Being accused of a tax fraud/tax evasion offense is daunting business. New York Criminal defense attorneys with Joseph Potashnik & Associates PC have built a solid track record of successfully defending individual and corporate clients in state and federal criminal tax investigations and prosecutions. Working close with the nation’s leading forensic accounting specialist we are well positioned to mount successful defense if you are a target of a criminal tax investigation.

The Types of Criminal Tax Cases

Tax fraud and evasion cases are aggressively prosecuted in federal and state courts. Under the federal law, criminal tax cases are prosecuted under Title 18 and Title 26 of the US Code.

Title 18 Offenses

Conspiracy

This is one of the most commonly used criminal statute in tax prosecutions. The general federal conspiracy statute, 18 U.S.C. ß 371, makes it a crime for two or more persons to conspire to commit an offense against, or defraud, the United States or a United States agency when one or more of those persons does any act to effect the object of the conspiracy.

In order to prove their case, the government must prove the elements of the conspiracy offense, which is that there was an agreement between two or more persons and an overt act in furtherance of the agreement, even if the overt act itself was not illegal.

The conspiracy statute is so commonly used in tax fraud cases because it is relatively easy to prove that two or more people agreed to commit something illegal. The government can use statements of co-conspirators against each other and all the members of the conspiracy are responsible for the actions of each other.

Along with regular taxpayers, tax preparers, accountants, and even attorneys are often targeted by the federal government in tax conspiracy cases.

False Statements and Documents

18 U.S.C. ß 1001 makes the following a crime: (1) the falsification, concealment or covering up of a material fact by any trick, scheme, or device; (2) the making of any false, fictitious, or fraudulent statements or representations; and (3) the making or using of any false writing or document that is known to contain any false, fictitious, or fraudulent statements”, provided the person acts “knowingly and willfully”

Under this section the government may charge a person just for making a false statement, even if the conduct is not criminal under the IRS Code. For example, if you are audited by the IRS and provide agents with false documents, you can be separately charged under Section 1001 even if the IRS doesn’t find any tax deficiency.

Title 26 Tax Evasion Offenses

Section 7201 of the Internal Revenue Code provides that any person who willfully attempts, in any manner, to evade or defeat any tax or the payment of any tax imposed by the Internal Revenue Code shall be guilty of a felony, punishable by a fine of not more than $100,000 for individuals or $500,000 for corporations, or imprisonment for not more than five years, or both, together with the costs of the prosecution.

The statute of limitations in tax evasion cases is six years beginning from the date of the offense. However, because tax evasion doesn’t happen until after a tax deficiency occurs, the statute of limitations begins to run only when that tax return is due. On the other hand, because the tax evasion crime doesn’t happen until the last affirmative act of the evasion, the limitations period does not begin to run until that time, even if it’s later than the due date of the return. If you are out of the country, the statute of limitations is tolled.

To prove a violation of section 7201, the prosecutor must prove the following elements: (1) that you owe additional tax; (2) that you committed an affirmative act of tax evasion; and (3) that you acted willfully. Therefore, the most effective defense technique is to attack these elements. This is where the help of an experienced tax evasion attorney and forensic accountant is crucial. If you don’t owe the additional tax, you are not guilty. If you don’t know about the tax deficiency, you are not guilty.

How can the government prove that the defendant acted affirmatively to commit tax evasion? The Supreme Court gives the following examples:

  • keeping a double set of books;
  • making false entries or alterations;
  • creating false invoices or documents;
  • destroying books or records;
  • concealing assets or covering up sources of income;
  • handling one’s affairs to avoid producing the type of records that are usual in transactions of the kind;
  • Any conduct, the likely effect of which would be to mislead or conceal.

 

Also, the following may be interpreted by courts to establish that you acted affirmatively:

making false statements to IRS agents;

  • Filing a false form or return;
  • Underreporting large amounts of income;
  • Overstated deductions;
  • Keeping a safe deposit box or bank account in fake name;
  • Use of cash (extensively) or credit card’s in someone else’s name;
  • Engaging in sham transactions

 

Failure to File Tax Return (26 U.S.C. ß 7203)

Under Section 7203 of the Internal Revenue Code it is a crime willfully fail to do any of the following:

(1) pay any tax or estimated tax;

(2) make a return;

(3) keep any records; or

(4) supply any information.

The statute of limitations for ß 7203 offenses is six years and it begins to run from the statutory due date of the return unless you applied for an extension of time to file.

The government must prove the following to convict someone of a failure to file offense: (1) the taxpayer was required to file a return; (2) the taxpayer failed to file a return at the required time; and (3) the failure was willful. It doesn’t matter if there is no tax liability. As long you willfully fail to file your tax returns, you could be guilty of this offense.

Aiding and Assisting in the Preparation of Fraudulent or False Returns or Documents

It is a federal crime to willfully aid, assist, counsel, or advise anyone to prepare a false tax return or document. CPAs, tax preparers, and lawyers are often targeted by this statute. The government must prove (1) that the defendant aided, assisted, procured, counseled, advised or caused the preparation and presentation of a return or other document; (2) that the return or other document was fraudulent or false as to a material matter; and (3) that the defendant acted willfully.

The twist is that the taxpayer doesn’t have to know that the document is false or fraudulent. So if an accountant knowingly gives his client wrong, advice in order to save the client money could be prosecuted for aiding and abetting.

New York State Tax Fraud and Evasion

Contrary to the popular belief, it is not the IRS that is the most aggressively pursuing criminal tax cases in New York. New York State is as money hungry as ever and both the state and the City of New York are extremely aggressive in prosecuting tax evasion.

New York Tax Law is similar to federal tax law and contains both misdemeanors and felonies for various tax fraud conducts. The most commonly used criminal tax statute in New York is Criminal Tax Fraud. Depending on the amount of tax involved the crime can vary from the 5th Degree (a Misdemeanor) to 2nd Degree (Class C Felony).

New York Tax Law 1801 is similar to its federal counterpart in that it establishes a general “tax fraud act” that can vary from a less serious misdemeanor to a more serious felony based on the monetary value of the fraud. The following are examples of the tax fraud act:

  1. Failing to make or file any required report or return;
  2. File a false or fraudulent tax return;
  3. Submit materially false or fraudulent information in connection with any return, audit or investigation or fail to supply the correct information in a timely manner;
  4. Make false representations to the State as to any material matter associated with any tax return;
  5. Fail to remit taxes collected on behalf of the State;
  6. Fail to collect certain sales taxes;
  7. Intentionally evade any tax or failing to pay a tax;

Read More: Investigated For Tax Fraud in New York?

IRS Investigations

Criminal tax investigations are conducted by the Criminal Investigation Division (“CID”) of the IRS. IRS and other criminal tax investigations take time and begin in many ways. In New York, the Department of Taxation and Finance may actually make a referral to the CID or work together with it.

Most criminal tax investigations start as civil audits. In the process of reviewing the case the agents will determine whether fraud may be involved. Agents have a large degree of discretion to make that determination. If agents believe that fraud has been committed, they will usually suspend the audit and refer the case to the CID. The CID managers will review the report to determine if there is enough evidence for a criminal investigation and then assign the case to a “Special Agent”. If you are visited by IRS Special Agents, you know that you are a target of a criminal investigation and you must seek legal advice right away. Remember that any information you provide will be used against you.

The Special Agent will eventually prepares a report on the investigation, recommending whether it should be pursued or concluded. If, the CID decides to terminate the criminal investigation, it will then refer the case to the Collection Division for further civil proceedings.

If the CID decides to prosecute, the case will be reviewed on several levels before being eventually referred to the Department of Justice.

The DOJ will may the ultimate decision whether the case will be prosecuted. As defense attorneys, we can intervene even at that stage to meet with the DOJ attorneys to resolve the matter in a non-criminal manner. If the Department of Justice decides that there is enough evidence to prosecute and wants to proceed with the case, they will forward the case to the local US Attorney’s office in order to obtain indictment.

What Should You Do If You Are Investigated For Tax Fraud

The most important thing you can do is seek legal counsel as soon as possible. New York tax fraud defense attorneys at Joseph Potashnik & Associates successfully handle tax fraud cases in New York and federal courts and will glad to meet with you to discuss your case. Don’t engage in any discussions with the investigators and do not allow them to conduct any searches unless they have a warrant. Don’t try to hide, destroy, or alter any evidence. Once you retain us, we will secure the documents and engage forensic accountants to assess the level of criminal liability if applicable and of course, to determine the defense strategy.

 

IRS Administrative Summonses

Under section 7602 of the Internal Revenue Code, the IRS may issue summonses for a broad spectrum of purposes. The IRS Special Agents often use the power of Administrative Summonses in order to engage in “fishing expeditions” during routine audits and investigations. It is then used as a subpoena with very broad language, which the courts don’t like to limit.

If an IRS summons has been issued, the government must then enforce it. If you refuse to comply, the government will initiate a hearing in federal court to compel compliance.

If you have been served with IRS summonses, you should retain an experienced tax fraud defense attorney immediately. Just because the government wants to get your sensitive information doesn’t mean that they are entitled to it. Our attorneys will hold the government to its duty to establish their entitlement to the information. The government must show that (1) there is a legitimate purpose for the investigation; (2) the summoned information is relevant to that purpose; (3) the IRS does not already possess the information sought; and (4) the IRS has complied with the procedural and administrative steps required for serving the summons. This is usually not a problem as the IRS agent will submit an affidavit asserting these statements. This is when the fight begins. You should contest the IRS summons by either rebutting the IRS assertions, or by showing the judge that enforcement of the summons would constitute an abuse of authority.

Some of the defenses we can use in contesting the IRS summons include the arguments that the materials sought are protected by the attorney-client privilege, that the defendant is not the custodian of the records or doesn’t have the records; or asserting the 5th Amendment privilege.

READ MORE: THE BEST DEFENSES IN THE IRS INVESTIGATIONS

HOW TO CHOOSE THE RIGHT TAX FRAUD DEFENSE ATTORNEY

If you are under a tax fraud investigation, there is absolutely no substitute to experience. The consequences of a conviction are just too serious to trust your case to an attorney with inadequate experience. Hiring just any criminal lawyers will not ensure that the lawyer has handled similar cases before. We encourage you to investigate the prospective attorney’s background and experience and don’t be afraid to ask direct questions about handling similar cases in the past. New York tax fraud and tax evasion defense lawyers of Joseph Potashnik & Associates are available to meet with you to discuss your matter and offer solutions.