According to a Department of Justice press release, a Texas couple was convicted of conspiracy and other tax charges relating to filing false individual and corporate tax returns. This story is a reminder that taxpayers, no matter how big or small, are subject to scrutiny by the IRS and if agents find a pattern of potentially criminal behavior, the case could be escalated all the way to a federal court.
A federal jury recently convicted Michael Herman and his spouse, Cynthia Herman of filing false individual tax returns in 2010 and 2011, filing false corporate tax returns in from 2010 through 2012, and conspiring to obstruct the IRS in their administration of tax.
Court documents indicated that the Hermans owned and operated three local eateries: Cindy’s Gone Hog Wild, a restaurant and bar in Travis County, Cindy’s Downtown and Hasler Brothers Steakhouse, both in Bastrop County, Texas. Prosecutors presented evidence at trial to show that the couple caused a certain amount of revenue from the restaurants to be skimmed, resulting in financial documents maintained by the businesses to reflect lower-than-actual income. The evidence indicated that approximately $570,000 was skimmed from the business right into the pockets of its owners. Additionally, the couple paid for personal expenses with their business bank accounts, further skewing the accuracy of their individual and corporate tax returns.
Although the presiding judge has not yet set a date for sentencing, each spouse faces a maximum of five years in prison on the conspiracy charge and three years in prison for each of the charges relating to filing a false tax return. Additionally, each spouse is likely to be sentenced to serve a period of supervised release after his or her federal prison stay, as well as pay restitution to the IRS.
Skimming is a common tactic used by small and medium sized businesses to illegally reduce their tax liabilities. Skimming can take many shapes and some business owners even resort to purchasing certain technology that automatically achieves the intended result. In the end, a business that is engaged in skimming is removing a certain amount of profits of the books typically by understating sales. It is easy to see why federal and state tax authorities have set out to target taxpayers engaged in the practice. A auditor employed markup methodology will often flag this unreported cash income.
Additionally, it is important for taxpayers to understand that using a business bank account for personal expenses, and then writing off the cost of those expenditures is illegal and can result in charges for filing a false tax return. Not only does such a practice produce a false corporate tax return (for the deductions that were improperly taken) but also results in a false individual income tax return, as the individual taxpayer should have reported the value of the benefit received from the business accounts as income.
It is easy to see how a bad business decision can spiral into tax charges that could result in a federal prison sentence and severe monetary penalties. If you have received notice that your tax return has been selected for examination or have not been compliant with federal or state tax laws in the past, it is in your best interest to contact an experienced tax attorney as soon as possible to discuss options to come into compliance. A tax defense attorney will be able to help you craft a strategy to come into compliance while mitigating the potentially devastating consequences of a criminal tax prosecution.
The tax and accounting professionals at the Tax Law Offices of David W. Klasing have assisted taxpayers from all walks of life in a myriad of different tax situations. Whether you are facing an examination by the IRS or state taxing authorities or are looking to get ahead of an issue that may eventually result in an investigation, our team of zealous advocates is standing by to assist you. Do not let the threat of an IRS investigation or criminal prosecution keep you up at night. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.
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