A 56-year-old Cadillac businessman will spend the next two years in federal prison after entering a guilty plea last month to tax evasion. The defendant allegedly failed to pay taxes or even report income, both personally and for business purposes, for well over a decade.
Even though the defendant in this case accepted a plea deal, he will still end up facing time behind bars, not to mention restitution payments and a supervised release period.
These issues are serious and require immediate and competent attention. If you have any concerns at all about your past or present tax compliance status, call the Tax Law Offices of David W. Klasing today at (800) 681-1295 or schedule a reduced rate initial consultation online here.
Cadillac Man Receives 20-Month Sentence Plus Restitution After Guilty Plea
Douglas Arvin Horning was sentenced to 20 months in prison for tax evasion by United States District Judge Paul L. Maloney. According to the charges, Horning faced up to five years in prison. In addition to the jail term, the court ordered Horning to pay $977,983 in restitution with a three-year period of supervised release.
Background
According to the March plea agreement, Horning has not filed an individual tax return since 2008 or a corporate tax return since 2006 for his software company, Perfect Professionals, Inc., which does business under the corporate name of Compass Technologies.
The plea also showed that Horning had not paid any individual or corporate taxes since the last time that he filed returns. Horning also failed to pay all of the required “trust fund” taxes withheld from his employees’ paychecks. The plea indicated Horning concealed income by routing it through a second company, even after that company was dissolved by the State of Michigan. Horning also allegedly failed to disclose the company’s bank account to the IRS or include the resulting income on any Form W-2 filings that he issued to himself through the company.
Horning also received unreported income by paying personal expenses using corporate bank accounts, according to the plea. The parties stipulated that for criminal tax purposes, Horning owes the IRS nearly $1 million to cover corporate and individual taxes for tax years 2012 through 2016 and trust fund taxes for 2006 through 2019.
Government Prosecution
Andrew Birge, the U.S. Attorney for the Eastern District of Michigan, made it clear that this case should serve as an example. Said Birge, via press release, “As Tax Day approaches, the court’s sentence is an important reminder of the duty we as citizens and other taxpayers owe to each other and the government to file returns and pay legally required taxes. Concealing assets from the IRS or otherwise evading these obligations can and will result in criminal prosecution.”
Detroit IRS Field Office Criminal Investigation Special Agent Sarah Kull also noted that the license to run a business is not a license to avoid paying taxes or collecting your employees’ withholding and not paying it over to the IRS. Kull stated plainly that Horning’s alleged misconduct involving the hiding of income and blatant disregard of tax laws are examples of criminal activity that cheats all Americans who pay their fair share of taxes.
Breakdown of Tax Crimes in Horning Case
As we know from the headlines, the defendant in this case pled guilty to tax evasion. But many have a misunderstanding of what this means, since the term is thrown around so loosely. Even though Horning accepted a plea deal to reduce the charges against him, it is important to recognize just how many criminal tax violations he allegedly committed.
Failure to File a Return
Under 26 U.S.C. § 7203, anyone who fails to file a return where they owe one to the federal government may be convicted of failure to file a return. Even if the defendant willfully failed to file their return, this statute only creates a misdemeanor criminal penalty, which is a less severe offense than the felonies outlined above.
The elements of the crime are as follows:
- The defendant was required to file a return
- The defendant failed to file the return (regardless of whether the filing was not made or was delinquent)
- The defendant acted willfully with the intent to violate a known legal duty
If all of these elements are proven, the defendant faces a potential sentence of up to one year in prison and a fine of up to $25,000 (or $100,000 for corporate offenders) per charge. However, there are other consequences of failing to file a return that could wind up causing even more damage. A taxpayer’s failure to file a return for a given year or even multiple years is a blatant red flag that is likely to garner the attention of IRS auditors and criminal investigators.
Tax Evasion
The phrase “tax evasion” is used broadly to describe tax offenses in general discourse. However, actual tax evasion is described in 26 U.S.C. § 7201 as any willful attempt to evade or defeat a federal tax.
The government typically pursues tax evasion charges against a taxpayer if they file a return with inaccurate or incomplete information. However, there are other circumstances that may qualify under the language of the statute. Tax evasion can occur in the evasion of tax assessment as well as the evasion of payment itself.
The elements of tax evasion are as follows:
- A substantial tax has been evaded or attempts have been made to evade the tax
- The attempt or attempts were made willfully
- There was some affirmative act in furtherance of the intent to evade taxes
The most important of these elements is the one that involves willfulness. This is because the difference between willful evasion versus understatement of tax due to negligence is the difference between a felony and a merely a 20% negligence penalty. Using the Supreme Court’s definition in Cheek, willfulness means a “voluntary, intentional violation of a known legal duty.” If you have questions about how this legal terminology applies to your case, speak to a dual licensed Criminal Tax Defense Attorney and CPA as soon as possible.
Get Help from the Tax Law Offices of David W. Klasing
To obtain the vigorous defense that your civil or criminal tax controversy deserves, reach out to our dedicated Civil and Criminal Tax Defense Lawyers and CPAs to schedule a reduced rate initial consultation by calling (800) 681-1295 or schedule a reduced rate initial consultation online here.
How Can You Prevent Criminal Tax Charges?
If a taxpayer believes or is aware that they have existing noncompliance in their past tax returns and other filings, they may be able to make use of the voluntary disclosure process. Voluntary disclosure is an avenue by which noncompliant taxpayers may submit amended returns together with supplemental documentation. The government will ordinarily reward the taxpayer for coming forward voluntarily without having to be audited or criminally investigated for tax crimes by reducing the civil penalties that ordinarily apply and providing a pass on criminal prosecution for tax crimes.
Voluntary disclosure will not cure every issue, and it is important that you assess its effectiveness before taking this path. Voluntarily disclosing information that the government has already discovered will likely provide no benefit to the disclosing party. In any case, you will want to discuss your options with your Criminal Tax Defense Attorney as soon as possible to determine the best path forward.
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 disclosurebefore 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!
Talk to a dually licensed Criminal Tax Defense Attorney & CPA About Your Case Today
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.
The first step in defending yourself against invasive, costly, and potentially life changing IRS civil and criminal tax enforcement action is to share your story under attorney client privilege with a dedicated dually licensed Criminal Tax Defense Attorney & CPA like the ones at the Tax Law Offices of David W. Klasing. Call (800) 681-1295 or schedule online here for an initial case evaluation at a reduced rate.
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