According to a Department of Justice press release, a New York City restaurant owner was recently sentenced to serve two years in federal prison for his role in a tax evasion scheme. This story should serve as a reminder to taxpayers that understating income or overstating deductions or tax credits can and do result in serious civil and or criminal tax repercussions for taxpayers. If you have skimmed income or inflated deductions, it is in your best interest to contact an experienced tax defense attorney to help you come into tax compliance.
Defendant Skimmed Significant Income from His Business
Court documents reveal that Adel Kellel was the owner of K&H Restaurant Inc., which operated a restaurant called Raffles Bistro located in the Manhattan Hotel in New York City. Between 2011 and 2015 Kellel filed false individual and corporate tax returns that substantially understated income. Investigators uncovered evidence that Kellel skimmed or misdirected income earned from hotel guests and deposited related checks into nominee bank accounts.
When tax time came around, Kellel provided incomplete records to his accountants. Thus, when tax preparers completed the K&H corporate returns, they severely understated income. In addition to failing to report the skimmed income on K&H’s corporate tax return, Kellel failed to report the amounts on his individual tax returns. Investigators determined that Kellel’s illegal activity resulted in over $700,000 of loss to the IRS and the State of New York.
In addition to his 24-month federal prison sentence, Kellel was ordered to serve three years of supervised release. Finally, Kellel was ordered to pay $613,478 to the IRS and $157,717 to the New York State Department of Taxation and Finance in the form of restitution.
Failing to Properly Report Business Income Can Lead to a Criminal Investigation or Worse
Taxpayers who own a business find themselves needing to file two tax returns, one for the business and one for their individual affairs. It is not uncommon to find that when a taxpayer intentionally fails to properly report income on their business tax return, they also fail to report the skimmed income on their individual tax return. This can result in a double whammy when it comes to tax evasion. U.S. and state tax law requires taxpayers to properly report their income, including income that was begotten illegally. Thus, if a taxpayer skims cash from the coffers of their business and uses the funds for their personal use, they are required to report the accession to wealth on their individual tax return.
It is easy to see how a choice to underreport income can snowball into a serious criminal tax liability. If you have understated income or have overstated deductions on your tax return, it is in your best interest to work with an experienced tax lawyer to determine your best plan of action to come into compliance. A seasoned tax attorney will guide you through the available avenues to get right with the government.
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!
We also have lots of success with eggshell audits aimed at detecting skimming and defending IRS and California criminal tax investigations.
We Are Here for You
Regardless of your business or estate needs, the professionals at the Tax Law Offices of David W. Klasing are here for you. We are open for business and our team will help ensure that your business is too. Contact the Law Offices of David W. Klasing today to discuss your business with one of our professionals.
In addition to our main office in Irvine, the Tax Law Offices of David W. Klasing has unstaffed (conference room only) satellite offices in Los Angeles, San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland, Carlsbad and Sacramento. During the COVID-19 pandemic, our staff are working from home, but have full virtual meeting capability.
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Questions and Answers for Criminal Tax Representation
- When tax defense counsel parallels tax crime investigation
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- Failure to keep records or supply information
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