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Think Social Standing Alone Will Protect you from Facing Criminal Tax Charges? Beware of the Pitfalls of Litigating on the Basis of Reputation

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    For many professionals such as doctors, accountants, engineers, and lawyers they may believe that their social standing, professional accomplishments, and reputation will immunize them from suspicion regarding tax crimes. They may come to believe that a plausible cover story plus their reputation is all they need to mischaracterize payments, conceal income, and engage in an array of other illegal behaviors.

    Unfortunately, these individuals soon find that IRS agents and attorneys from the Department of Justice base their investigations and prosecutions on hard data. These agents simply follow the tax paper trail wherever it may lead – even if it leads to a respected pillar of the community.

    Once Respected Doctor Faces Sex-Fueled Tax Evasion Charges

    Maine dermatologist Dr. Joel Sabean has long been a prominent figure in the community. However, despite Sabean’s long history of charitable giving, prosecutors allege that more than met the eye was occurring behind the scenes. Prosecutors allege that Dr. Sabean was actually engaged in a long-running, ongoing tax evasion scheme that revolved around covering up a potential sexual relationship with an underage family member. Defense attorneys countered attempting to characterize Dr. Sabean as a well-meaning family member who was simply taken advantage of due to his history of mental illness.

    Prosecutors claim that Dr. Sabean “…is not a man who’s being fleeced of his money” and furthermore that all actions he engaged in were “..of his own free will.” At trial, Assistant U.S. Attorney David B. Joyce detailed the long e-mail trail that Sabean had sent to his bookkeepers. The prosecutors allege that Sabean was aware that the family member did not actually receive medical treatment she claimed she used the money to pay for.  In fact, prosecutors allege that the family member told Sabean that she had received “nanotech implants and lab-grown organs” – medical technologies that do not currently exist. The prosecutors also aired – in open court – sexually explicit e-mails Sabean exchanged with the family member and allege that the continued payments for “medical procedures” was hush money to cover up a sexual relationship that began when the woman was 12 or 13 years old.

    Prosecutors allege that the ongoing relationship resulted in payments of more than $2 million to the woman family member. Prosecutors allege that mischaracterizing these payments allowed the doctor to avoid nearly $900,000 in taxes that would have otherwise been assessed.

    Meanwhile, the defense team’s strategy involves impeaching and undermining the character of the female family member. The defense team has impeached the family member’s character by establishing a history of “having a problem with lying [her] whole life.” However, prosecutors point to a 2010 e-mail in which the family member apologizes for lying to Sabean. For a time after the e-mail, the payments stop. But just several months later and following a string of sexually explicit messages from the family member, the payments resumed.

    Beware of a Trial by Reputation, You May Not Like What Ends up in the Public Record

    When certain financial transactions raise red flags and appear on their face to constitute tax fraud, the only remaining question is often that of intent. Since intent is something that is internal and cannot be easily discerned from the transactions alone, parties may believe that they have no option but to litigate on the basis of the accused’s reputation and standing in the community.

    While this approach may be necessary in certain scenarios, it is usually only due to the fact that previous opportunities to mitigate the situation have been missed. When the accused face unfavorable and suspicious transactions and parties litigate on the basis of reputation, the logical thing for the prosecution to do is to attack is the character and credibility of the accused. In this matter, the defense counsel also found it necessary and logical to attack the creditability and reputation of the involved family member. Regardless of the jury verdict, both family members will exit this trial with their social standing and reputation in tatters. These allegations will all become part of the public record and are already being reported in newspapers and online. If found guilty, Dr. Sabean will also face significant penalties for tax evasion that includes a federal prison sentence.

    Deal with Tax Issues and Mistakes Before You Reach Trial

    Regardless of the outcome, the trial of Dr. Sabean is a cautionary tale for any taxpayer who wants to “wait it out” and see what develops from a tax mistake. If you made errors in characterizing certain expenses or sources of income, ideally, it is better to address it before an audit occurs. However, if you have already come under suspicion, you may still have options to avoid the embarrassment of a tax conviction and the airing of one’s dirty laundry.

    To discuss how a tax attorney can help you correct tax errors, come back into compliance with the U.S. Tax Code, and mitigate penalties contact the tax professionals of the Tax Law Office of David W. Klasing today. Mr. Klasing is a dually certified tax lawyer and CPA with more than 20 years of experience. To schedule a reduced-rate consultation at our Orange County, California or Los Angeles tax law offices, call 800-681-1295 today or contact the firm online.

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