On October 11, 2018, 58-year-old New Brunswick, New Jersey resident Amit Govil, a CPA who operated a “business providing risk management and audit services to community banks,” was arrested and charged with filing false tax returns. At the time of his arrest, prosecutors alleged that Govil failed to report “more than $650,000” on federal income tax returns, a figure later described as “more than $672,000.” On February 4, 2019, Govil, appearing in New Jersey federal court before U.S. District Judge Jose L. Linares, admitted to one count of making and subscribing a false return, which is a felony violation of 26 U.S. Code § 7206(1). Govil is currently scheduled to be sentenced on May 13, 2019, at which point he – like most tax offenders – will face daunting criminal penalties, including potential prison time.
According to the Department of Justice press release announcing Govil’s arrest in late 2018, the defendant’s risk management business, referred to in the indictment against Govil as “Company A,” “earned more than $3.9 million in gross receipts or sales for tax year 2010, and more than $4.3 million in gross receipts or sales for tax year 2011.” However, Govil reported substantially lower amounts to the IRS for those periods: $3,352,848 (an omission of roughly $547,000) and $4,205,175 (an omission of roughly $95,000), respectively.
This income should have been disclosed on Schedule C of Govil’s personal federal income tax return, which is used by sole proprietors to report business profits and losses. Unfortunately for self-employed taxpayers, filing Schedule C is a common trigger for tax audits – and this case may exemplify why.
Govil pleaded guilty to Count One of the above indictment, in which prosecutors alleged that his returns “for tax years 2010 and 2011… were not true and correct as to every material matter in that, among other things… Govil underreported and failed to report the gross receipts or sales of Company A on the Schedules C of his Personal Tax Returns.” As the indictment notes, this constitutes a violation of 26 U.S. Code § 7206(1), which makes it a felony when a taxpayer “willfully makes and subscribes any tax return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury… which he or she does not believe to be true and correct as to every material [i.e. significant] matter.”
In this case, there was a “willful” (intentional) and “material” (important) misstatement about Company A’s gross receipts. It is merely one of many previous examples in which business owners have faced identical charges for underreporting income, such as a case involving a Delaware psychic convicted of tax fraud, or another case focused around a Hawaiian CPA and business owner.
The penalty for making, subscribing, and filing a false return is up to $100,000 (or, in the case of corporations, up to $500,000). In place of or in addition to such fine, the defendant may be sentenced to a maximum of three years or 36 months in federal prison. However, when he appears for sentencing in May, Govil will face a maximum fine of $250,000, according to the DOJ’s most recent press release concerning this case. Alternately, Govil may be ordered to pay “twice the gross gain or loss from the offense.”
Even with his sophisticated knowledge of the Internal Revenue Code, Govil was unable to evade detection by the IRS – and subsequently, punishment by the DOJ. This should send a clear message to taxpayers everywhere: it is merely a matter of time before the Internal Revenue Service, working with other law enforcement agencies, discovers indicators of fraud during an IRS tax audit.
If you are being audited by the IRS, and are worried about the potential for criminal tax charges to result from the examination, now is the time to consult with an experienced tax defense attorney about your options. To set up a confidential, reduced-rate legal consultation with an Orange County tax evasion lawyer, contact the Tax Law Office of David W. Klasing online, or call us at (800) 681-1295. We handle civil tax audits and criminal cases throughout Northern and Southern California.
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