Tax Fraud Conviction for California Owner of International Trading Business

Published by David Klasing at August 27, 2018

California Business Owner Found Guilty of Filing False Returns, Lying During Tax Audit

Horng and Lin’s legal troubles began in January 2015, when both spouses were indicted, or formally charged, on multiple counts of filing a false federal income tax return, a felony tax crime prohibited by 26 U.S. Code § 7206(1) (pertaining to fraud and false statements, declaration under penalties of perjury). During the same period, prosecutors filed additional charges against each spouse individually, including the following:

For Lin, giving false statements to a federal institution, which is a violation of 18 U.S. Code § 1014. This statute covers numerous federal organizations and services, including federal banks, credit unions, and insurance corporations. Though the charges were initially severed, a press release issued by the Department of Justice (DOJ) indicates that they “will be tried in the future,” meaning Lin is still in jeopardy of a conviction.
For Horng, (1) two violations of the aforementioned statute, 18 U.S. Code § 1014 (loan and credit applications generally; renewals and discounts; crop insurance), and (2) one violation of 18 U.S.C. § 1001(a)(2), which is charged when a person willfully “makes any materially false, fictitious, or fraudulent statement or representation” to any branch of the federal government. The latter charge arose from Horng “lying to the IRS during a 2010 audit.” Specifically, Horng falsely claimed that the financial data submitted on at least one of his “numerous loan applications” was “made up by [the couple’s] loan brokers.”

Significantly, the press release goes on to note that Horng – who, while residing in California, owned an international trading company – also told auditors “that the couple had no foreign bank accounts.” What the press release (which makes no further reference to this seemingly minor detail) does not explain is that a taxpayer’s willful failure to disclose foreign financial accounts violates the Bank Secrecy Act (BSA) – which, depending on the value of such accounts, requires most foreign account holders to report offshore funds to the IRS using an electronic document called the Foreign Bank Account Report, or FBAR (less commonly known as “FinCEN Form 114”). To learn more about FBAR filing requirements – and the FBAR penalties for noncompliance – our FBAR attorneys would encourage you to explore our overview of FBAR reporting.

With regard to the two false returns, which were filed for tax years 2006 and 2007, Horng both (1) underreported the couple’s level of income, and (2) claimed financial losses exceeding $212,000. In reality, Horng and Lin not only “purchased millions of dollars of real estate,” but further, “invested over $5 million into a… shopping center, and spent over $350,000 using credit cards” during the same period in which they claimed to lose hundreds of thousands of dollars.

It took approximately four weeks for the trial to conclude and the jury to reach its verdict. As of June 2018, the DOJ was reporting that Horng’s sentencing hearing was yet to be scheduled. Though the DOJ has yet to release an update on the case, what is certain is that Horng risks years of imprisonment.

It is also common for sentencing judges to order supervised release and IRS restitution in cases of this nature. Supervised release typically lasts for a period of at least one year – often longer – while IRS restitution can climb into the hundred-thousands or even millions, depending on the size of the government’s tax loss resulting from the crime. (As the IRS explains in Internal Revenue Manual 25.26.1, Criminal Restitution and Restitution-Based Assessments, “The amount of… restitution ordered by the court is calculated from evidence submitted at trial or… information contained in the [defendant’s] plea agreement and presented… at sentencing.”)

Criminal Tax Defense, IRS Audit, and FBAR Representation in California

Underreporting income, exaggerating losses, lying during IRS tax audits, and failing to report foreign bank accounts all constitute major violations of the U.S. Tax Code, or Internal Revenue Code (IRC). Engaging in even one of these practices places you at risk of prosecution, incarceration, and/or financial penalties.

If you are concerned about the information you provided on a previous year’s tax return, need state or federal tax audit representation, or have questions about the proper procedures for disclosing your foreign assets to the IRS, the Tax Law Office of David W. Klasing can provide the nuanced strategic guidance you require. Serving taxpayers and businesses throughout Northern and Southern California, our award-winning tax team features tax audit attorneys, criminal tax defense lawyers, and international tax attorneys with decades of combined experience, enabling us to efficiently resolve a wide array of civil and criminal tax issues in California and beyond. To discuss your tax question in a reduced-rate consultation, contact the Tax Law Office of David W. Klasing online, or call (800) 681-1295 to get started.

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.