According to a Department of Justice press release, a Florida man recently pleaded guilty to insider trading and aiding in the preparation of a false tax return. This story should remind taxpayers that even if you provide false information to your tax preparer, you are responsible for the fraud on the underlying tax return that is filed. If you have failed to file a tax return for one or more years, or have filed (or have caused a tax return to be filed) that contains knowingly false information, it is in your best interest to contact an experienced tax defense attorney to determine the best strategy to come into compliance without facing criminal tax prosecution.
Defendant Admitted to Trading on Insider Information and Lying on His Tax Return
Court documents reveal that Dayakar Mallu, of Orlando, Florida, was an information technology executive. Using the information that he was privy to as an IT executive, Mallu and a co-conspirator used insider information to trade securities of Mylan N.V., a pharmaceutical company. Department of Justice prosecutors alleged that Mallu’s insider trading resulted in more than $4 million of illegal gains or losses avoided.
As a part of the insider trading investigation into Mallu, federal authorities discovered that as a part of the preparation Opel Systems, LLC, Mallu’s own business, Mallu provided his tax return preparer with false information. Prosecutors alleged that Mallu indicated that a $1.3 million payment was to a contractor when in actuality, the payment was made into Mallu’s own brokerage account. Because the tax preparer was provided knowingly-false information, Opel Systems’ tax return for 2015 was criminally false.
Mallu will be sentenced in early 2022. He faces up to 25 years in federal prison for his criminal insider trading activity and up to three years in prison for aiding in the preparation of a false tax return. In addition, Mallu may be ordered to serve a term of supervised release upon his release from physical incarceration. Lastly, Mallu will likely be ordered to pay restitution, representing the tax loss that he caused and insider trading profits that he earned.
Coming Into Compliance After Filing a False Tax Return
Although most taxpayers investigated by the IRS have not engaged in insider trading, there are thousands of taxpayers who file false tax returns and are criminally prosecuted. There is a common misconception among some taxpayers that the IRS cannot catch every instance of tax noncompliance. Although that is true, the IRS is able to identify instances of tax cheating with much greater ease than in times past. Therefore, relying on the idea that the IRS will likely not uncover your tax noncompliance is dangerous.
If you have failed to file a tax return for one or more years, or if you have taken a position on a tax return that could not be substantiated upon civil tax audit, eggshell or reverse eggshell audit or criminal tax investigation, you should contact an experienced tax defense attorney to discuss the facts of your case. Together, you and your seasoned tax attorney will determine your level of civil or criminal exposure and develop a road map to come into compliance without facing criminal tax prosecution. While you are being represented by experienced tax counsel, you will not have to go up against the IRS alone, allowing you to lose less sleep about your looming tax liability.
Note: As long as a taxpayer that has willfully committed tax crimes (potentially including providing false information to your preparer coupled with affirmative evasion of U.S. income tax on domestic or 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!
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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.
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More Commonly Asked Tax Audit Questions
- How should Tax Audits be Handled by Criminal Tax Counsel?
- How to survive audit when I cheated on return being audited
- What is an eggshell audit?
- What is a reverse egg shell audit?
- Why is a reverse egg shell audit dangerous for a taxpayer?
- Warning signs of a criminal referral from an IRS audit
- Effective tax defense counsels goals in an egg shell audit?
- How are the 4 goals and outcomes 1 and 2 best obtained?
- What are the possible outcomes of an egg shell audit?
- Is it my right to know why I was selected for examination?
- What can I do to prepare for an audit?
- What is an IRS civil examination?
- How IRS decides which tax returns are audited
- What are my appeal options if I disagree with IRS?
- What are my basic taxpayer rights if the IRS audits me?
- Options if I am unable to pay at the conclusion of audit
- What a 30 or 90-Day Letter from the IRS means
- What is involved with appealing disagreements?
- Rights to disagree with IRS tax auditor’s findings
- Can I stop the IRS from repeatedly auditing me?
- Can I have the examination transferred to another area?
- Can I record my IRS interview and is it a good idea?
- How many years of returns are at risk during an audit?
- Common reasons for the IRS to conduct a tax audit
- How to avoid negative consequences from an IRS interview
- Have to agree to interview by taxing authority directly?
- Are all audits the same?
- What should I do if the IRS is investigating me?
- What if I don’t respond to a taxing authority audit notice
- Your rights during an IRS tax audit
- Risks of attending an IRS audit without a tax lawyer
- Most common audit technique used by taxing authorities
- Don’t go into an IRS audit without representation
- Why hire an attorney to represent me in an audit?
- Why hire David W. Klasing to represent me in an audit
Questions and Answers for Criminal Tax Representation
- When tax defense counsel parallels tax crime investigation
- Guilty of tax obstruction by backdating documents?
- To be found guilty of tax obstruction must a person actually be successful in impeding the IRS’s functions?
- Help! The Document I Gave the IRS Had False Information
- Tax crime aiding or assisting false return IRC §7206(2)
- What is the crime known as tax obstruction § 7212?
- What is the difference between tax perjury and tax evasion?
- What is the tax crime commonly known as tax perjury?
- What is a Klein Conspiracy?
- Increased possibility of civil action in IRS investigation
- Am I Guilty of Tax Evasion if the Law is Vague?
- What happens if the IRS thinks I committed tax crimes?
- What are ways to defend against a tax evasion charge?
- Difference between criminal tax evasion and civil tax fraud
- What accounting method does the IRS use for tax fraud
- Can I Change Accounting Method to the Accrual Method
- What is the willfulness requirement for tax evasion?
- I didn’t know I committed tax fraud. Can I get off?
- Concealed assets from IRS. Can I avoid tax evasion charges
- How government proves I willfully engaged in tax evasion
- What is the venue or court where a tax crime case is heard?
- Must the IRS prove tax crimes beyond a reasonable doubt?
- Is it a crime to make false statements to the IRS?
- Will the IRS overlook my tax evasion if it’s minor?
- Failed to tell IRS about my nominee account
- Audit risk with cash based business transactions
- How to defend a client charged with tax evasion
- Is it tax evasion if I didn’t file income tax return?
- Government says I attempted to evade my taxes. Now what?
- I forgot to pay my taxes or estimated tax. Is this a crime?
- Government proof I “willfully” failed to pay taxes
- 5 Ways to Respond to Tax Evasion Charges
- Being audited after using a tax professional
- Rules for what an IRS agent can do while investigating me
- How tax preparers, attorneys and accountants are punished
- How the IRS selects tax crime lead for investigation
- How does the IRS prosecute suspected tax crimes?
- Does IRS reward informant leads for suspected tax crimes?
- How the government proves deficiency in a tax evasion case
- Do prior tax crimes factor into new IRS tax convictions?
- Requesting conference before investigative report is done
- Requesting conference after IRS Special Agent Report
- What are my rights during an IRS criminal investigation?
- Avoid prosecution for tax crime with voluntary disclosure?
- Defense tactics that make it hard for to prove willfulness
- How a tax attorney can stop your criminal tax case?
- What can you generally tell me about tax crimes?
- Continuing filing requirement with investigation pending
- Federal criminal code crimes that apply to tax issues
- Penalty for making, subscribing, and filing a false return
- CID special agent’s report for criminal prosecution
- What is the discovery process in a criminal tax case?
- What the IRS includes in indictment for tax case
- What is the hardest element of a tax crime to prove?
- IRS methods of gathering evidence to prove tax crime
- What does a grand jury do in IRS tax crime prosecution?
- Failure to keep records or supply information
- Failure to make a return, supply information, or pay tax
- What is attempting to evade payment of taxes?
- What is income tax evasion and how is it punished?
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- Crime of making or subscribing false return or document
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- IRC §7201 attempt to evade vs. common-law crime of attempt
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- How government proves a taxpayer attempted tax fraud
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- What is evasion of assessment for tax liability?
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- What is the IRS burden of proof for tax fraud convictions?
- Are Tax Laws Constitutional?
- What is the source of law that defines tax evasion?
- Does section 7201 create two distinct criminal offenses?
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- Is it illegal to overstate deductions on my tax return?
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- What is the Mens Rea component of tax crimes?
- What is a proffer agreement and what are the risks?
- Why to have an attorney to review a proffer agreement
- Why enter into a proffer agreement?
- Limited use immunity from proffer agreements
- Difference between civil and criminal fraud allegations
