From the Tax Law Offices of David W. Klasing - President of California Recycling Company Convicted of Tax Evasion

IRVINE, Calif., May 25, 2023 /PRNewswire/ -- Those who evade their taxes may be met with criminal tax penalties. However, in order for such penalties to be imposed on an entity or individual, the government must be able to prove that their nonpayment of taxes was a willful act. Making an innocent mistake on your tax return does not mean you are automatically guilty of tax evasion.

For example, in 2023, the former president of a California Recycling Company was convicted of tax evasion. The Internal Revenue Service (IRS) uncovered that he had engaged in fraudulent money transfers that were designed to hide his corporate income. For his intentional evasion of tax obligations, he is facing a potential prison sentence of five years and a maximum fine of $100,000.

If you need help with a civil or criminal tax issue, seek support and guidance from our Dual-Licensed Tax Lawyers & CPAs by calling the Tax Law Offices of David W. Klasing at (800) 681-1295.

Facing Criminal Prosecution for Tax Evasion in California

The former president of California Recycling Company and his business partner were convicted of conspiracy to defraud the United States. In addition to the conspiracy charge, the former president also faces criminal penalties for tax evasion.

The charges stem from a scheme in which the former president and his business partner engaged in fraudulent money transfers as an attempt to hide corporate income. Between the years 2009 and 2015, the former president wrote several checks to his business partner. The total value of all of the checks sent totaled $18 million. He then falsely claimed that the payments to his partner were business expenses for the use of heavy equipment. In reality, the business partner was sending the money back to the former president in a variety of ways. The partner sent money transfers back to the former president, purchased homes for him, and wrote him cashier's checks pretending to pay back a loan.

For the charge of conspiracy to defraud the government, they are facing a potential prison sentence of five years and a fine of $250,000. Furthermore, for the tax evasion charge, the former president will potentially have to serve another five years in prison and pay an additional fine of $100,000. A sentencing date has not been set.

Potential Consequences of Tax Evasion

Making an innocent mistake on your return does not make you guilty of tax evasion. However, if you willfully avoid your tax obligations, the penalties you face can be severe. First, you can face a wide array of civil punishments like failure-to-file penalties, accuracy-related penalties, underpayment penalties, and interest on penalties owed. These penalties can add up to significant amounts. In some cases, criminal tax evaders can face civil fraud penalties of 75% of the amount of the tax they intentionally understated.

Furthermore, those who are guilty of tax evasion can face severe criminal tax penalties. For instance, convicted tax evaders will have a felony on their records. Also, they may face up to five years in jail and fines of up to $250,000 for individuals and $500,000 for corporations. Lastly, the government may also make convicted defendants foot the bill for prosecuting them.

Still, making mistakes on your tax returns is very easy to do. If the government accuses you of deliberately evading taxes, we may be able to prove that you simply made an honest mistake. Guidance from our Dual-Licensed Tax Lawyers & CPAs can be highly valuable when seeking to avoid criminal tax penalties in your case.

Examples of Ways the IRS Catches Tax Evaders

There are several methods the government uses to catch tax evaders. First, the Information Returns Processing System is a computerized system that helps the IRS match what is submitted on 1099s, W2s, and Schedule K-1s from employers with what is reported by individual taxpayers. Discrepancies between the employers' forms and individual taxpayers' returns will be considered red flags for tax evasion and may result in audits being performed or CP2000's being issued.

It is also believed that the IRS has secretive systems that allow them to track things like banking deposits, credit card transactions, and more. The agency has not revealed much information regarding these electronic tracking methods. Still, there is evidence that these sophisticated systems are in place.

Additionally, the IRS will look at social media accounts for suspected tax evaders. In this day and age, much of our lives is made public online. If your social media posts indicate that you are living a life that does not coincide with the income reported on your tax return, then you may be investigated further.

Finally, the government also catches tax evaders using informants. Often, these informants are referred to as "whistleblowers." The IRS Whistleblower Office pays monetary awards to informants whose information is effectively utilized. Anyone can be a whistleblower. For example, a disgruntled employee may report their company for tax evasion as an act of revenge. Further, an individual who cheats on their taxes may be reported by a disagreeable family member. In any case, the IRS treats whistleblower reports very seriously.

IRS Unveils New Plan to Enhance Enforcement of Tax Crimes

The Inflation Reduction Act of 2022 has set aside $80 million for the IRS to improve customer service and enhance their enforcement of tax crimes. However, the plan for spending this money seems to be primarily focused on catching tax evaders rather than improving customer service.

It has been suggested that our nation suffers from $7 trillion of uncollected tax revenue. Accordingly, the new funds being infused into the IRS will be used to hire new teams of revenue agents and tax attorneys. These new hires will keep the agency from being overwhelmed while auditing corporations and complicated business partnerships. It has been estimated that over the next 10 years, between 87,000 and 110,000 new employees will be hired. Therefore, the agency's ability to enforce tax crimes will be significantly enhanced.

How to Avoid Criminal Tax Prosecution if you Have Cheated on Your Tax Returns

If you have failed to file a tax return for one or more years or have taken a position on a tax return that could not be supported upon an IRS or state tax authority audit, eggshell audit, reverse eggshell audit, or criminal tax investigation, it is in your best interest to contact an experienced tax defense attorney to determine your best route back into federal or state tax compliance without facing criminal prosecution.

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 disclosure before 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, Kovel CPAs 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!

Contact Our Law Firm for Assistance with Your Tax Issues

Get help from our Dual-Licensed Tax Lawyers & CPAs at the Tax Law Offices of David W. Klasing by calling (800) 681-1295.

More Commonly Asked Tax Audit Questions

• How should Tax Audits be Handled by Criminal Tax Counsel?
• How to survive audit when I cheated on return being audited
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• What is a reverse egg shell audit?
• Why is a reverse egg shell audit dangerous for a taxpayer?
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• How are the 4 goals and outcomes 1 and 2 best obtained?
• What are the possible outcomes of an egg shell audit?
• Is it my right to know why I was selected for examination?
• What can I do to prepare for an audit?
• What is an IRS civil examination?
• How IRS decides which tax returns are audited
• What are my appeal options if I disagree with IRS?
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• Options if I am unable to pay at the conclusion of audit
• What a 30 or 90-Day Letter from the IRS means
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• Rights to disagree with IRS tax auditor's findings
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• Don't go into an IRS audit without representation
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• Why hire David W. Klasing to represent me in an audit

Questions and Answers for Criminal Tax Representation

• When tax defense counsel parallels tax crime investigation
• Guilty of tax obstruction by backdating documents?
• To be found guilty of tax obstruction must a person actually be successful in impeding the IRS's functions?
• Help! The Document I Gave the IRS Had False Information
• Tax crime aiding or assisting false return IRC §7206(2)
• What is the crime known as tax obstruction § 7212?
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• What is the tax crime commonly known as tax perjury?
• What is a Klein Conspiracy?
• Increased possibility of civil action in IRS investigation
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• What happens if the IRS thinks I committed tax crimes?
• What are ways to defend against a tax evasion charge?
• Difference between criminal tax evasion and civil tax fraud
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• Can I Change Accounting Method to the Accrual Method
• What is the willfulness requirement for tax evasion?
• I didn't know I committed tax fraud. Can I get off?
• Concealed assets from IRS. Can I avoid tax evasion charges
• How government proves I willfully engaged in tax evasion
• What is the venue or court where a tax crime case is heard?
• Must the IRS prove tax crimes beyond a reasonable doubt?
• Is it a crime to make false statements to the IRS?
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• Government says I attempted to evade my taxes. Now what?
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• Requesting conference before investigative report is done
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• Is it illegal to overstate deductions on my tax return?
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• Common reasons the IRS and DOJ start investigations
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• What is a proffer agreement and what are the risks?
• Why to have an attorney to review a proffer agreement
• Why enter into a proffer agreement?
• Limited use immunity from proffer agreements
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Public Contact: Dave Klasing Esq. M.S.-Tax CPA, [email protected]

SOURCE Tax Law Offices of David W. Klasing, PC