Montana Car Wash Owners Plead Guilty to Tax Fraud in cash “Skimming” Scheme

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Montana Car Wash Owners Plead Guilty to Tax Fraud in cash “Skimming” Scheme

In April 2019, the U.S. Department of Justice (DOJ) issued a press release stating that Missoula tax defendants Joseph and Traci Baumgardner, a married couple who owned several Montana car wash businesses, were denying charges of making and subscribing false tax returns, otherwise known as “tax perjury.” Appearing in district court in August, the Baumgardners changed their legal approach, pleading guilty as part of an agreement with prosecutors. At their sentencing hearing in December, the Baumgardners may face prison terms of up to five years. The couple’s accountant and tax preparer, Daniel Brian Burke, who allegedly helped the Baumgardners execute their scheme, will face trial later this month.

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“Skimming” and Concealing Business Income is Tax Evasion

The charges against Burke and the Baumgardners arose from an illegal yet widespread tax scheme known as “skimming,” in which a business owner “skims” cash from his or her business before recording sales, depositing the funds into a personal bank account without reporting the income on personal or business tax returns. Though at first glance it may seem like a victimless crime – in effect, taking money from yourself – skimming can still lead to serious tax evasion charges, since you are willfully understating sales and concealing a portion of your income from the IRS. In fact, our tax defense attorneys have written about taxpayers who were charged with skimming-related crimes on several occasions, most recently here. This particular case was a fairly extreme example, with only approximately $10,060 paid in taxes on more than $5 million of income.

The Baumgardners repeatedly filed false tax returns, omitting the skimmed business income, during the period from 2011 to 2013. Willfully filing, making, or subscribing false income tax returns is prohibited by federal law under 26 U.S. Code § 7206(1). Additionally, 26 U.S. Code § 7206(2), which is closely related, prohibits CPAs, tax preparers, and others from assisting taxpayers with the filing of false returns. For this reason, it is often called “tax preparer fraud.”

The criminal penalties for making and subscribing a false tax return are outlined under 26 U.S. Code § 7206 and include the following: (1) a prison sentence of up to three years; (2) fines of up to $100,000 (or, for corporations, $500,000); and (3) additional fines to cover “the costs of prosecution.” In addition, the taxpayer’s arrest (and, if found guilty, conviction) will create a criminal record, which can create obstacles when the taxpayer is searching for jobs, applying for loans, or looking for housing.

The maximum criminal penalties for aiding or assisting a false return are the same as the maximum penalties for making or subscribing a false return: fines of $100,000 and sentencing of up to three years. However, there is an additional consideration for CPAs and other tax professionals: the suspension or revocation of professional licenses and certifications. In many instances, tax preparers who are convicted of tax fraud are forced to close their businesses or are permanently banned from practicing. Countless examples of such outcomes are featured in our tax law blog, such as the Florida tax preparer banned from filing returns, the Illinois tax preparer ordered to repay fees, or the Georgia tax preparer forced to close their business.

 

California IRS Criminal Tax Defense Lawyers for Small Business Owners

If you believe that you may have engaged in skimming or similar business practices, it is urgent that you discuss the situation confidentially with an experienced IRS tax evasion defense attorney. At the Tax Law Office of David W. Klasing, we bring decades of criminal and civil tax litigation experience to every case we handle, approaching each tax scenario with a wealth of knowledge, a fearless attitude, a proactive strategy, and a tireless dedication to securing the best possible outcome. Contact our offices online today to set up a reduced-rate consultation, or call the Tax Law Office of David W. Klasing at (800) 681-1295 to speak confidentially with one of our award-winning tax attorneys in California.

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