Unless you have recently been residing under a rock for the past few weeks, you have likely heard that the Trump Organization and its CFO, Allen Weisselberg were criminally charged in New York for allegedly engaging in a conspiracy to assist certain executives evade their income taxes by compensating them in fringe benefits. Although most topics involving the former President can be politically charged, this blog post endeavors to provide a non-partisan overview of the State of New York’s charges against the Trump Organization and Weisselberg.
The charges at issue focus around executive compensation. When a run-of-the-mill employee is paid, they generally receive a salary and in certain circumstances, they may also receive certain incentive compensation, such as company stock. The organization pays payroll tax based on the amount paid to the employee and the employee is subject to employment tax withholding upon the issuance of their paycheck. But executives at the Trump Organization allegedly received a large portion of their compensation in illegally tax-free fringe benefits.
Fringe benefits are non-cash benefits provided by a business to its employees. Generally, fringe benefits become an issue from a tax perspective when the owner of a closely held business uses company assets for non-business-related purposes. For instance, a company that owns a sports car that the owner strictly drives to and from personal (non-business) functions would constitute a fringe benefit provided to the owner. The IRS groups fringe benefits into taxable fringe benefits and de minimis fringe benefits that do not trigger tax repercussions. Examples of de minimis fringe benefits include sandwiches provided to employees during a work lunch or a $25 gift card recognizing superb effort.
The fringe benefits at issue in the case against the Trump Organization involve much more than de minimis fringe benefits. State prosecutors allege that the Trump Organization provided Weisselberg with a company-paid luxury vehicle, a rent-free apartment, tuition for his grandchildren’s private school, and other bonuses. The benefits provided to Weisselberg were allegedly not treated as taxable compensation within the Trump Organization and not treated as taxable income from Weissenberg’s individual income tax perspective. The State of New York argues that this resulted in payroll taxes going unpaid on the additional compensation and Weisselberg’s failure to include the fringe benefits as part of his gross income, resulting in substantial tax loss for both the state and federal government.
Although there are plenty of political factors at play with this case, the fact pattern is not an uncommon one. In fact, business owners can learn a lot by watching the case against the Trump Organization and Weisselberg. First, it is crucial to understand the fringe benefit rules, especially if you own a business and use certain business assets for personal (non-business) purposes. Although many fringe benefits would qualify as de minimis, there are even more instances where the use of company assets could result in additional tax reporting or otherwise have green dollar tax implications.
The second and perhaps greater takeaway from the charges against the Trump Organization is the potential for physical incarceration. Many Americans, whether business owners or W-2 wage earners, often do not take the reality of tax prosecutions seriously. Although the case described above involves attention-grabbing headlines and big-name organizations, our blog is full of stories detailing instances of criminal tax prosecutions involving defendants who are much less famous and for tax schemes that involve much less money. If you have failed to file a tax return, underreported income, overreported deductions, or benefited from otherwise taxable fringe benefits that were not included on your individual income tax return as compensation, you could be at risk for the same type of civil and criminal repercussions that the Trump Organization and Allen Weisselberg face. If that is the case, you should contact an experienced tax defense lawyer to determine your level of exposure and to help you develop a plan to come into compliance before it is too late.
Note: As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed foreign information returns coupled with affirmative evasion of U.S. income tax on offshore income) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosurebefore the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply.
It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.
Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.
As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, KovelCPAs and EAs, our firm provides a one stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!
Regardless of your business or estate needs, the professionals at the Tax Law Offices of David W. Klasing are here for you. We are open for business and our team will help ensure that your business is too. Contact the Law Offices of David W. Klasing today to discuss your business with one of our professionals.
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