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IRS Criminal Investigation Results in Tax Evasion Charges for Connecticut Broker

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IRS Criminal Investigation Results in Tax Evasion Charges for Connecticut Broker

What Are Tax Organizers, and Why Are They Risky When Filing Your Tax Return?

Following his arrest on Friday, September 14, 2018, 71-year-old Richard Josephberg of Greenwich, Connecticut was indicted on nine counts of two tax crimes, including “five counts of tax evasion and four counts of willful failure to file tax returns,” according to a press release issued by the U.S. Department of Justice (DOJ). The defendant, previously a financial broker with ties to various investment firms, used his position to maneuver the commissions he received through the entities, creating accounts in their names and effectively “disguising more than $1.5 million in income as long-term capital gain,” to quote U.S. Attorney Geoffrey S. Berman. As our Los Angeles criminal tax defense lawyers will explain in this article, the financial motives that would drive a scheme of this nature are rooted in differences between the taxation of income and capital gains – specifically, preferential long-term capital gains tax rates which ordinarily maxes out at 23.8% where ordinary income rates area as high as 39.6% plus self-employment taxes.

Broker Files False Returns, Conceals Income in Tax Fraud Scheme

The DOJ reported that, sometime during “late 2010,” Josephberg joined a Manhattan-based investment firm (“Firm-1”). The owner of Firm-1 helped Josephberg make a lucrative deal with a second firm (“Firm-2”), “which agreed to pay… a commission of approximately 15 percent of any profit generated by Firm-2 on financing deals originated by Josephberg.”

One such deal, struck in 2011, earned Josephberg a total commission of about $1.57 million. It was after Josephberg received his initial portion of the payment, an amount totaling roughly $35,725, that the scheme began to develop.

At this point, Josephberg instructed Firm-2 to make the rest of the payments – more than $1.5 million of which remained – using the name of a new company, “Almorli Advisors Inc.” Josephberg deposited these funds into a new account he had recently created in Almorli’s name, setting the stage for the tax crimes – and criminal charges – which were to follow.

Around March 27, 2012, Josephberg founded a company named “Almorli Advisors NY LLC,” similar to the previous Almorli entity. While preparing his taxes, Josephberg instructed his accountant, using the name of Almorli Advisors NY LLC, to “prepare a false 2011 partnership income tax return, Form 1065” (U.S. Return of Partnership Income). On the falsified Form 1065, Josephberg’s accountant listed him and his son as 99% and 1% partners, respectively, thus giving Josephberg a 99% share of long-term capital gains totaling approximately $1.57 million. The problem was that the funds were not, in fact, “long-term capital gains,” but rather the payments he had received from Firm-2 for the remainder of his commission. In other words, the $1.57 million should have been reported – and taxed – as ordinary income.

How Are Capital Gains Taxed Differently than Ordinary Income?

Here it is necessary to have some background knowledge about the taxation of income versus capital gains. A capital gain is any profit realized through the sale of a “capital asset,” which could range from an office complex, to a piece of land, to profits made by selling securities (like stocks and bonds) or even cryptocurrencies (like Bitcoin or Litecoin). If the property is held for more than one year, the gains are categorized as “long-term” by the IRS.

This is significant in that long-term capital gains are subject to a tax rate that varies anywhere from 0% to 23.8% (as determined by the taxpayer’s tax bracket). In comparison, ordinary income – which covers wages and “supplemental” wages, defined by the IRS to include bonuses, overtime, and yes, also commissions – is subject to a considerably higher tax rate, which can range anywhere from 10% to 39.6%. Therefore, taxpayers might see opportunities to reduce their tax liabilities by disguising income as long-term capital gains.

Of course, these “opportunities” are highly illegal, constituting willful attempts to evade tax liabilities – which is precisely what Josephberg was eventually charged with. By mischaracterizing his income from commissions as long-term capital gains, Josephberg had “a reported tax liability that was hundreds of thousands of dollars lower than the true tax liability” (italics our emphasis), resulting in a substantial loss to the government.

In addition to misrepresenting his income as capital gains, Josephberg also failed to file federal income tax returns in 2013, 2014, 2015, and 2016. These failures to file were accompanied by “various affirmative steps to evade the assessment of taxes,” such as using the income from various Almorli accounts to “to pay for… personal expenses.”

Josephberg, like all tax fraud defendants, will face serious tax evasion penalties if he is convicted or pleads guilty. Specifically, he is facing a potential sentence of up to five years in prison for each count of tax evasion, and one year in prison for each count of failure to file a return. In addition, he will likely be ordered to pay IRS restitution and court fines.

California Criminal Tax Defense Lawyers Handling Tax Evasion Charges

Commenting on the case, James D. Robnett of IRS-CI – the IRS Criminal Investigation division – stated, “The IRS enforces the nation’s tax laws and Special Agents are experts at following the money through multiple entities and complex structures. People who create elaborate schemes designed to mislead the IRS run the very high risk of arrest and criminal prosecution.” One look at recent tax crime statistics can verify these statements.

If you are under investigation for suspected tax evasion, have been chosen for an IRS tax audit, or have been contacted by the IRS, you should consult with an experienced tax evasion defense lawyer right away. For a reduced-rate legal consultation, contact the Tax Law Office of David W. Klasing online, or call (800) 681-1295 today.

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 BernardinoSanta BarbaraPanorama CityOxnardSan DiegoBakersfieldSan Jose, San FranciscoOakland  and Sacramento.


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