The United States Department of Justice (DOJ), which prosecutes tax offenders based on referrals from the IRS Criminal Investigation Division (IRS-CI), recently announced the sentencing of business owner Derek E. Sands, a 37-year-old Arkansas resident who in June pleaded guilty to one count of tax evasion. As a felony that subjects taxpayers to sentencing of up to five years, tax evasion is one of the most serious criminal tax allegations a taxpayer can be charged with – and for small business owners, who may face outcomes like the loss of licenses, the loss of clients, or even bankruptcy, the stakes are even higher. If you are a small business owner who is facing a high risk eggshell tax audit or IRS criminal investigation, contact the criminal tax defense attorneys at the Tax Law Office of David W. Klasing immediately for a reduced-rate consultation.
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According to the DOJ, “Sands owned and operated a fencing business in Northwest Arkansas using the business names Sands Fencing, Sands Fencing & Outdoor Living Areas, and Sands Enterprises, Inc.” He attracted the IRS’ notice after cashing, rather than depositing, “thousands of dollars of his customer’s checks,” which could be interpreted as a red flag for tax evasion. Cash-intensive businesses are frequently audited by the IRS, which, fairly or not, takes the position that cash transactions are suspect for various reasons, notably misappropriation by business owners. If your small business only accepts cash payments, or uses cash to conduct most of its transactions, it is recommended that you talk to a tax audit lawyer for cash-intensive businesses about tax compliance, audit preparedness, and best practices for bookkeeping and accounting.
As the DOJ’s press release explained, Sands failed to file federal income tax returns throughout the 2010 to 2017 tax period, “even though he earned income and was required to file a return during each of those years.” By failing to file multiple returns, Sands also failed to report substantial amounts of income to the government, resulting in a tax loss of nearly $410,000.
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Appearing in United States District Court in Fayetteville, Sands was sentenced by Judge Timothy L. Brooks to a three-part sentence: first, nine months in prison; then, an additional nine months under house arrest (“home detention while under electronic monitoring”); and finally, a 27-month period of supervised release, during which Sands will be required to comply with certain rules and conditions as imposed by the court, not unlike a person on probation or parole. Supervised release is commonly imposed upon tax offenders following prison time, generally for a period of one to three years.
The law Sands violated, 26 U.S. Code § 7201, defines the crime of tax evasion simply as any willful attempt “to evade or defeat any tax,” executed “in any manner” by the taxpayer. Acting willfully – a critical element of the offense, without which a conviction may not be obtained – means taking deliberate, intentional steps to illegally escape your tax payments, in contrast to making mistakes or being forgetful. Generally, the government proves that a taxpayer willfully engaged in tax evasion by drawing on indirect (“circumstantial”) evidence, which is evidence other than direct confessions or observations. To determine whether a taxpayer acted willfully, the IRS looks for indicators of tax fraud – which, if discovered, will result in a referral to IRS-CI.
At a time when IRS-CI is working with limited resources to close a national tax gap that presently exceeds $400 billion per year, the government targets suspected tax evaders aggressively – particularly when they owe hundreds of thousands of dollars (or more). However, one need not commit errors on such a grand scale to attract the IRS’ notice. Between data analytics, tips from tax whistleblowers, partnerships with various governments, agreements with international banks, and plain public sources of information (including your social media profiles), IRS-CI receives more than enough information to identify, track down, and punish tax offenders – a fact attested to by IRS-CI’s 91.2% conviction rate.
If you are concerned about a criminal tax charge, get legal help right away. For a reduced-rate consultation regarding tax fraud charges in California, contact the Tax Law Office of David W. Klasing online, or call 24 hours at (800) 681-1295.
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