
