FROM INTERNATIONAL EVADERS TO LOCAL MOM-AND-POP SHOPS

El Dorado County authorities have arrested the owners of Poor Red’s Bar-B-Q, a local institution in Diamond Springs, on suspicion of tax evasion.

Michael and Brenda Adams are accused of evading almost $350,000 in taxes over the last six years, according to a news release from the El Dorado District Attorney’s office.

Prosecutors have filed a complaint against the Adamses in El Dorado Superior Court alleging more than 30 counts of tax evasion and insurance fraud.

THE TIME IS RIPE FOR CRIMINAL TAX PROSECUTIONS

The IRS also has bigger fish to fry. On Monday – Tax Day – federal investigators raided the Pilot Flying J’s West Knoxville headquarters.

CEO Jimmy Haslam said the investigation centers around claims of failure to pay rebates to trucking customers.

A spokesperson for the Internal Revenue Service’s Criminal Division confirmed the IRS was involved in the raid.

The timing of the investigation is almost too convenient. Typically around Tax Day there will be higher profile investigations or sometimes arrests made. The search warrants in this case could have been executed any of the other 364 days of the year, but April 15 is always a good reminder to people to pay their taxes.
Criminal tax issues come down to intent or what the IRS calls “willfulness.” Filing an incorrect tax return is not a crime but intentionally or willfully filling an incorrect tax return is a crime.

Pilot Flying J is in damage control right now because even a simple investigation can make people think that they have done something wrong. However, the search warrants required for this raid indicate the government believes there is some wrongdoing.

But the investigation alone does not mean there is wrong doing. It’s very possible they will determine criminal prosecution is not warranted. That decision comes down to the Department of Justice.

YOU ARE NEVER TOO OLD TO BE CRIMINALLY PROSECUTED BY THE IRS

As I have discussed in previous blogs, the U.S. is expanding its crackdown of offshore tax evasion. Four years after an agreement between the U.S. and Switzerland pierced a veil of banking secrecy by requiring Swiss bank UBS to turn over names of account holders, federal prosecutors are conducting at least 100 criminal investigations against suspected tax evaders.

The U.S. government already has won more than 50 criminal cases and collected at least $5.5 billion in connection with undeclared offshore accounts. On January 8th, Mary Estelle Curran, a 79-year-old widow best known for volunteer work, pleaded guilty to criminal charges of filing false tax returns and evading about $668,000 in federal tax on $40 million her husband left her in a secret Swiss bank account at UBS. She agreed to pay almost $22 million, which is purported to be the largest penalty in a criminal case on offshore accounts since the UBS agreement. Ms. Curran is to be sentenced in a federal court in West Palm Beach, FL, where she faces up to six years in prison.

U.S. officials seem to be sending a message that no one is too old, or too rich, or too poor, or too sympathetic to escape criminal prosecution.

AVOID CRIMINAL TAX INVESTIGATIONS BY FULLY REPORTING

The IRS is usually only interested in collecting the taxes owed, plus interest along with a few penalties. However, if during the tax audit the IRS suspects that you have committed tax fraud they can impose a civil tax fraud penalty. The civil tax fraud penalty is equal to 75% of the tax owed, plus interest on the penalty. Worse yet the auditor might ask the tax fraud referral specialist to look at your case to see if it should be sent to the IRS Criminal Investigation unit for criminal tax prosecution.
Tax crimes include filing a false tax return, tax evasion, filing false documents, failure to collect employment taxes, failure to pay taxes, and failing to file a tax return. The penalties for criminal tax fraud are very serious. They range up to 5 years in jail, plus fines of up to $500,000, plus the costs of prosecution for each separate tax crime. Once the criminal tax case is completed the IRS Criminal Investigation unit will refer the case back to the IRS Examination Division where the taxes will be assessed, and the IRS can be expected to add on the civil tax fraud penalty, on top of any criminal tax fraud fines.

Mere carelessness is not tax fraud. The IRS decides whether criminal tax fraud has been committed by looking for certain signs of fraud, including:

  • failure to file tax returns
  • understatements of income
  • inadequate records
  • concealment of assets
  • failure to cooperate with tax authorities
  • dealing in cash
  • failure to make estimated tax payments

Failure to file tax returns year after year only complicates an already difficult situation. In most cases, the IRS wants to work with taxpayers to return them to compliance. The role of the attorneys at the Tax Law Office of David W. Klasing is straightforward: they prepare client returns in-house with decades of experience, and they work with the IRS in an attempt to resolve the matter in a civil arena, prior to a criminal tax referral. If the case does reach the criminal level, our attorneys will defend it through aggressive representation and negotiation or, if necessary, district court litigation.