Criminal Tax - Introduction
Criminal tax may be the only area of criminal law where the most critical evidence and damaging facts are developed solely from the criminal defendant. This is because the defendant often makes damaging statements or provides self-incriminatory records and other information to the Internal Revenue Service. The defendant’s statements and records are often used to significantly weaken available defenses. This is true even when the Internal Revenue Service puts a case together through indirect proof. In these cases, a defendant may unknowingly provide vital links which pull together inferences, assumptions, and presumptions needed to establish a criminal conviction. This all means that in the high stakes area of criminal tax law, the value of a qualified criminal tax attorney is invaluable.
If you are under investigation by a taxing agency related to income tax, or are being investigated by the Internal Revenue Service, you may believe that you do not have any options. This is not the case. At Moskowitz, LLP, our tax attorneys are experienced in both tax law and criminal law. We vigorously advocate for our clients and consider unique defenses. We have decades of experience representing individuals and businesses accused of tax crimes. We can assist you through every aspect of your criminal tax matter, including audits, criminal investigations, pre-indictment, indictment, and trial, even at the appellate court level.
Before you communicate with the Internal Revenue Service or a tax accountant (who can be called as a witness to testify against you), contact the highly-skilled criminal tax attorneys at Moskowitz, LLP.
The Internal Revenue Service Criminal Investigation Process
The Internal Revenue Service uses the threat of criminal sanctions, fines, and the possibility of imprisonment to deter noncompliance with tax laws. Threats of criminal prosecution should not be taken lightly because over the years, of those prosecuted for tax crimes, the United States Attorney has a convictions rate of about 90 percent.
A criminal tax case often begins as an income tax audit that is ultimately referred to the Criminal Investigation Division (“CID”) of the Internal Revenue Service. If CID believes that a taxpayer committed a tax crime, the case is than referred to the United States Attorney’s Office for prosecution. Investigations conducted by the CID are criminal investigations that can result in charges of serious tax crimes. CID investigations are not tax audits. The investigation of tax crimes involves different elements and procedures than a typical criminal case. Consequently, it is very difficult to be prepared for a CID investigation unless an individual is familiar with the process. Referrals are probably the most important source for cases that are investigated by CID. The Internal Revenue Service instructs auditors and revenue officers to be alert for indications of fraud or criminal activity and, when such activity is suspected, to then refer the case to CID.
If you are under investigation by CID or are involved in a sensitive tax audit, you will need to retain a criminal tax law firm that understands the CID process in detail. At Moskowitz, LLP, we have decades of experience successfully representing clients before CID.
If you are being investigated by CID, you should know that there are a number of revenue offenses and criminal offenses that CID could investigate. With that said, the most common criminal offense investigated is tax evasion. If you are investigated for tax evasion a CID agent will attempt to build a case to establish that you owe more taxes than what was reported on your tax returns, and that you willfully attempted to evade this tax. To gather evidence of omitted income from your individual income tax return, a CID agent would likely analyze your net worth over the period of years investigated.
Criminal tax investigations are conducted for the purpose of gathering evidence to use in a prosecution of a taxpayer. If you are investigated, you could risk loss of business. This is because a CID agent may contact your friends, customers, business associates, neighbors, and anyone else connected to you. The process may last for years. Generally, a CID investigation begins with the interview by special agents assigned to your case who attempt to interview you. Any statements that you make to a CID agent could have devastating consequences. For example, a CID agent may believe that a statement made by you during an investigation is false or misleading. A false or misleading statement is itself a willful attempt to evade tax and could result in criminal charges separate from the case being investigated. In addition, such a statement can be used as evidence to infer willfulness. Furthermore, an admission may be used against you in a potential subsequent trial. This means you should never meet with a CID agent unrepresented.
This can be particularly difficult because CID agents usually no warning of their initial visit, and they do this for a reason: to trap an individual by catching them unawares. On occasion, they will try to call to set up an immediate meeting. Sometimes they will simply arrive at an individual’s home or place of business. If a CID agent contacts you, under no circumstances should you communicate with the agent. You should understand that any statement or information that you provide to the agent can be used not only to build a criminal tax case against you, but that any information you volunteer can be utilized to build a non-tax crime case against you such as money laundering, mail-fraud, or business fraud.
If you are being investigated by CID, the investigation could take months or even years. Given the amount of time that a criminal investigation may take, you might feel compelled to supply all your financial information to a CID agent to cut short the criminal investigation process. The danger of giving into the impulse “to get the matter over with” could result in you providing information or documentation that may be privileged under the Fifth Amendment of the United States Constitution. This cooperation may only make it easier for CID to build a case against you.
Once CID completes its investigation, if the agent determines that there is sufficient evidence to support all elements of a tax crime, he or she will recommend prosecution of the case. If the CID agent recommends prosecution of your case, it will be referred to the Department of Justice. The Department of Justice will make the ultimate decision as to whether or not to prosecute your case. If the CID or the Department of Justice decides not to prosecute your case, you may still be liable for civil taxes and interest plus the penalties.
There are no simplistic formulas for arriving at the best defense through the CID process. With that said, since we have been representing clients before Internal Revenue Service criminal matters for many years, we have the ability to draw upon our experience to offer pragmatic solutions and unique defensive considerations. We will zealously advocate on your behalf to convince CID to end its criminal investigation of you as early as possible and to not refer your case to the United States Attorney.
Pre-Indictment Department of Justice Representation
If CID makes a prosecutorial recommendation, a file will be forwarded to the United States Attorney. The file will contain a special agent’s report stating the reasons why the agent believes a criminal prosecution is appropriate. Once the United States Attorney receives the special agent’s report, your criminal tax attorney will have the opportunity to repeat the same arguments as to why criminal prosecution is not appropriate. We believe this meeting is invaluable. This is because it is our position that an Assistant United States Attorney may be more receptive to legal arguments involving the conduct of an Internal Revenue Service auditor or special agent (failure to give adequate Miranda warnings, unlawful searches, or Fourth and Fifth Amendment defenses), or practical prosecution issues such as voluntary disclosure defenses, reliance on others, mistake of law, or instances where the government has failed to prove guilt beyond a reasonable doubt.
Should the United States Attorney decide to prosecute an individual for a tax or financial crime, we are experienced in negotiating plea bargains and takings matters to trial. We also understand that a criminal conviction has serious consequences. Not only can a criminal conviction for a tax crime result in a lengthy prison sentence, you will also suffer collateral consequences such as loss of professional licenses, and the debilitating cost of a felony conviction. If you believe that you were wrongfully convicted of a tax crime or wrongfully plead guilty to a tax crime, contact Moskowitz, LLP for a consultation to determine if your conviction may potentially be vacated or reversed on appeal.
Specific Criminal Sanctions
An individual or business involved in a criminal tax investigation may ultimately be prosecuted with specific revenue offenses (contained in Title 26 of the United States Code) and general criminal offenses (contained in Title 18 of the United States Code). This means that in criminal tax cases, the United States Attorney can indict a defendant for multiple offenses over a span of a number of years. This can be disastrous. Since a tax criminal tax investigation or prosecution can involve elements of revenue offenses, if you are under investigation for a tax crime or believe that you are being investigated for a tax crime, it is imperative that you retain a criminal tax attorney that understands the defenses to both revenue and criminal offenses. Your criminal tax attorney must understand that a defense to a revenue offense may not be a defense to a criminal offense.
Below, please find a select list of revenue and criminal offenses. We have not fully analyzed these statutory offenses, but instead list these offenses and their relationship to a basic charge of tax evasion.
Section 7201- Attempt to Evade and Defeat Ta
This criminal section defines what is commonly known as “tax evasion” or “tax fraud.” It reads as follows:
Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000, or imprisoned not more than 5 years, or both, together with the cost of prosecution.
In order to be convicted of a Section 7201 crime, the government must prove that an attempt to evade and defeat tax was willful. For example, double sets of books, cash transactions, concealment, misleading conduct, false statements and the like suggest willfulness.
Section 7203- Willful Failure to File Return, Supply Information or Pay Tax
Any person required under this title to pay any estimated tax or tax, or required by this title, or by regulations made under authority thereof, to make a return, keep any records, or supply any information, who willfully fails to pay such estimated tax or tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $25,000, or imprisoned not more than one year, or both, together with the costs of prosecution.
Section 7206(1)- Filing a False and Fraudulent Return
Any person who-
(1) Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter.
The presence or absence of a tax deficiency is “irrelevant” to a charge of filing a false tax return. All that is necessary is that the return be willfully false and that the falsity be “material.”
Conspiracy 18 U.S.C. Section 371- An allegation of conspiracy can be used as a vehicle for extending the typical six year statute of limitations. The offense of criminal conspiracy has two elements: 1) an agreement between two or more persons either a) to commit an offense against the United States or b) to defraud the United States in any manner or for any purpose, and 2) an overt act committed by one or more of the conspirators to accomplish the objective of the conspiracy. In tax cases, the conspiracy charged offense can be an agreement to commit a substantive tax offense. All that needs to be established is that two or more persons have agreed to commit a substantive tax offense or to defraud the United States government.
False Statements made to an Agent of the United States 18 U.S.C. Section 1001- A false statement made to an Internal Revenue Service agent is punishable with imprisonment up to five years and a $250,000 fine. The purpose of Section 1001 is “to protect the authorized functions of governmental departments and agencies from the perversion which might result from” concealment of material facts and from false material representations.
If you are accused of violating one or more of the above revenue or criminal offenses, you must understand that there is a very real threat of criminal prosecution. If the United States Attorney chooses to prosecute you for a revenue or criminal offense, they will do so without compassion and carefully weigh the facts against you. If the United States Attorney succeeds in its criminal prosecution, there is a very good possibility that they will seek a prison sentence. We understand these high stakes and we carefully investigate the government’s position to determine how to best defend against allegations of criminal wrongdoing.
At Moskowitz, LLP, we take the position that the most effective way to resolve a criminal tax case is to avoid them. While we realize that this is not always possible, in certain circumstances, if you filed tax returns omitting taxable income, filed returns incorrectly, or failed to file tax returns, it may be possible to make a “voluntary disclosure” to the Internal Revenue Service. In some cases, making a voluntary disclosure to the Internal Revenue Service may be the only feasible method to avoid criminal prosecution for tax crimes. With that said, the rules governing voluntary disclosures are constantly changing. At one time the Internal Revenue Service had a formally recognized “voluntary disclosure” policy. Under this policy, an individual or business that failed to file a tax return or pay the tax due could escape criminal prosecution through voluntary disclosure, so long as it was voluntary and made before an investigation was commenced. The Internal Revenue Service withdrew this formal program in 1952.
Recently, the Internal Revenue Service revived the voluntary disclosure program. Voluntary disclosure submissions are now made to a centralized unit. Under current practices, the Internal Revenue Service recognizes that an individual or business may still avoid prosecution by voluntarily disclosing a tax violation, provided that the disclosure is (1) timely and (2) voluntary. The voluntary disclosure must be truthful and complete, and the individual must cooperates with Internal Revenue Service personnel in determining the correct tax liability.
If you have unfiled tax returns or believe that you may have filed incorrect tax returns, contact our office for an attorney-client privileged consultation. We will carefully review your facts and circumstances to determine if you should consider making a voluntary disclosure to the Internal Revenue Service.
Criminal Aspects of Failing to Disclose Foreign Bank Accounts
If you have or had signature authority over one or more foreign financial accounts that exceeds $10,000 in value, and the foreign financial accounts were “willfully” (Willfulness in the criminal context has been defined as the “voluntary, intentional violation of a known legal duty) not disclosed on your U.S. tax returns, Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts (“FBAR”), or (FinCen Report 114), you could not only be criminally held liable for all the above discussed revenue and criminal statutes, you could also be criminally liable for willfully failing to file an FBAR. Under 31 USC Section 5322(a), a person who is convicted of willfully failing to file an FBAR potentially faces up to five years in prison and a $500,000 fine. In addition to criminal penalties, the IRS can impose a willful civil penalty of $100,000 or 50 percent of the value of the undisclosed foreign financial accounts, whichever is more. These penalties are assessed for each taxable year with undisclosed foreign accounts.
The rules and defenses governing criminal FBAR cases are extremely complicated. The defense attorney must not only have a detailed understanding of criminal tax law and procedures, but it is vital that the defense attorney have a thorough understanding of the statute of limitations governing FBAR cases (the statute of limitations on FBAR cases differs dramatically from criminal tax cases), international income tax treaties, mutual legal assistance treaties (“MLAT”), and the taxation of foreign assets. An attorney must understand how all these factors can give rise to unique defensive considerations. An attorney must also procedurally know how to timely object to a summons or third party summons to prevent the extending of the criminal statute of limitations. Having a detailed understanding of these rules can literally mean the difference between winning or losing a criminal case involving undisclosed foreign financial accounts.
If you are under investigation (or you believe you will be investigated) by the Internal Revenue Service or the United States Attorney in connection with undisclosed foreign accounts, you will need a highly qualified international criminal tax attorney that can aggressively defend you.
Our firm has organized a special group of attorneys to fill the needs of individuals being investigated for not disclosing foreign financial accounts and assets on a U.S. tax return and FBARs. Most law firms assign criminal attorneys to assist clients investigated for not disclosing foreign bank accounts or assets on their tax returns who are neither experienced nor comfortable in this area. Our highly skilled international tax attorneys are experienced in tax law, international tax law, and criminal tax law. We have an exceptional record of achieving extremely favorable results with the United States Department of Justice and in court.
Offshore Voluntary Disclosure Program
At Moskowitz, LLP, we take the position that the most effective way to resolve an FBAR criminal tax case is to avoid them. While we realize that this is not always possible, in certain circumstances, if you failed to disclose foreign financial accounts to the Internal Revenue Service, it may be possible to make a “voluntary disclosure” to the Internal Revenue Service. In some cases, making a voluntary disclosure to the Internal Revenue Service may be the only feasible method to avoid criminal prosecution for an FBAR criminal case. With that said, the rules governing voluntary disclosures are constantly changing. At one time the Internal Revenue Service had a formally recognized “voluntary disclosure” policy. Under this policy, an individual or business that failed to file a tax return or pay the tax due could escape criminal prosecution through voluntary disclosure, so long as it was voluntary and made before an investigation was commenced. The Internal Revenue Service withdrew this formal program in 1952.
Since the 2009 calendar year, the Internal Revenue Service has offered a special Offshore Voluntary Disclosure Program (“OVDP”) to taxpayers with undisclosed foreign financial accounts. Under current practice, the Internal Revenue Service recognizes that an individual or business may still avoid prosecution by voluntarily disclosing a tax violation, provided that the disclosure is (1) timely and (2) voluntary. The voluntary disclosure must be truthful and complete, and the individual must cooperate with Internal Revenue Service personnel in determining the correct tax liability.
Under the terms of an OVDP, individuals are assessed a penalty of 27.5 to 50 percent on the highest aggregate account balance or asset value. An eight year lookback period is used to determine the amount of the penalty. Participants must also file or amend their tax returns and FBARs, pay all delinquent taxes, interest, and penalties for a term of years. In exchange for participating in the OVDP, the Internal Revenue Service may agree not to recommend prosecution to the Department of Justice. The OVDP is not the only method available to make a disclosure of previously undisclosed foreign financial accounts to the Internal Revenue Service. Depending on the facts and circumstances of each case, a disclosure of foreign financial accounts may be disclosed to the Internal Revenue Service through Streamlined Procedures, in which the penalty is reduced to five percent, or through a so-called Qualified Quiet Disclosure in which we take the position no penalties should be assessed.
Disclosing foreign financial accounts to the Internal Revenue Service requires a careful analysis of all the facts and circumstances of each case. Only after all the facts and circumstances are carefully considered, can a determination on how to disclose, and which program to make a disclosure through, be made. Our firm has literally assisted hundreds of clients in making voluntary disclosures to the Internal Revenue Service since significant enforcement policy changes to place in 2009. If you have undisclosed foreign financial accounts, contact our office today to schedule an attorney-client privileged consultation to discuss your options.
If the government believes that you committed a financial crime or received money or property that has a nexus to criminal activity, the Internal Revenue Service, Drug Enforcement Administration, or a number of other federal agencies may seize your money or property. Your money or property may be seized by the government even if you have not been indicted or accused of any criminal activities. To make matters worse, once your money or property has been seized by the government, they will not likely return it unless you timely file a written administrative forfeiture proceeding with the proper government agency. Once a proper claim has been filed, the United States is required to timely file a complaint in a United States district court with proper venue.
If the government has seized your assets or money, it is extremely important that a timely proper administrative claim be filed, or you will likely lose the asset or money seized. We have experience contesting assets seized by a government agency. Call us immediately for a consultation.