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New York Businessman Guilty of Tax Evasion and Preparing False Return

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    According to a press release by the Department of Justice, the owner of a precious metals business was found guilty of tax evasion and aiding in the preparation of a false tax return. Earlier this month, a federal jury sitting in New York convicted Christopher Wolf of two counts relating to tax crimes stemming from income he earned from his company. Wolf owned and operated Rothchild & Associates LLC, a Brooklyn-based business that sold precious metals over the phone.

    Authorities presented evidence at trial that Wolf used a shell company in 2010 and 2011 to receive commissions due to him related to his sales activities at Rothchild. Prosecutors endeavored to show that there was no reason to funnel money through the shell corporation but for concealing Wolf’s income. Additionally, when it came to file his individual income tax return for 2010 and 2011, Wolf underreported his commission income and claimed expense deductions that were not appropriate because the expenses were never incurred. IRS and Department of Justice authorities estimated that Wolf’s crimes resulted in a tax loss of approximately $240,000.

    Wolf faces a hefty prison sentence. At his sentencing hearing, Wolf could receive up to five years on the tax evasion charge and up to three years on the preparation of a false tax return charge. Additionally, Wolf will likely be sentenced to serve a period of supervised release and pay fines and/or restitution relating to his illegal activities.

    As a general matter, there is nothing illegal about directing payment for services performed to a corporation. Likewise, there is nothing fundamentally wrong with taking deductions relating to expenses that were incurred in the production of that income. Where many taxpayers get tripped up is the line that divides legitimate business needs and an attempt to evade taxes.

    In the story above, Mr. Wolf formed entities for the sole purpose of concealing income. Additionally, Mr. Wolf fabricated expenses in order to reduce the amount of income subject to tax. If the taxpayer in this case had a legitimate purpose for setting up a business entity, to receive income for services he performed, he may have been arguably in a different position. Many taxpayers enjoy the limited liability of certain business entities. There is nothing illegal about it. Additionally, the law is not violated if a taxpayer deducts ordinary and necessary business expenses that are incurred in the tax year. But creating expenses out of thin air for the sole purpose of paying less tax will get you in big trouble as will forming entities for the sole purposes of hiding the underreporting of legally taxable income.

    Whether you are a taxpayer who has found themselves in hot water with tax authorities or someone who is looking to structure their business affairs in a manner that is tax efficient, an experienced tax attorney is a valuable resource. Not only does a tax attorney have the technical tax knowledge needed to advise on a wide variety of business and individual tax topics, but they also have extensive legal training. From areas such as criminal law, criminal procedure, evidence, and criminal tax law, a tax defense attorney’s legal toolbox will prove most effective to those who are looking to stay out of trouble.

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