In February 2019, defendant William Scalzi, 61, owner of a taxi company in West Haven, Connecticut, pleaded guilty to filing false income tax returns, a criminal violation of 26 U.S. Code § 7206(1). Scalzi entered his plea after waiving his right to be indicted, a legal strategy which, as we explained in an earlier article, normally indicates that the defendant has entered an agreement with prosecutors. In an update on the case provided by the Department of Justice (DOJ), Scalzi, appearing earlier this summer before District Judge Victor A. Bolden, was fined and sentenced to probation – including a mandatory period of home confinement, or house arrest. Our criminal tax defense attorneys take a closer look at Scalzi’s case, the underlying federal statute, and, perhaps most importantly, what steps can be taken by taxpayers who may be facing criminal tax exposure after making and subscribing false returns.
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To provide readers with some background information about this case, which was heard in Connecticut District Court in February 2019, Scalzi, a Durham resident, was owner and operator of Transportation General, Inc., also known as “M7,” a business which provides personal transportation services throughout the New Haven area. According to the company’s website, “M7 is Connecticut’s largest, full-service transportation company,” while Scalzi, who is company president, “led the way for… environmentally friendly transportation” and “has supported numerous local organizations as a philanthropist.”
However, the company was more than just a fleet of vehicles; it was also a vehicle for tax fraud. Beginning with the 2007 tax year and continuing through 2010, Scalzi repeatedly “understated his taxable income by running personal expenses through his company,” according to the DOJ. After charging assorted personal expenses to company credit cards, Scalzi illegally deducted the expenses from business tax returns filed with the IRS. At the same time, Scalzi failed to include the transactions on personal tax returns, effectively concealing income from the IRS (and in turn, avoiding his full tax liability).
Declining his right to be indicted, which is permitted, under certain circumstances, by Federal Rule of Criminal Procedure 7(b), Scalzi instead “pleaded guilty to one count of subscribing a false tax return,” a form of felony tax fraud charged under 26 U.S. Code § 7206(1). A taxpayer commits this crime by filing, under penalty of perjury, a tax return (or related document) that the taxpayer “does not believe to be true and correct as to every material matter.” Note that, in this context, the term “material” means any significant, relevant information – for instance, the amount of income that is reported on the return. (For an in-depth discussion about the concept of materiality, refer to our article discussing “tax perjury,” which is simply another term for the filing of false returns.)
Under 26 U.S. Code § 7206, the maximum prison sentence for filing false tax returns is three years in federal prison. However, Scalzi received a lenient sentence of three years’ probation, with no prison time sentenced. As a condition of his sentence, Scalzi was ordered to spend the first six months under house arrest, which is monitored through electronic bracelets (which offenders are generally responsible for purchasing). In addition, the DOJ reported, “Scalzi has paid $297,319.31 in restitution to the IRS, which satisfied his criminal and civil tax liabilities for the 2007 through 2010 tax years.” Note that the maximum criminal fine established under 26 U.S. Code § 7206 is $100,000.
Making and subscribing a false return is a felony tax crime if the taxpayer acts willfully, or knowingly, to avoid paying his or her fair share of taxes. Even if the tax mistake was accidental or negligent, the taxpayer is still in danger of costly fines and penalties – with interest.
If you have been chosen for a tax audit or are under investigation for alleged tax crimes, it is imperative that you discuss your situation confidentially with a competent and trusted IRS tax evasion defense attorney as soon as possible. With early and strategic action, it may be possible to avoid or substantially mitigate penalties, or limit your risk of criminal prosecution. The longer you delay, however, the more leverage you will lose.
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Get the help you need dealing with the IRS. For a reduced-rate tax consultation concerning a criminal tax audit or IRS investigation, call the Tax Law Office of David W. Klasing at (800) 681-1295, or contact us online today. We are available 24 hours, seven days a week, to help resolve your civil, criminal, California, federal, or international tax issues.
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