The U.S. government treats tax crimes very seriously. Several methods can be employed to catch tax evaders. Furthermore, those who are caught can face multiple types of civil and criminal penalties for their misconduct.
For instance, Edward Scott Finn is a business owner in Maryland who was caught underreporting income in an attempt to limit tax obligations. For his actions, Finn is now facing a prison sentence of 16 months and has been ordered to pay restitution for the tax loss he caused. Upon being arrested, he erased and reset his cell phone in an attempt to disrupt the investigation against him. However, his actions did not prevent him from being convicted.
If you are facing (or merely at risk of facing) potential penalties for a tax violation, seek help from our Dual-Licensed Tax Attorneys & CPAs by calling the Tax Law Offices of David W. Klasing at (800) 681-1295.
If you have failed to file a tax return for one or more years or have taken a position on a tax return that could not be supported upon an IRS or state tax authority audit, eggshell audit, reverse eggshell audit, or criminal tax investigation, it is in your best interest to contact an experienced tax defense attorney to determine your best route back into federal or state tax compliance without facing criminal prosecution.
Note: As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed foreign information returns coupled with affirmative evasion of U.S. income tax on offshore income) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosure before the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply.
It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.
Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.
As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, KovelCPAs and EAs, our firm provides a one stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!
Tax Evader in Maryland Sentenced to Prison for Failing to Report Income
Edward Scott Finn is a former Lieutenant with the Prince George’s County Police Department and owner of Edward Finn Inc. (EFI). In 2023, he was sentenced to 16 months in prison for tax evasion. Finn has also been ordered to pay restitution in the amount of $367,765 and will serve two years of supervised release after his prison term is completed.
Finn operated EFI as a private company and used off-duty law enforcement officers to provide security services to various businesses. He admitted to underreporting over $1.3 million of EFI income on his individual tax returns from 2014 to 2019. In his attempts to minimize his tax obligations, Finn created false business expenses and deposited checks payable to EFI into personal or non-EFI bank accounts. Furthermore, he also used business funds for personal expenses such as a boat and a car.
On April 22, 2021, federal agents arrived to execute a search warrant at Finn’s residence. Upon their arrival, Finn erased and reset his cellphone. Still, his actions did not protect him from the severe consequences of his actions.
In order to avoid facing penalties similar to those levied against Finn, you should attempt to address any tax issues you have quickly and efficiently. If you suspect that you may have committed a tax crime, then our Dual-Licensed Tax Lawyers & CPAs will help evaluate your case and determine the appropriate next steps.
How Does the U.S. Government Catch Tax Evaders?
There are multiple methods that the U.S. government can utilize to catch tax evaders. The following are some of the more common methods that are employed:
Comparisons of Reported Information
Financial institutions, employers, and other entities are required to report certain financial transactions and income to the Internal Revenue Service (IRS). This includes forms like W-2s for employees, 1099s for various types of income, and 1098s for mortgage interest. The IRS compares this reported information with individuals’ tax returns in order to identify discrepancies and possible violations.
Data Analysis
The IRS also uses data analytics to uncover instances of tax evasion. They compare taxpayer data to statistical norms and identify anomalies that might indicate misconduct. For instance, red flags may be raised if someone reports significantly lower income compared to their peers in similar professions or income brackets.
Whistleblowers
Many tax evaders are captured through whistleblowers. A whistleblower is an individual who exposes illegal activities within an organization, typically within a corporation or other type of business entity.
The IRS has a program that encourages individuals with knowledge of tax evasion to report it. Whistleblowers can receive monetary rewards if their information leads to the recovery of unpaid taxes. This program has been very effective in uncovering complicated tax evasion schemes.
Tax Audits
Tax audits are another method used to catch tax evaders. The IRS conducts audits to examine taxpayers’ financial records and verify that they have accurately reported their income and claimed deductions. Audits can be conducted randomly or targeted based on specific criteria, such as unusually high deductions or suspicious activity.
Offshore Account Reporting
Finally, tax evaders are also uncovered through offshore account reporting. The U.S. government has implemented initiatives like the Foreign Account Tax Compliance Act (FATCA), which requires foreign financial institutions to report information about accounts held by U.S. taxpayers. This reporting helps the government identify taxpayers who may be hiding income and assets in offshore accounts.
Examples of Evidence Used to Convict Tax Evaders
Many types of evidence can be used to convict tax evaders. For example, the prosecution may rely on any of the following:
Financial Records
Financial records are a very common form of evidence used against defendants in tax evasion cases. The government may introduce a defendant’s bank statements, canceled checks, and credit card statements in order to demonstrate discrepancies between reported income and actual income. These records can show deposits, expenses, transfers, and other financial activities that indicate unreported income or fraudulent deductions.
Tax Returns and Forms
The defendant’s filed tax returns and related forms, such as W-2s, 1099s, or Schedule C (Profit or Loss from Business), can be essential pieces of evidence. The prosecution may compare these documents with other financial records to identify inconsistencies, false deductions, or unreported income.
Third-Party Records
When demonstrating a defendant’s misconduct, the government may also obtain records from third parties like banks, employers, and clients. These records can reveal unreported income, undisclosed assets, or fraudulent transactions.
Expert Witness Testimony
Additionally, expert witness testimony may be used to convict tax evaders. Experts such as forensic accountants and tax professionals can explain complicated financial matters to demonstrate how specific misconduct occurred.
Witness Testimony
Finally, the government may also present witnesses who can testify about a defendant’s tax evasion scheme. Potential witnesses include employees, business partners, clients, or others with knowledge of a defendant’s actions.
If You Have Been Charged with Tax Evasion (or merely have exposure), Call Our Attorneys for Assistance
Get help from our Dual-Licensed Tax Attorneys & CPAs by calling the Tax Law Offices of David W. Klasing at (800) 681-1295.
More Commonly Asked Tax Audit Questions
- How should Tax Audits be Handled by Criminal Tax Counsel?
- How to survive audit when I cheated on return being audited
- What is an eggshell audit?
- What is a reverse egg shell audit?
- Why is a reverse egg shell audit dangerous for a taxpayer?
- Warning signs of a criminal referral from an IRS audit
- Effective tax defense counsels goals in an egg shell audit?
- How are the 4 goals and outcomes 1 and 2 best obtained?
- What are the possible outcomes of an egg shell audit?
- Is it my right to know why I was selected for examination?
- What can I do to prepare for an audit?
- What is an IRS civil examination?
- How IRS decides which tax returns are audited
- What are my appeal options if I disagree with IRS?
- What are my basic taxpayer rights if the IRS audits me?
- Options if I am unable to pay at the conclusion of audit
- What a 30 or 90-Day Letter from the IRS means
- What is involved with appealing disagreements?
- Rights to disagree with IRStaxauditor’sss findings
- Can I stop the IRS from repeatedly auditing me?
- Can I have the examination transferred to another area?
- Can I record my IRS interview and is it a good idea?
- How many years of returns are at risk during an audit?
- Common reasons for the IRS to conduct a tax audit
- How to avoid negative consequences from an IRS interview
- Have to agree to interview by taxing authority directly?
- Are all audits the same?
- What should I do if the IRS is investigating me?
- What if I don’t respond to a taxing authority audit notice
- Your rights during an IRS tax audit
- Risks of attending an IRS audit without a tax lawyer
- Most common audit technique used by taxing authorities
- Don’t go into an IRS audit without representation
- Why hire an attorney to represent me in an audit?
- Why hire David W. Klasing to represent me in an audit
Questions and Answers for Criminal Tax Representation
- When tax defense counsel parallels tax crime investigation
- Guilty of tax obstruction by backdating documents?
- To be found guilty of tax obstruction must a person actually be successful in impeding the IRS’s functions?
- Help! The Document I Gave the IRS Had False Information
- Tax crime aiding or assisting false return IRC §7206(2)
- What is the crime known as tax obstruction § 7212?
- What is the difference between tax perjury and tax evasion?
- What is the tax crime commonly known as tax perjury?
- What is a Klein Conspiracy?
- Increased possibility of civil action in IRS investigation
- Am I Guilty of Tax Evasion if the Law is Vague?
- What happens if the IRS thinks I committed tax crimes?
- What are ways to defend against a tax evasion charge?
- Difference between criminal tax evasion and civil tax fraud
- What accounting method does the IRS use for tax fraud
- Can I Change Accounting Method to the Accrual Method
- What is the willfulness requirement for tax evasion?
- I didn’t know I committed tax fraud. Can I get off?
- Concealed assets from IRS. Can I avoid tax evasion charges
- How government proves I willfully engaged in tax evasion
- What is the venue or court where a tax crime case is heard?
- Must the IRS prove tax crimes beyond a reasonable doubt?
- Is it a crime to make false statements to the IRS?
- Will the IRS overlook my tax evasion if it’s minor?
- Failed to tell IRS about my nominee account
- Audit risk with cash based business transactions
- How to defend a client charged with tax evasion
- Is it tax evasion if I didn’t file income tax return?
- Government says I attempted to evade my taxes. Now what?
- I forgot to pay my taxes or estimated tax. Is this a crime?
- Government proof I “willfully” failed to pay taxes
- 5 Ways to Respond to Tax Evasion Charges
- Being audited after using a tax professional
- Rules for what an IRS agent can do while investigating me
- How tax preparers, attorneys and accountants are punished
- How the IRS selects tax crime lead for investigation
- How does the IRS prosecute suspected tax crimes?
- Does IRS reward informant leads for suspected tax crimes?
- How the government proves deficiency in a tax evasion case
- Do prior tax crimes factor into new IRS tax convictions?
- Requesting conference before investigative report is done
- Requesting conference after IRS Special Agent Report
- What are my rights during an IRS criminal investigation?
- Avoid prosecution for tax crime with voluntary disclosure?
- Defense tactics that make it hard for to prove willfulness
- How a tax attorney can stop your criminal tax case?
- What can you generally tell me about tax crimes?
- Continuing filing requirement with investigation pending
- Federal criminal code crimes that apply to tax issues
- Penalty for making, subscribing, and filing a false return
- CID special agent’s report for criminal prosecution
- What is the discovery process in a criminal tax case?
- What the IRS includes in indictment for tax case
- What is the hardest element of a tax crime to prove?
- IRS methods of gathering evidence to prove tax crime
- What does a grand jury do in IRS tax crime prosecution?
- Failure to keep records or supply information
- Failure to make a return, supply information, or pay tax
- What is attempting to evade payment of taxes?
- What is income tax evasion and how is it punished?
- What is attempted income tax evasion?
- What is the crime of failure to pay tax? What is punishment
- Crime of making or subscribing false return or document
- Criminal Investigation Division investigation tactics
- Tax crimes related to employment tax forms and trust funds
- Tactics to defend or mitigate IRS criminal tax charges
- How the IRS generates leads about suspected tax crimes
- What is the crime ”evasion of assessment” of tax?
- Specific examples of “attempting” to evade tax assessment
- What is the so-called Spies evasion doctrine?
- Does overstating deductions constitute tax evasion?
- Is it tax evasion if my W-4 contains false statements?
- IRC §7201 attempt to evade vs. common-law crime of attempt
- What are the penalties for Spies tax evasion?
- How government proves a taxpayer attempted tax fraud
- What is a tax that was “due and owing.”
- What is evasion of assessment for tax liability?
- Is evasion of assessment different from evasion of payment
- Does the IRS have a dollar threshold for tax fraud?
- What is the IRS burden of proof for tax fraud convictions?
- Are Tax Laws Constitutional?
- What is the source of law that defines tax evasion?
- Does section 7201 create two distinct criminal offenses?
- Does tax evasion definition include partnership LLC
- What if I helped someone else evade taxes?
- Is it illegal to overstate deductions on my tax return?
- Is it illegal to conceal bank accounts from the IRS?
- Do later losses justify prior deductions?
- Common reasons the IRS and DOJ start investigations
- What is the Mens Rea component of tax crimes?
- What is a proffer agreement and what are the risks?
- Why to have an attorney to review a proffer agreement
- Why enter into a proffer agreement?
- Limited use immunity from proffer agreements
- Difference between civil and criminal fraud allegation
