Buchanan, Michigan resident Lori Lynn Pawielski pleaded guilty to felony tax evasion in Michigan federal court earlier this month. The charges arose from a long-running tax fraud scheme, spanning the years 2009 to 2016, in which Pawielski wrote herself more than 270 checks in her employer’s name, then failed to report the income on her tax returns. Though the tax evasion charges were originally compounded by an embezzlement charge, the latter was dropped as part of Pawielski’s plea agreement, a process known as “charge bargaining.” However, while Pawielski may have escaped criminal liability for embezzling from her employer, she will still face harsh consequences for tax evasion, a separate offense, at her February 15 sentencing. In addition to heavy fines, Pawielski risks a prison sentence of up to five years, which is the maximum penalty for tax evasion currently established by federal law. Additionally, court records indicate that, as another condition of her plea agreement, Pawielski has agreed to pay restitution totaling nearly $2.5 million to the Internal Revenue Service (IRS) and her former employer.
Over the nearly eight-year period from January 2009 to November 2016, Pawielski systematically embezzled approximately $1,962,611 from her employer by writing herself a series of 271 checks without the employer’s knowledge or authorization. While the amount of each individual check was not reported, the average amount per check would be approximately $7,242 were the payments evenly distributed.
For the better part of a decade, Pawielski managed to conceal her embezzlement scheme by altering financial records within her employer’s QuickBooks business accounting software, tampering with checking-related documents to create the illusion that the funds were being used to pay various suppliers, when in fact, they were being funneled into a credit union account, from which Pawielski withdrew funds to pay for various personal expenses, including gambling.
But Pawielski’s two-stage scheme did not end there. Not only did the defendant repeatedly embezzle funds from her employer; she then neglected to report the resulting income to the IRS, thereby avoiding the assessment and payment of tax.
Though obtaining income illegally, then concealing such income by willfully failing to report it, seems to be a recurring pattern among tax offenders, the U.S. Tax Code – as many are surprised to learn – universally requires taxpayers to disclose all taxable income, regardless of whether it was earned by lawful means. Thus, taxpayers who hide from the government illegally-sourced income, such as the funds Pawielski embezzled, merely exacerbate their inevitable legal troubles by layering tax evasion atop the underlying crime.
On her 2015 federal income tax return, filed March 2016, Pawielski indicated that together, her and her husband’s total taxable income amounted to $149,160, creating a tax liability of $28,941. In reality, Pawielski and her husband’s combined taxable income was more than twice that amount at $330,166, creating a true tax liability nearly three times as great: $84,516. Thus, in a single tax year, Pawielski failed to pay the IRS approximately $55,575 in tax owed. Over the life of the scheme, Pawielski concealed approximately $1.6 million in income, consequently failing to pay taxes totaling approximately $511,433.
While prosecutors agreed to drop the charges of embezzlement – a serious “white collar” (financial) crime which is charged in situations where a person in a position of trust, such as an accountant or bank teller, violates the fiduciary duty and abuses his or her position to misappropriate funds or other assets from a client, employer, or investor – Pawielski could not avoid prosecution for tax evasion, criminal penalties for which generally include a fine of up to $100,000 and/or prison sentence of up to five years in accordance with 26 U.S. Code § 7201 (attempt to evade or defeat tax). Further, regardless of how Pawielski is ultimately sentenced, she has already agreed to pay a hefty restitution order totaling approximately $2.47 million.
Tax Day 2018, which will take place Tuesday, April 17, is bearing down quickly. If you are concerned about a previous failure to report income, failure to file taxes, or failure to pay taxes, it is in your best interests to retain competent and experienced representation by hiring a knowledgeable tax attorney or tax preparer you can trust. Aggressive representation is especially crucial if you have been targeted for a civil IRS tax audit, have an unresolved tax controversy with the IRS, or have been charged with a tax crime, such as willful tax evasion. The ramifications of a criminal tax charge are particularly severe for financial professionals, such as brokers, tax preparers, financial advisors, and CPAs, who are at risk for not only fines, restitution, and prison time like other taxpayers, but further, potentially career-ending professional consequences, such as disbarment, disciplinary actions, and the revocation of professional licenses or certifications.
Whether you are a CPA who is concerned about criminal tax exposure, a taxpayer who has been targeted for an IRS audit, eggshell audit, or IRS criminal investigation, or simply an individual in need of professional tax preparation services for the 2018 tax season, look to the Tax Law Office of David W. Klasing for experience-driven, results-oriented representation in matters of local, state, federal, and international taxation. To speak confidentially with our tax evasion defense lawyers or IRS tax attorneys in a reduced-rate consultation, contact the Tax Law Office of David W. Klasing online, or call our law offices at (800) 681-1295 today.
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