18 Months in Prison for Cashing Client Checks and Not Reporting Income to the IRS

A man who provided landscaping and snowplowing services to residential and commercial customers in Hartford, Connecticut is serving 18 months in jail for underreporting his income.

The facts

Don Biagi of Don Biagi Landscaping liked to cash his client’s checks – from 2008 to 2010, he cashed 574 checks ranging from $10.52 to $15,604, for a total of $848,750. That, in and of itself, is legal, but Biagi never informed his tax preparer of that income, nor did he disclose another $472,555 that he had deposited into his business account. The result was $1,321,305 of unreported business receipts during those years, resulting in a substantial underreporting of Biagi’s taxable income – 62% of his gross receipts were missing from his 2008 tax return, 47% from his 2009 return, and 60% from his 2010 return.

The consequences of underreporting income

It is crucial that you report all of your reportable income on your tax return, including but not limited to, freelance income, income from the sale of property, interest and dividends. The IRS is well aware of non-compliance by individual filers, particularly small business owners, whom statistics show are the most frequent tax evaders. In 2006 alone, this group underreported $235 billion in income (more than half of the tax gap), and $122 billion of that amount was attributed to underreported income on individual income tax returns.

The IRS can identify missing income without much difficulty. Usually, through a matching system. For instance, when a business or other organization makes a payment to a taxpayer, it is required to file an information return (Form W-2, Form 1099, etc.) to the IRS. The IRS compares the amounts on these informational returns with the taxpayer’s tax returns – if they don’t match, the IRS generally sends a notice to the taxpayer regarding the difference. Other methods of identifying missing income are through audit, investigation, tips, and more.

Biagi faced a maximum term of five years imprisonment and a fine of up to $250,000 for tax evasion – the judge gave him 18 months followed by one year of supervised release. He also agreed to pay $445,579 in restitution to the IRS for his unpaid taxes, interest that has accrued on all his unpaid taxes, and hefty penalties.

California civil and criminal tax attorneys

A criminal tax investigation is a difficult process, and is usually followed by civil proceedings. The seasoned tax attorneys at Moskowitz, LLP can explain your options and help you establish a defense. Contact our San Francisco office today for a consultation.