Criminal Tax Defense
Our Criminal Tax Defense Practice Group routinely defends clients in criminal investigations of tax fraud, evasion, structuring, bank secrecy violations, failure to file, and failure to pay cases before the State of California Criminal Investigation Division, Internal Revenue Service (“IRS-CID”), or the Department of Justice (“DOJ”). We work with any taxing authority to avert criminal proceedings and eliminate or reduce penalties and civil tax assessments, while creating alternative resolutions to indictment, whenever possible. Serious criminal investigations and convictions can result in significant penalties, including prison time or lost privileges. The United States Department of Justice reports an incarceration rate of over eighty percent, and taxpayers could face enormous monetary tax assessments and fines. See IRS Current Fiscal Year Statistics - CI data.
The most common types of prosecuted tax crimes include failing to file income tax returns, filing false income tax returns, under-reporting income, submitting false documents, and making false statements or claims. The IRS aggressively prosecutes individual taxpayers involved in illegal activities, including avoiding the reporting of legal or illegal income from use of offshore tax shelters. To establish a tax crime, the IRS must prove "beyond a reasonable doubt" that a taxpayer failed to report their correct tax liability and that additional tax is due and owing.
You are remiss to address or ignore the IRS before consulting with a tax attorney specializing in these matters. Statements you make to a Special Agent can be used in a case against you. In addition, an accountant, CPA, Enrolled Agent, or other non-attorney, can be compelled to use anything you say to them against you.
Prosecution for a tax crime may be based on issues other than the underlying liability. In any given case, a taxpayer could be prosecuted if the government believes that the taxpayer omitted any amount of taxable income from an income tax return. Liability is not measured in terms of gross or net income, or by any particular percentage of the tax shown to be due. Because of these intricacies, even if you believe you are innocent, or that amount due is “insignificant,” it is risky to represent yourself before the IRS or any other taxing agency.
Methods the government uses to establish a tax crime include: direct evidence, the net worth method, the expenditure method, and/or the bank deposit method. Under the direct evidence method, the government will attempt to establish a tax crime through transactions improperly reported on a tax return. Under the net worth method, the government will focus on unreported income received by a taxpayer. Closely related to the net worth method is the expenditure method (sometimes known as the “lifestyle” method). Under this method, the government will attempt to establish a tax crime by establishing that a taxpayer purchased more goods and/or services during a given period than the gross income reported on a tax return in question. Finally, under the bank deposit method, the government uses a formula based on the taxpayer’s taxable income. If the taxpayer under investigation deposited, into their bank account(s), more money than reported on a tax return during a given period, then the government may classify these deposits as unreported income and use this as evidence of a tax crime.
In addition to failing to report income, tax crimes can be brought against anyone attempting to “evade or defeat” tax collection by transferring assets or someone who “aided and abetted” a taxpayer to evade tax.
If a criminal case commences, it is very likely that, regardless of outcome, a civil case will commence shortly after the conclusion of the criminal investigation. The presentation of your defense during the criminal investigation could significantly affect the outcome of any civil case. The first step in a criminal case is to avoid any criminal prosecution or punishment, such as imprisonment or fines.
The criminal process can be long and difficult for you and your family. Representation by seasoned tax attorneys, who are adept at explaining the process and your options, is key to helping you establish a proper defense and maintain peace of mind.
Offshore Tax Shelters
Offshore tax shelter promoters claim that taxpayers will receive significant tax benefits and asset protection by establishing entities in the "tax havens" of the world. These shady promoters encourage unsuspecting individuals to assign income to offshore corporations or bank accounts in the Caribbean and other countries. The offshore money is retrieved by use of financial instruments, such as offshore credit and check cards, to avoid paying taxes. Unfortunately, many of these shelters are schemes that financially benefit the promoters, resulting in disastrous consequences, including huge civil, monetary, and criminal penalties.
We have experience representing and advising individuals before the Internal Revenue Service and State, involved in offshore tax shelters. We can potentially mitigate exposure to criminal or civil penalties arising from involvement in an offshore scheme. We also advise taxpayers regarding potential liability in any offshore transaction.
Since these practice groups overlap in a number of areas, you may wish to read about our Offshore Tax Compliance Practice Group, and blog, for more information,
Bank Secrecy Act
Passed in 1970, the Bank Secrecy Act (“BSA”) was the first set of laws specifically designed to combat money laundering. In fact, it is sometimes referred to as the “Anti-Money Laundering Law (“AML”)” or “BSA/AML.” The BSA has been amended over the years by the addition of other anti-money laundering laws such as the Patriot Act. The BSA requires business and financial institutions to keep records and/or file reports of certain transactions and activity. The records and reports are especially useful to government and law enforcement activities in detecting money laundering, tax evasion, terrorism and other criminal activities.
As a practical matter, the government knows everything that an individual does with a bank. The government requires banks to have sophisticated computer programs, which are monitored by experienced, knowledgeable professionals looking for any irregularity; whether the irregularity occurs in one branch of a bank, or different branches of a bank, or by multiple banks. Any illegal attempt will result in the bank reporting you and your transactions to the government, which can prosecute you for felony charges resulting in years of imprisonment and large monetary penalties.
Bank Reporting Requirements
The BSA institutes reporting and recording requirements for banks and other financial institutions in addition to mandates for reports or records from individuals and businesses. Every currency deposit, withdrawal, exchange, payment or transfer involving more than $10,000 must be reported on a Currency Transaction Report (“CTR”). While there are certain exemptions, such as transactions between banks, governmental agencies or entities on the NYSE, etc., the financial institution is still required to file a designation of exemption.
Banks must report any suspicious transactions or attempted transactions. A Suspicious Activity Report (“SAR”), found here, must be filed if one or several related transactions involve $5,000 in non-face to face transactions and $2,000 in face-to-face transactions, and the bank knows or believes that the transaction:
- Involves funds from illegal activities;
- Is intended to hide or disguise funds or assets from illegal activities in order to violate or evade any federal law or regulation or to avoid a transaction reporting requirement;
- Is designed to evade the regulations created under the BSA;
- Has no business or lawful purpose or is not the kind of transaction a particular customer normally engages in and, after looking at the background, facts, and possible purpose of the transaction, the bank cannot reasonably explain it.
Penalties for failing to Report Suspicious Acts
Financial Institutions are required to file reports of suspicious activity. A $25,000 fine, or the amount of the transaction (not to exceed $100,000), whichever is greater, will be imposed upon a bank that fails to file a CTR or SAR. Negligence on the part of a bank could cause it to be fined $500 for one violation or $50,000 for a pattern of negligence. Conversely, there is no penalty for reports that are not necessary.
Privacy Issues
Privacy rights diminish as concerns grow regarding money laundering and terrorism. In 1986, as part of the Money Laundering Control Act, Congress stated that a financial institution would not be held liable for the sharing of information relating to suspicious activity. Financial institutions report a client’s name, address, social security number, driver’s license number and more to the government. Any transaction of $10,000 or more will require that a customer’s information be shared. Also, the language of the regulation may make it necessary to report totally legal transactions of $5,000 or more because the transaction is not customary for the individual. The reports are filed with the Treasury Department’s Financial Crimes Enforcement Network and, thereafter, are available to the FBI, Secret Service, Customs Service, every U.S. Attorney’s Office and several other law enforcement agencies, which can access the reports without normal evidentiary requirements.
White Collar Crime
Federal law requires businesses and financial institutions to report currency transactions in excess of $10,000 (in a single or “related” transaction) within a twelve-month period. Businesses must file an IRS form 8300, and financial institutions must file a currency transaction report. These requirements helps the IRS track suspicious criminal activity, including tax evasion and other crimes, even though making a deposit or withdrawal greater than $10,000 is often legal. This information is also shared by many other government agencies.
When a person, or persons, breaks a single $10,000 (or more) transaction, within a twelve-month period, into smaller pieces in an attempt to trick a business or financial institution into not filing the required report, pursuant to U.S. Code § 5324, it is called “Structuring.” You can be convicted of the federal felony of structuring even though the money is legal and you pay your taxes. Regardless of where the money comes from or the money’s purpose, a person suspected of structuring a transaction to evade reporting requirements may be prosecuted. The illegality is solely based on the attempt to avoid the reporting requirements.
Prior to September 23,1994 the government had to prove a defendant’s knowledge of structuring, the federal law requiring the bank to report currency transactions in excess of $10,000. The government also had to prove that the defendant did not to try to trick the bank into avoiding the reporting requirement. Effective September 23, 1994, Congress changed the law, as it was decided by the United States Supreme Court in Ratlaf on January 11, 1994, 510 U. S, 135, requiring a structuring conviction to have “willfulness,” making it much easier for the government to obtain a conviction. The government now only needs to prove that the defendant had the purpose of trying to avoid having the bank file the currency transaction report or the business filing IRS form 8300.
Anyone convicted of violating anti-structuring laws is guilty of a federal felony, could serve many years in federal prison and face huge monetary penalties. Further, since structuring is its own crime, and the movement of money may allow the person to avoid taxes, a structuring case or investigation can sometimes lead to additional charges, such as tax evasion. It’s important to remember that structuring may alarm authorities to suspected tax evasion and other serious charges.
In the case of former New York Governor Eliot Spitzer, a consideration was whether he committed structuring, among other crimes, in the payment of $20,000 in four installments to a prostitution ring.
Radio show host Rush Limbaugh was considered for prosecution on structuring charges when, within twelve months, he withdrew cash exceeding $10,000, in multiple amounts from his bank; each withdrawal was less than $10,000. There were never any allegations that Rush had illegally acquired the money or that he had any tax problems, only that he may have committed the crime of structuring. Mr. Limbaugh commented on his radio show that he was being considered for prosecution for “withdrawing his own money.” How a person deposits or withdraws the money, especially when structuring, is the crime.
Most people that are prosecuted under the structuring law are not celebrities; they are normal, everyday people. For example, a police officer was found guilty of structuring when he re-deposited, in multiple deposits of less than $10,000, cash in excess of $10,000 into the very banks from which he had earlier withdrawn it (United States of America v. William MacPherson, 424 F. 3d 183, decided September 13, 2005). In another example, a newly married couple faced structuring charges when they used multiple deposits of less than $10,000 to deposit well over $10,000 into multiple financial institutions.
Businesses can file a form 8300 with the IRS for a cash transaction less than $10,000 if they believe the transaction might appear suspicious. Banks will file a Suspicious Activity Report if they think a transaction is suspicious, and almost 50% of the Suspicious Activity Reports filed to date list structuring as the suspected violation.
The government does not have to prove that a person intended to commit a crime by violating the provision; it must prove that a person intended to trick a financial institution or business into not filing a required report. So, regardless of intent to violate the law, structuring is a crime.
Moskowitz LLP understands the very complex circumstances surrounding structuring. The government, through direct or circumstantial evidence must demonstrate a string of financial transactions in order to support a structuring case. Our financial, criminal and civil expertise can help you defend against a restructuring claim.
We defend clients against any type of criminal or civil charge, including complex white-collar crimes, and have a proud record of criminal and civil successes. We represent businesses and individuals, in a wide range of cases, including defending individuals against sophisticated financial crimes, such as tax fraud and the oft-related civil financial and tax charges. Our clients benefit from our more than three decades of experience, and a dedication to successfully resolving matters. Our team will defend you against any serious charges. We value your trust, and will do whatever it takes to help you keep your personal freedom, assets and income.
We have the experience to represent you before the IRS, U.S. Department of Justice, State of California, and a variety of regulatory agencies. Our goal is the complete dismissal of charges and, if that is not possible, we will negotiate solutions to attempt to avert prison and prosecution. Our significant government experience helps our clients navigate the difficult and often frightening investigation process. Our extensive experience with compliance programs helps us advise you on the best practices to prevent criminal problems from developing. If you face criminal charges, we have the extensive trial experience to mount a vigorous defense on your behalf.
Our law firm's broad range of substantive experience permits us to offer an integrated approach to a full range of tax, criminal and civil matters. Criminal and government enforcement activities usually do not appear in isolation; they are often accompanied by parallel proceedings, civil litigation, and/or other governmental agency investigations. Our team of tax attorneys, criminal attorneys, CPAs and other professionals, enables us to assemble a comprehensive defense on your behalf.
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