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Individuals who engage in tax and other forms of fraud may enjoy the short-term benefits of their fraud, but, in time, they are identified and prosecuted to the fullest extent of the law. Many of these individuals who use their success, high social standing, and position to influence other to take part in their scheme often seem to believe that these same characteristics will protect them from being identified as the source of the fraud.
However, these characteristics do not provide the protection from suspicion and scrutiny that many assume. In fact, education and experience in sophisticated transactions and dealings may even attract a more rigorous look by IRS auditors, state examiners, or federal prosecutors. Furthermore, individuals who use their position and standing to commit tax and other types of fraud often face more severe penalties.
According to charges filed by federal prosecutors Jeffery Eldred Gallagher engaged in a fraudulent scheme from roughly 2008 to 2012. The scheme functioned similarly to a Ponzi scheme. Gallagher would promise friends, family, and associates nearly outlandish returns on their safe investments of upwards of 10 percent to fifteen percent. When times were good and Gallagher attracted enough investors to support his scheme, he generally satisfied earlier investors with payouts from new investor funds. But when times were bad, he would dodge requests for repayment with various explanations. In other cases – around 40 – Gallagher wrote investors bad checks totaling nearly $2 million. Prosecutors claim that Gallagher used approximately one-quarter of a million dollars on luxury goods and personal expenses. In all investors lost more than $600,000.
In an attempt to both hide his ill-gotten gains and further enrich himself, Gallagher also committed tax evasion. Gallagher failed to report any investments, transactions, or even report any income for the 2009 and 2010 tax years.
Taxpayers who commit fraud and other crimes frequently fail to report the income they illegally gained because they believe that it will tip-off federal authorities regarding their illicit activities. While this may be true, the fact of the matter is that the victims of their fraud are already likely to report them to local, state, or federal authorities. The paper or electronic trail will show the investments made by the defrauded individual. When there is no corresponding transaction reported by the individual under suspicion, it becomes rather clear that something less than above-board was occurring.
Furthermore, these same transactions may even trigger an IRS investigation in their own right. Consider that the 1099-K shows electronic transactions processed by credit card companies, banks, and debit card processors. When there is a clear mismatch in electronic transactions reported from these sources, an audit or investigation is likely to follow. Furthermore, implausible explanations given by the suspected party are only likely to raise further suspicion since this is a badge of fraud used by IRS auditors and investigators as likely signs of tax fraud.
And regardless of whether the tax evasion leads to the discovery of the underlying fraudulent scheme or vice-versa, tax evasion results in additional penalties.
In December 2015, Gallagher pleaded guilty to two counts of tax evasion, three counts of engaging in monetary transactions in property derived from specified unlawful activity, and one count of wire fraud. For his crimes Gallagher, now 73 years old, will spend the next three years in prison. Gallagher will also face monetary penalties related to the tax evasion convictions including fines and interest on the tax that was not paid. Gallagher will also likely face the additional monetary costs imposed by restitution to repay those defrauded by his scheme.
IF you are facing criminal tax charges, you face life-altering criminal penalties. Aside from a potential prison sentence, professionals also face the loss of their license to practice their trade. Since tax evasion and other crimes are considered crimes of moral turpitude, most credentialing authorities, and professional conduct boards will not treat offenses of this type lightly.
David W. Klasing is a dually licensed tax attorney and CPA. As a former auditor, he understands audit techniques and can often craft a defense strategy in anticipation of tactics likely to be employed. For both audits and criminal tax matters, he can provide a buffer between the taxpayer and the auditor or prosecutor to protect the individual from providing direct evidence of his or her wrong-doing. Therefore, the investigating party typically must proceed solely on circumstantial evidence. To schedule a reduced-rate consultation with an experienced tax lawyer at the Tax Law Office of David W. Klasing call 800-681-1295 or contact us online today.