September 2011 Archives

Tax Lawyer Convicted of Aiding and Abetting Tax Evasion

September 23, 2011,

A "tax attorney's" conviction for aiding and abetting tax evasion based on his provision of advice to the individual convicted of evading taxes and the Internal Revenue Service's ("IRS") testimony that an underpayment of $737,436 resulted. ("Tax attorney" is in quotes since although the attorney in question gave advice about how to commit tax fraud I am not sure that makes him a tax attorney). The District Court sentenced the attorney to 30 months in prison and 3 years of supervised release. While this seems like a light sentence don't forget that the tax attorney's license to practice will most likely be revoked as a consequence of this conviction.

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The tax attorney, Barry Jewell, suggested to his client, Carl Evans, a scheme by which a fictitious company agreed to fund the client's litigation in exchange for 100% of amounts awarded over $250,000 as a result of the litigation. No such offer existed and Evans funded the litigation himself, but Jewell provided Evans a fictitious letter making the offer, on the basis of which Evans's accountant innocently prepared his tax return. With the aid of Jewell, Evans created a new company, forged documents to backdate its existence, and used it to hide the income exceeding $250,000 that purportedly went to the company that fictitiously funded his litigation.

As a part of his appeal, Jewell contended that there was insufficient evidence to find him guilty of aiding and abetting tax evasions. The appellate court disagreed. Evans testified at the trial that Jewell concocted the above scheme for the purpose of Evans's tax evasion and the IRS testified that a tax underpayment of over $700,000 resulted. The appellate court ruled that these facts were sufficient for a jury to find that Jewell aided and abetted tax evasion and affirmed the lower court's conviction.

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Lack of Funds Not a Defense to Criminal Tax Fraud Charges

September 12, 2011,

Criminal tax charges were recently upheld by the Sixth Circuit Court of Appeals against an individual who withheld payroll taxes but failed to pay those amounts over to the Internal Revenue Service ("IRS"). The defendant had been convicted of fifteen counts of Failure to Account for and Pay Over Withholding and FICA Taxes, in violation of 26 U.S.C. § 7202, and three counts of Making and Causing the Making of a False Claim for a Tax Refund, in violation of 18 U.S.C. § 287. The lower court sentenced the defendant in the case to 22 months in prison and 36 months of supervised release and ordered him to pay the amount owed plus penalties.

The defendant in the case, Richard Blanchard, did not pay trust fund taxes for approximately 6 years despite withholding taxes from his employees. The case started out as a civil tax audit, but then it became a criminal tax case. Blanchard appealed the decision of the district court, stating that the government failed to prove that he was financially able to pay over the employment tax and that the government must do so in order to show that his failure to pay violated the relevant statute. The appellate court found not only that the government did not need to prove that Blanchard was able to pay the tax, but also that Blanchard's inability to pay that tax would not even constitute a defense to the government's accusations. The court cited previous cases and stated that every individual must conduct his financial affairs in such a way that he is able to pay his tax liability when it becomes due. Thus, Blanchard's conviction and sentence of 22 months plus 36 subsequent months of supervised release were affirmed.

The case is disturbing to the extent that it brings to mind the concept of debtors prison. Business owners need to understand that failure to pay withheld tax over to the IRS may result in criminal tax fraud charges as well as civil tax penalties.

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More Tax Problems for U.S. Citizens with Foreign Bank Accounts in Israel

September 6, 2011,

The Supervisor of Banks at the Bank of Israel and the supervisory authorities in the US--signed a Statement of Cooperation. The Statement of Cooperation establishes a mechanism for the transfer of information between the authorities in the context of the authorization process of establishing cross-border banking activity in the U.S. or Israel, and in the context of their ongoing function as regulators of banking activity.

The announcement didn't specifically mention FBARs, or foreign bank accounts, however, it appears that this will be just one more avenue for the Internal Revenue Service to pursue in locating U.S. citizens who have unreported bank accounts in Israel. According to the press release the Statement of Cooperation establishes a mechanism for the transfer of information between the authorities in the context of the authorization process of establishing cross-border banking activity in the US or Israel, and in the context of their ongoing function as regulators of banking activity.

When added to the ongoing grand jury investigations of Israeli banks, and the implementation of FATCA in 2013 it demonstrates the danger of continued non-reporting of foreign bank accounts-especially for dual Israeli citizens.

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