Manhattan Businessman Indicted on Federal Tax Charges

When most people think about tax fraud or evasion, they think about crimes that are associated with understating income or inflating deductions on federal or state income tax documents at the end of the year. And although those cases involving income tax fraud and evasion are very common, many are unaware that tax crimes can be committed with regard to other types of tax, such as sales and use. As detailed in the story below, individuals who buy tangible personal property should be aware of their obligations to pay sales or use tax. The repercussions for failing to do so include the potential for a sentence in a state prison. Furthermore, taxpayers should also be aware of the traditional federal tax law violations that can land you in a federal prison. Whether you have federal tax issues, state tax issues, or both, it is in your best interest to contact an experienced tax attorney at the first sign of problems.

According to a press release by the Department of Justice, Morris E. Zukerman, a resident of New York City, was indicted on three federal charges relating to a tax scheme that allowed him to avoid paying over $45 million in income and other taxes over a period of several years. The conduct that brought on the Zukerman prosecution was so bad that U.S. Attorney PreetBharara was quoted saying that the taxpayer “cheating on virtually all of his various tax filing obligations.”

According to the indictment, Zukerman served as the principal of M.E. Zukerman & Co. (“MezCo”). In 2008, the investment company sold the rights to a subsidiary oil company for $130 million. Zukerman lied to his accountants about the ownership of MezCo after the sale of the oil company, which allowed for the avoidance of the reporting of the sale to the government. As a result, over $35 million in corporate tax from the sale of the oil company was allegedly illegally avoided.

State Sales and Use Tax Fraud

After the sale described above, Zukerman used some of the cash proceeds to purchase expensive artwork from art shops in Manhattan, as well as art boutiques around the world. As a general matter, when a person purchases tangible personal property, a state will impose sales or use tax based on the amount of the piece of property that was purchased. Typically, the seller of goods will collect the sales tax on behalf of the buyer and remit the amount to the state. That being said, states constitutionally cannot require sellers to collect sales or use tax on property that is shipped to a state where the seller does not have a presence (commonly known as “nexus”). Zukerman purchased expensive pieces of art in Manhattan, but instead of having them shipped to his New York City residence, he had the art shipped to his business offices in Delaware or New Jersey. Because the art galleries did not have nexus in those states, they did not collect the sales tax. When it came time for Zukerman to report the purchase on his state tax return, he failed to do so.

False Charitable Donation Deductions

Zukerman is also accused of falsely claiming $1 million in charitable contributions in the 2008 and 2010 tax years. Zukerman purchased a piece of property on an island off of the coast of Maine. Initially, Zukerman had considered making a donation to the conservation entity that was selling the property, but later decided to buy the property free and clear for his own personal use. Prosecutors allege that he directed his tax preparer to falsely list the purchase price of the land as a charitable contribution.

Zukerman is facing a total of three federal counts: wire fraud, tax evasion, and obstructing the IRS. If convicted of all of the charges, he could spend up to 30 years in a federal prison. It is important to note that the federal charges against him do not include state criminal charges that will likely be filed, if they haven’t already, with regard to the alleged sales and use tax fraud stemming from the purchase of artwork.

The Importance of an Experienced Tax Attorney

Taxpayers who find themselves in hot water with the IRS or state taxing authorities should contact an experienced tax attorney as soon as possible. In many cases, taxpayers exacerbate situations that could be easily controlled by taking matters into their own hands. When a taxpayer participates in an examination or an investigatory interview without tax counsel present, they open themselves up to answering questions that needn’t be answered or producing documents that shouldn’t be produced.

An experienced tax attorney who is also a CPA is a valuable asset as they not only have extremely refined technical tax skills, but also have in depth training in criminal tax law, criminal procedure, Constitutional law, and a myriad of other areas of the law that can be extremely helpful throughout the course of a tax controversy.

The tax and accounting professionals at the Tax Law Offices of David W. Klasing have extensive experience in representing taxpayers in a plethora of tax situations. Whether they are assisting a taxpayer during an audit or examination, defending the rights of a taxpayer at trial, or helping a taxpayer settπle a dispute with regard to a foreign bank account, our team is always ready to zealously advocate for the best interests of our clients. When the IRS or state taxing authority is working against you, don’t hesitate in seeking assistance from an experienced tax attorney. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation and be sure to check out our YouTube channel for extremely helpful videos that may provide answers to some of your tax questions.