Recently in Failure to File Tax Returns Category

Breaking Bad and the Tax Consequences of Illegal Income

October 16, 2013, by The McKellar Law Firm, PLLC

As the hit show Breaking Bad comes to an end, Forbes ran an interesting article on the tax implications of illegal activities as it relates to the hit show.

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The author highlights a few problems that arise when conducting illegal transactions, including:

1. Illegal income is still considered taxable income by the IRS. Regardless of the legality of how the income was generated, the IRS still wants its piece of the pie.

2. Claiming expenses for an illegal business will typically result in an admission of participating in illegal activity, and the claimed expenses are most likely to be disallowed.

3. Money Laundering is a likely companion charge to tax evasion since most illegal income needs to be "washed," similar to Walter White's Car Wash in Breaking Bad.

4. If the person conducting the criminal action files a tax return but fails to disclose all his/her income, that person could be looking at a charge of filing a false tax return. If the alleged criminal does not file a tax return, then he/she may be dealing with a charge of failure to file a tax return.

5. Finally, if the alleged criminal decides to move his/her money offshore, he/she would be required to file an FBAR (Report of Foreign Bank and Financial Account). Violation of this requirement can carry a maximum civil penalty of $100,000 for each violation, and the criminal penalties can include a $500,000 fine and a maximum 10-year prison sentence.

Two Stars of "Real Housewives of New Jersey" Indicted for Federal Fraud and Tax Charges

July 30, 2013, by The McKellar Law Firm, PLLC

According to a press release from the Department of Justice, Teresa and Joe Giudice were indicted by a federal grand jury in a 39-count indictment for a multitude of federal crimes, including mail fraud, wire fraud, bank fraud, making false statements on loan applications, bankruptcy fraud, and failure to file tax returns. The New Jersey couple regularly appear on the Bravo TV show "Real Housewives of New Jersey."

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According to the Indictment, the Giusepe's are accused of the following acts:

  • From 2001 to 2008, the Giuseppe's allegedly committed mail and wire fraud by submitting fraudulent loan and mortgage applications, along with false supporting documentation. In particular, they are accused of falsely stating that they were "employed and/or receiving substantial salaries when, in fact, they were either not employed or not receiving such salaries."
  • In 2001, Teresa Giudice applied for a mortgage loan of $121,500, and she allegedly falsely claimed she was employed as an "executive assistant," and she provided fake W-2 forms and fake paycheck stubs which she claimed were issued by her employer. The Government alleges that Mrs. Guidice's claims related to this mortgage loan were false.


  • In 2009, the Giudices filed a Chapter 7 bankruptcy protection in the U.S. Bankruptcy Court in Newark, New Jersey. The Guidice's, along with anyone else who files for bankruptcy protection, were required to disclose their assets, income, and liabilities, among other things, to the United States Trustee. The Government claims that the Giudice's intentionally "concealed businesses they owned, income they received from a rental property, and Teresa Giudice's true income from the television show 'The Real Housewives of New Jersey,' website sales, and personal and magazine appearances." The indictment also argues that the Giudice's concealed their anticipated increase in income from the upcoming season of the "Real Housewives of New Jersey." As a result of these alleged actions, the Giudice's are charged with committing bankruptcy fraud for concealing and making false oaths and declarations about the assets and income during their bankruptcy case.


  • The Indictment also alleges that during tax years 2004 through 2008, Giuseppe "Joe" Giudice received income totaling $996,459, but did not file tax returns for those years.

The Guidice's are looking at a potentially substantial sentence if convicted of these crimes, and are specifically looking at the following maximum punishments:


  • Conspiracy to commit mail and wire fraud - up to 20 years in prison and a maximum $250,000 fine.

  • Bank fraud and loan application fraud counts - each carry a maximum of 30 years in prison and a $1 million fine.

  • Bankruptcy fraud counts each carry a maximum penalty of 5 years in prison and a $250,000 fine.

  • Failure to file a tax return counts each carry a maximum penalty of one year in prison and a $100,000 fine.

Stephen Baldwin and Owner of YouPorn Facing Tax Evasion Charges

December 11, 2012, by The McKellar Law Firm, PLLC

As a criminal defense and tax attorney, I often deal with the intersection of those two areas of practice when handling tax evasion and tax fraud cases. Even though the number of tax prosecutions by the federal government has increased in recent years, the total number of criminal tax prosecutions are relatively few. For example, in 2010, there were approximately 1,250 tax fraud charges brought by the Department of Justice.

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With so few tax prosecutions each year, the types of criminal tax prosecutions usually focus on a few groups of people: celebrities or high profile people, tax protesters, and lately, those who have attempted to evade taxes by hiding assets outside the country. Of course, there are cases which don't fit into of the aforementioned categories, but two recent tax fraud cases show how tax authorities have targeted a few higher profile individuals. While the IRS and the Department of Justice are usually the lead agencies in the pursuit of tax fraud prosecutions, other agencies can also get involved.

Last week, actor Stephen Baldwin (who is looking very "Baldwin-esque" in the mugshot above) was arrested in New York for failure to file state income taxes for $350,000 in earnings from 2008-2010. Baldwin denies that he committed any crime, but acknowledges that his personal bankruptcy and other financial factors contributed to his inability to pay his taxes. Baldwin is scheduled to return to court on February 5, 2013.

Apparently, the U.S. is not the only government which pursues higher profile individuals, as Germany arrested Fabian Thylmann last week on suspicion of tax evasion. Although Thylmann may not be a household name to many, he is the owner of 2 of the world's top 110 websites, YouPorn and Pornhub. Thylmann was arrested in Belgium and will likely be extradited to Germany in the near future.

Kentucky Minister Predicts Coming of Christ, While U.S. Govt. Predicts Conviction for Tax Evasion

I have often said that clients charged with tax crimes are my favorite clients because they often passionately believe that they are right in their beliefs. Sadly, they are often wrong, but they are at least acting with conviction. However, it is a rare case when a defendant can combine their own misguided beliefs on the tax laws with an incorrect prediction of the return of Jesus Christ. Such a defendant can be found in the form of Kentucky minister Ronald E. Weinland.

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Weinland was indicted on November 10, 2011, for attempting to evade taxes in excess of $350,000 for tax years 2004 - 2008. A copy of the Indictment can be found here. According to the Indictment, Weinland failed to file tax returns during these periods, he used church contributions for his personal use without reporting the funds as income, and he failed to file a Report of Foreign Bank (FBAR) regarding a bank account that he had in Switzerland. His trial is scheduled for this upcoming Monday, June 4, 2012.

In what would have been perhaps the most unique ground to ask for a continuance of a trial, Weinland predicted that Jesus Christ would return to the Earth on May 27, 2012. Unfortunately for Weinland, his trial is still scheduled to proceed next week. If convicted, he could face up to 5 years in prison, restitution, fines, and court costs for violating 26 U.S.C. 7201.

More information on Weinland can be found at this Fox TV station's website here.

Georgia Man Sentenced to 15 Months Imprisonment for Failure to File Tax Returns

According to a press release from the United States Attorney for the Northern District of Georgia, a Monroe, Georgia man was sentenced to 15 months in prison for failing to file his income tax returns. James Guinn owned a plumbing business near Atlanta, and from 2003 to 2006, Guinn's adjusted gross income was over $350,000. However, Guinn failed to file tax returns for any of those years.

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Guinn apparently refused to file his federal returns because of information from the group "American Rights Litigators." American Rights Litigators is an anti-tax organization that advises clients on avoiding payment of income taxes. The group is probably best known for its connection with actor Wesley Snipes, who did not file tax returns for years based on the advice he received from the founder of American Rights Litigators, Eddie Kahn.

James Guinn was warned by the IRS that the anti-tax arguments he advanced were not legally valid and that he was required to file income tax returns. Guinn nonetheless refused to pay a total of approximately $67,513 in income tax. Guinn will be paying that amount now as restitution to the IRS along with a $20,000 fine.

As the Guinn case shows, non-payment of income tax can result in serious financial penalties and even imprisonment. The government will continue its crackdown on alleged financial fraud and tax crimes, and cases like Guinn's will become increasingly common. If you have received a summons or warrant from the IRS, you need a criminal defense attorney experienced in federal tax law.

Tax Prosecutions Increase Near Tax Filing Deadline

April 16, 2011, by The McKellar Law Firm, PLLC

Each year as the filing deadline for filing personal tax returns approaches, the Internal Revenue Service and the Department of Justice seem to increase the number of publicized cases in which they are involved. As one U.S. Attorney bluntly states, "As taxpayers prepare to file their returns, they should know that the Department of Justice and the IRS are actively investigating and prosecuting those who attempt to shirk their civic duty to pay their fair share."

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Let's take a quick look at a few of the tax-related indictments which have arisen in the past week:

* A Virginia pharmacist was indicted after he allegedly told his employer to stop withholding state and federal income taxes from his paychecks. The indictment also accused the pharmacist of failing to file federal tax returns from 2001 until at least 2007, and for allegedly setting up multiple limited liability companies to disguise and conceal assets and transactions.

* An Ohio man is charged with tax evasion for allegedly failing to report portions of his income earned in 2005 through a skilled-gaming business he owns in a purported attempt to evade tax liability, and he is also accused of paying no taxes in 2006 and 2007, despite the Government's claim that he had a combined taxable income of $329,420 and owes a total of $80,916 in back taxes for those two years.

* A California man is facing tax evasion charges for allegedly failing to file income tax returns for calendar years 2004, 2005 and 2006, despite having income in those years of $870,000 (2004), $838,000 (2005), and $206,000 (2006). The Government claims that the taxes owed added up to approximately $622,000. The indictment also asserts that the defendant falsely denied to IRS agents that he had received personal income from his business and falsely accused a corporate officer of embezzling from the company.

* A Florida man is accused of evading taxes by failing to report a $102,000 broker's commission on his tax return. The Government claims that the defendant and his wife listed their taxable income for 2005 as $121,826 when it was nearly double that -- $237,468. The couple owed $58,956 in taxes but paid less than half that, according to federal officials.

If you receive a summons and/or a search and seizure warrant from the IRS or FBI, you should immediately contact an experienced federal criminal defense attorney. As these latest rash of tax evasion charges show, the Government is committed to pursuing and ultimately prosecuting those whom they view as tax criminals.

Can Failure to File a Tax Return Result in a Felony?

October 20, 2010, by The McKellar Law Firm, PLLC

Criminal tax defense lawyers are often hit with questions about penalties for clients failing to file tax returns. 26 U.S.C. Section 7203 provides generally that a failure to file a tax return is a misdemeanor, which is punishable by a fine of up to $25,000 for individuals and up to $100,000 for corporations.

However, taxpayers (and attorneys) should be aware that a misdemeanor for failure to file tax returns can quickly grow in to a felony charge. The ultimate issue to determine whether a failure to file case turns into a felony revolves around the concept of "willfulness," which is addressed statutorily in 26 U.S.C. Section 7201.

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In the case of United States v. Garland Miller, the Fifth Circuit provided a nice overview on criminal tax law as it relates to willfulness:

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 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution. 26 U.S.C. § 7201. The elements of a violation of 26 U.S.C. § 7201 are: (1) existence of a tax deficiency; (2) an affirmative act constituting an evasion or an attempted evasion of the tax; and (3) willfulness. United States v. Nolen, 472 F.3d 362, 377 (5th Cir. 2006).

Affirmative acts that satisfy the second element may include keeping double sets of books, concealment of assets, or "any conduct, the likely effect of which would be to mislead or to conceal." Spies v. United States, 317 U.S. 492, 499 (1943); see also United States v. Robinson, 974 F.2d 575, 577 (5th Cir. 1992).

To prove willfulness, the third element, the government must show that: (1) the law imposed a duty on the defendant; (2) the defendant knew of that duty; and (3) the defendant voluntarily and intentionally violated that duty. Cheek v. United States, 498 U.S. 192, 201 (1990); United States v. Simkanin, 420 F.3d 397, 404 (5th Cir. 2005). The evidence at trial sufficiently demonstrates Miller's evasion. It is undisputed that he failed to file tax returns for tax years 2000 and 2001, as charged in the indictment. Further, Miller acted affirmatively when he converted payments made to the clinic to cash, money orders, and cashier's checks. Witnesses testified that Miller's practice of converting payments made to the clinic made it difficult for the IRS to determine his income. These affirmative acts had the "likely effect of mislead[ing]" the IRS, and precluded the agency from effectively assessing his tax liability. Spies, 317 U.S. at 399; Robinson, 974 F.2d at 577. Moreover, Wolff testified that the Medical Manager software on Miller's clinic's computers included double sets of billing records.

Non-filers and non-payers should pay special attention to the language that I placed in bold in the text from the Miller case. The Government has a lot of discretion in pushing for a felony tax case by the simple language of "any conduct, the likely effect of which would be to mislead or to conceal." Such conduct could include failure to file a tax return.

Additional Resources
United States v. Garland Miller, Fifth Circuit Court of Appeals, November 20, 2009
26 U.S.C. Section 7201
26 U.S.C. Section 7203