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Ohio Man Sentenced to Prison for Evading Assessment and Payment of Income Tax

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    Recently, the Department of Justice announced that a criminal tax defendant pled guilty to charges of tax evasion for the evasion of payment of taxes owed. On the single tax evasion charge alone, the defendant was sentenced to two and a half years in prison and ordered to pay back what he owed the IRS, plus additional penalties and interest.

    This case serves as an example that the illicit avoidance of tax assessment is not the only form of tax evasion. Evading payment will be considered as virtually the same crime, with the same severe consequences. If you cannot pay the taxes you owe, there are better solutions to your problems than committing a federal crime.

    Get answers to your questions about dealing with tax obligations today by calling the Tax Law Offices of David W. Klasing at (800) 681-1295 and scheduling a reduced rate consultation with one of our Dual Licensed Tax Relief and Resolution Lawyers and CPAs.

    Middletown Resident Faces 30 Months in Prison and Over $700,000 in Restitution for Tax Evasion

    A Middletown, Ohio man was recently sentenced to 30 months in prison for tax fraud. David Keith Fraley, 55, was sentenced in U.S. District Court for the Southern District of Ohio. Fraley was also ordered to pay $725,106.84 in restitution to the IRS.

    Fraley pled guilty in June of 2020 to evading the assessment and payment of income tax due to the IRS. According to court documents, Fraley attempted to evade the payment of income taxes and the assessment of income taxes associated with his 2009 through 2012 income tax returns.

    Fraley allegedly engaged in these federal tax crimes by shifting deposits of his personal income from his own bank accounts to other receiving accounts controlled by others once he discovered that the IRS had placed a levy on his own accounts.

    Case Background

    In 2009, Fraley failed to file his income tax return on time, and a substitute for returns was posted for him. The IRS subsequently mailed Fraley a copy of Letter 1058, otherwise known as a Final Notice of Intent to Levy and Notice of Right to Hearing. In the Final Notice, it was indicated that IRS estimates put Fraley’s total tax debt at a total of just over $1 million across the taxable years of 2007, 2008, and 2009, excluding penalties and interest.

    Fraley responded by asking the IRS for an extension to file the 2009 tax return. Prosecutors reason that, based on his receipt and response to the Final Notice, Fraley understood that the IRS would institute levies toward the funds held in his bank accounts to recover the tax due and owing.

    In an effort to evade the payment of his income tax liabilities for the years 2009 through 2012, Fraley transferred ownership of income to his business and brother. Initially, Fraley called his contractor and told them not to issue any income to accounts in his name and Social Security Number. Instead, Fraley directed that all payments be made to accounts using his business’ name and Employer Identification Number.

    However, the IRS instituted a levy against Fraley’s business account shortly after that. Subsequently, Fraley stopped making deposits into the business account that was levied and instead started making deposits into his brother’s bank account. He directed business associates to do the same and use his brother’s social security number.

    Plea and Sentencing

    Fraley agreed to plead guilty to one count of income tax evasion relative to evading the payment of income tax due to the IRS. The total tax loss for the years where the evasion occurred is estimated to be over $330,000, in addition to the over $1 million Fraley had already owed from the time immediately prior.

    Of a maximum potential sentence of five years in prison, Fraley received two and a half years. On top of that, Fraley was ordered to pay more than $700,000, which included restitution for the tax dollars concealed through evasion, as well as additional fines, the maximum available being $250,000.

    “Fraley took extensive measures in an effort to hide his income and to defeat his tax liabilities,” said Stephen Wajert, Acting Assistant Special Agent in Charge, IRS Criminal Investigation, Cincinnati Field Office. “His sentence is a warning that those who intentionally hide income from the IRS will be held accountable.”

    What is the Difference Between Evasion of Assessment and Evasion of Payment?

    Tax evasion usually occurs on a false return underreporting and thus underpaying tax liability. This is commonly referred to as evasion of assessment because the taxpayer hopes to avoid assessment by failing to accurately report their own liability.

    Tax evasion may also occur through acts to avoid payment of tax after or in anticipation of an assessment of the tax. This is commonly referred to as evasion of payment. Evasion of payment is what got Fraley into trouble in this case. By redirecting income into different accounts to create the impression that it wasn’t his own personal income, Fraley attempted to defeat the payment of tax that had already been assessed. This is what gave rise to the charge of tax evasion that ultimately resulted in a prison sentence.

    Evasion of assessment can also occur by failing to file a return. However, federal law provides a separate criminal penalty for the mere act of failing to file a return (26 U.S.C. § 7203). For a failure to file an income tax return to be considered tax evasion, the taxpayer must commit some affirmative act in furtherance of the evasion, such as the keeping of double books or the production of materially false financial documentation.

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