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If you visit our tax blog frequently, you may recall that earlier this year, Dr. Pepper executive Michael Lynch pleaded guilty to tax evasion after concealing income by filing a false return with the Internal Revenue Service (IRS). Over the period spanning January 2007 to November 2017, Lynch charged the famous soda company approximately $1.7 million for services that were never provided, using a business entity formed in his wife’s name to carry out the scheme. In a more recent update on this case, Lynch appeared at his scheduled June 2018 sentencing hearing – and, like most tax offenders, received tough penalties from the court. This case should remind our readers that all taxpayers are vulnerable to scrutiny by the IRS and Department of Justice (DOJ) – even high-powered executives at nationally-known companies. If you are concerned about an IRS criminal investigation or upcoming tax audit, it is in your best interests to work with an experienced tax evasion defense lawyer who can protect your rights while helping you navigate IRS procedures and the criminal justice system.
As our criminal tax defense lawyers wrote about in a previous article, Michael Lynch formerly worked as a “national sales executive for Dr. Pepper/Seven Up, Inc.” – until, that is, being prosecuted for tax crimes earlier this year. According to the most recent DOJ press release on the Lynch case, the defendant billed Dr. Pepper a total of $1,716,949 for nonexistent services, such as “offering… discount prices to retail stores.”
These “services” were reportedly performed by a company called Seacoast Unlimited Marketing and Promotions, LLC – a company which, incidentally, was incorporated in Lynch’s wife’s name. During the decade spanning 2007 to 2017, Seacoast “submitted to Dr. Pepper more than 200 fraudulent invoices,” suggesting each invoice, on average, charged the soda company approximately $8,585.
The scheme did not end there. Despite receiving nearly $2 million in payments from Dr. Pepper through the fraudulent invoices, Lynch did not report any Seacoast-related income on federal income tax returns, which he and his wife opted to file jointly. By omitting this income from his federal returns, Lynch caused the government to sustain a tax loss amounting to $386,320.
The two offenses to which Lynch pleaded guilty were (1) wire fraud (in violation of 18 U.S. Code § 1343) and (2) tax fraud – specifically, a subset of tax fraud called “filing a false return” (in violation of 26 U.S. Code § 7206(1)). A taxpayer files a false return when he or she intentionally “makes and subscribes any [tax] return, statement, or other document… which he [or she] does not believe to be true and correct as to every material matter.” Stated another way, it is filing a false return to willfully lie about any important fact on your tax return. This might involve the manipulation of information (e.g. underreporting income), or the complete exclusion of information (e.g. failing to report all or certain sources of income).
This should not be confused with the similar but distinct tax offense of willful failure to file a tax return, supply information, or pay tax (in violation of 26 U.S. Code § 7203). Filing a false return should also be distinguished from the crime of “aiding or assisting a false return” (also called “tax preparer fraud” or “return preparer fraud”), which is charged under 26 U.S. Code § 7206(2) when a tax preparer or CPA helps a taxpayer to file a false return.
Appearing before U.S. District Court Chief Judge William E. Smith for sentencing, Lynch was sentenced to 33 months – the better part of three years – in federal prison. He was also ordered to pay restitution to both Dr. Pepper and the IRS. Moreover, he will be required to serve a two-year sentence of supervised release, similar to parole or probation, after completing his prison term. A violation of court orders (or tax laws) during this period can potentially send the offender back to prison, depending on the nature and severity of the violation.
IRS Tax Attorneys Providing Audit and Criminal Defense Representation
No amount of prestige or success will prevent the IRS from probing into your tax and financial records if irregularities are detected – or if fraud is suspected. If you have been contacted or questioned by the IRS, or if you have any concerns about compliance with the Tax Code, the time to contact an IRS tax defense lawyer is now – before the situation escalates further. For a reduced-rate initial consultation with an experienced tax attorney contact the Tax Law Office of David W. Klasing online, or call our tax firm today at (800) 681-1295.
Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles, the Tax Law Offices of David W. Klasing now have offices San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland and Sacramento.
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