Professionals Who Commit Tax Fraud Face Disbarment Along with Serious Criminal Tax and Fraud Charges

We commonly write about tax professionals –tax lawyers, CPAs, and tax preparers – who come to believe that their position of trust immunizes them from suspicion for tax crimes. Over months, years, or decades of practice, they may come to believe that their reputation as a professional will make auditors, investigators, and prosecutors look for alternate explanations when a client claims that they have been defrauded.

Unfortunately, professionals who find themselves on the receiving end of fraud accusations soon find that their reputation doesn’t count for much or offer protection. Investigators and auditors simply follow the paper trail and evidence. They are not typically swayed by the accused’s years of service or other human factors. Thus, if one believes that their reputation will protect them from tax fraud charges, think again.

Previously Disbarred Orange County Attorney to Face Tax Fraud and Other Charges

For years, former Orange County Attorney Joseph G. Scali worked as a reputable and respected lawyer. Mr. Scali provided representation in a number of legal areas. One of Mr. Scali’s clients sought representation regarding the transfer of two tracts of land. Apparently, Mr. Scali had schemed to defraud the purchaser of the land tracts by misappropriating the $850,000 of funds held in escrow. Prosecutors charge that Mr. Scali used the escrow funds to make personal and business purchases. However, Mr. Scali’s alleged fraud did not apparently stop with the transaction itself. Rather, Mr. Scali’s alleged scheme also apparently involved tax fraud.

According to reports, Scali also attempted to conceal his ill-gotten gains by providing materially false, incomplete, and misleading information to the IRS. Part of Mr. Scali’s alleged attempts to conceal the funds involved the structuring of transactions to evade currency reporting requirements. Under 26 USC §5312(a)(2) a currency transaction report (CTR) must be filed with the IRS for each transaction involving more than $10,000. Mr. Scali allegedly structured his transactions by making 3 deposits on 12/18/2016 in amounts ranging from $9,600 to $8,000 and one deposit the following day of $5,700.

Mr. Scali’s attempts to conceal the fraud also purportedly involve a failure to file taxes. Prosecutors claim that Mr. Scali failed to file income tax returns (Form 1040) for certain years including 2006 through the 2012 tax year. Prosecutors also claim that Mr. Scali failed to file U.S. Corporate Income Tax Returns (Form 1120) for his law firm for the tax years 2006 through 2012. This failure to file tax returns was also allegedly part of a scheme for Mr. Scali to commit tax evasion.

What Tax Charges Did the Former Lawyer Face?

The lawyer was temporarily disbarred in 2013 and was permanently disbarred in July 2016. Aside from the administrative proceedings against him, the former lawyer also faces six counts of criminal charges. The charges he faces includes:

  • Mail fraud — Scali faces a single count of mail fraud due to his actions relating to the failed land transaction. Mail fraud includes any fraudulent scheme intended to deprive another of property that makes use of the U.S. mail. Mail fraud charges can result in a lengthy prison sentence and significant financial penalties.
  • Structuring – Structuring charges can be faced when prosecutors allege that a person arranged their transactions to evade informational reporting obligations. Here, transactions were allegedly structured to involve less than $10,000.
  • Impeding the Due Administration of the U.S. Tax Laws – Under 26 USC § 7212(a) any individuals who provide false, incomplete, inaccurate, or misleading information regarding a tax obligation is subject to punishment. Likewise, individuals who commingle funds, intentionally or voluntarily fail to file a tax return, and fail to maintain certain reports and records can also face this charge.
  • Tax Evasion – Criminal tax evasion involves any scheme where a taxpayer intentionally or voluntarily attempts to avoid tax when he or she knows or should know that a tax is due. The tax evasion attempt can involve preventing the assessment of the tax or the collection of an already assessed tax.
  • Obstruction of Justice and Perjury – Scali also faces charges due to his failure to cooperate in the investigation. According to prosecutors, Mr. Scali made a false declaration to the courts regarding the reasons behind why he closed his law practice. Mr. Scali also faces perjury charges for this statement.

As always, it is important to note that only the disbarment proceedings have been completed in this matter. All other charges stated above are mere allegations and must be proven beyond a reasonable shadow of a doubt by a prosecutor.

Professionals have the Most to Lose When Facing tax fraud Charges

When facing tax charges, all people face the possibility of significant fines and a lengthy prison sentence. However, because tax crimes are typically crimes of dishonesty, they also have significant and life-altering professional consequences including disbarment or revocation of one’s professional license. Therefore, professionals who face tax charges should immediately contact a tax lawyer.

The lawyer can approach your matter strategically while the attorney-client privilege protects any disclosures you may make. The attorneys of the Tax Law Offices of David W. Klasing can fight for you. To schedule a reduced-rate and confidential consultation at our Los Angeles or Orange County law firm, call 800-681-1295 or contact us online today.