Tennessee Federal Criminal Lawyer Blog

Earlier this month, Danielle Denson claimed she never knew she had to file income tax returns for her income as an adult "exotic" dancer. However, she filed 323 tax returns in other citizen's names claiming more than $1.6 million in refunds from tax years 2008 to 2011. Sentencing Judge Susan Bucklew presiding over the case, expressed disbelief over Denson's claim that she was unaware that she was supposed to file tax returns on her income as a stripper, and stated: "What did you think the IRS did? Just give money back? Yet you were filing hundreds of tax returns? I have a hard time believing that." Judge Bucklew then proceeded to issue a Judgment for Denson to serve 6 years and 4 months in federal prison for her tax crimes.

Denson's defense attorney's attempted to convince the Judge that Denson's hard life led her to engage in fraud as a way to simply survive. Denson's attorney stated Denson's mother died of AIDS and her father abused her. One of the victim's mothers was not persuaded by Denson's attorney's argument. Her daughter is a 27 year old autistic female that resides in a group home. On the false returns, Denson listed the victim as a student which resulted in a $9,046 tax return. The mother of the victim stated the she had also been severely abused as a child, yet she had maintained her job for 29 years. The mother of the autistic female asked the court to give Denson the maximum sentence possible.

The prosecution was also not persuaded by Denson's arguments.
The Government argued that Denson did not just participate in tax fraud to survive but rather to support her lavish lifestyle, which included a new Mercedes, spending over $300,000 at the Hard Rock Casino in 2007, and spending $14,000 at Gucci.

Sources
The Tampa Tribune - "Tampa Exotic Dancer Sentenced for Tax Fraud"

The Tampa Tribune - "Woman Set to Plead Guilty in Tax Fraud of $1 Million Plus"

Newspitter.com - "A Stripper, Danielle Denson Gets 6 Years for Tax Refund Fraud"

NOTE: The video clip references "2,500 investigations" performed by the IRS per year, but the reference should have been to approximately "2,500 convictions." The IRS last year performed 5,125 investigations.

As most Americans stressed yesterday for what is commonly known as "Tax Day," locally-based Pilot Flying J was swarmed on Tax Day by approximately 30 federal and local agents while executing a search warrant at its Knoxville headquarters as part of an "ongoing investigation." Pilot CEO Jimmy Haslam, father of Tennessee Governor Bill Haslam, stated that Pilot is "cooperating fully with authorities."

The IRS and the federal government have long been fans of moving forward with warrants, investigations, and indictments for higher profile individuals and companies near the dreaded April 15th tax filing deadline. Although this search warrant could have been executed on another day, April 15th is the most notable of tax dates, and it provides the IRS with an extra opportunity to remind the public at large that they are enforcing tax laws.

In a KnoxNews.com article, one Pilot worker commented on the IRS and FBI agents who were executing the search warrant by stating, "They didn't seem like they were on a witch hunt...They seemed like they knew what they were looking for." Oftentimes, when agents from the Criminal Investigation Division (CID) of the IRS show up, they have been investigating the case for a lengthy period of time. The Pilot worker was likely correct in that the IRS CID and FBI agents knew exactly what they wanted to obtain long before they entered the Pilot headquarters.

In fact, to obtain a search warrant, the federal government would have been required to present "probable cause" evidence to a judge that there had been a violation of federal law, which would allow for the issuance of a search warrant. However, the issuance and execution of a search warrant does not mean that Pilot Flying J and/or its officers have done anything wrong or illegal. Undoubtedly, Pilot will take swift action to have its attorneys begin (or possibly continue) their investigation and defense of the case.

UPDATE: Since the original posting of this blog, a second search warrant has been executed today, and federal agents are continuing their efforts at the Pilot Flying J headquarters in Knoxville, according to KnoxNews.com.

Sources and Additional Articles
KnoxNews.com
NBCSports.com
WBIR.com

Last month, Knoxville, Tennessee residents James and Beverly Beavers were found guilty by a jury of their peers of conspiring to defraud the federal government and for filing false claims for tax refunds in U.S. District Court for the Eastern District of Tennessee. The couple is scheduled to be sentenced on August 7, 2013.

According to a press release from the Department of Justice, James Beavers, a former director of an academic engineering center at the University of Tennessee, and Beverly Beavers, a former jewelry store owner, hired PMDD Services, LLC (PMDD) to prepare their tax refunds. PMDD aided its clients in claiming enormous tax refunds in order to pay off personal debt. In the Beavers' case, PMDD falsely reported their mortgage amount, credit card limits, and other personal debts as income in order to withhold federal income tax on the money via Forms 1099-OID. This led to the Beavers claiming a tax refund for 2008 of over $591,000. In addition, the Beavers requested, via amended returns prepared by PMDD, a tax refund of $193,056 for 2006 and $202,625 for 2007. The Beavers used the 2008 tax refund to pay off the mortgage on their home.

Penny Jones, of PMDD, prepared the returns for the Beavers based on information the Beavers submitted to her. She is currently serving a 144-month sentence in federal prison for her involvement in the scam. The "1099-OID" scam is routinely included among the IRS' Dirty Dozen Tax Scams.

William Beavers (pictured below), a former Chicago police officer and 7th Ward alderman, has been charged with tax evasion. Prosecutors allege that Beavers spent $226,000 of campaign money for his personal expenses over a three year period and never paid taxes on the funds. It is also alleged that in 2006 Beavers contributed $69,000 of campaign money to a city retirement fund which more than doubled his monthly pension. There are some grumblings that the prosecutors intend to show that Beavers gambled with a portion of the $226,000 at a casino in Hammond, Indiana.

Beavers stated that the FBI is targeting him because he refused to wear a wire to help its investigation of Commissioner John Daley (brother of former Chicago Mayor Richard Daley). Beavers' defense maintains that the money from the campaign fund was a loan, and that some repayment has been made. Since the investigation started, Beavers amended his tax returns to reflect the income.

Judge James Zagel is presiding over the case. He advised Beavers that he can tell the jury that he amended his returns and repaid the campaign funds after learning that he was being investigated so long as he takes the stand to do so. Beavers has repeatedly stated that he will take the stand in his defense, and that he is not guilty of the charges levied against him.

Jury selection for Beavers' trial began on March 12, 2013 with controversy. Out of the fifty prospective jurors, none were African American. Because Beavers is African American, the defense has requested the pool be dismissed. The case is set to go to trial the week of March 18th, 2013. Should Beavers be convicted, he is facing a maximum penalty of three years in prison and a $250,000 fine for each count against him.

SOURCES
http://www.nbcchicago.com/blogs/ward-room/W-196782271.html
http://articles.chicagotribune.com/2013-03-12/news/ct-met-william-beavers-trial-0310-20130311_1_jury-selection-selection-process-jurors

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.

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.

As a Tennessee tax attorney, I often represent small business owners who are delinquent in paying their payroll taxes, which are commonly referred to as an owner's "941 taxes." While the majority of these types of clients are seeking to resolve their tax debts with the Internal Revenue Service by civil means, a few of these cases are criminal in nature. Simply put, the Government views failure to pay provide payment for payroll taxes as theft, as the employer has taken money from an employee's check and failed to pay the withheld amounts to the IRS.

According to a press release from the Department of Justice, James and Theresa DeMuro of New Jersey each received 44-month prison sentences for conspiracy to defraud the Government and twenty-one counts of failing to pay payroll/employment taxes. The couple was also ordered to pay restitution of $1,337,952.12 to the IRS.

The couple's sentence came after a jury trial, where evidence was introduced that the couple withheld over a half-million dollars from their employees, but failed to pay any of this money to the IRS. The convicted couple also withheld money from employees' checks for health insurance, retirement accounts, and child support, but they also failed to provide these funds to the appropriate agencies or accounts. Instead, evidence was introduced showing that the DeMuros spent nearly $300,000 for purchases from Home Shopping Network, QVC, and Jewelry Television.

In an ordinary tax evasion case, the IRS focuses on prosecuting persons who evade taxes by either not filing tax returns or who choose to falsify income and expense information on tax returns. However, in the case of Florida resident Michael Murray, he was prosecuted for his efforts to evade payment of taxes that were legitimately owed. As a result of his actions, he was sentenced to one year and one day in Federal prison, three years of supervised release, and must pay $4.3 million in owed taxes.

According to a press release from the Department of Justice, Michael Murray began evading taxes in 2001 when the IRS determined he had a tax debt of $889,520 for income he made in 1993. The IRS issued liens and levies against Murray's properties and companies. Instead of paying his tax debt, Murray diverted money and property for his personal use into other people's name. He also made false statements to the IRS about his assets and income. He then compounded his problems when he violated the levies the IRS had placed by writing checks to himself for his personal benefit. Murray was able to evade the IRS' collection efforts for ten years with these tactics. By that time his tax debt had become $4.3 million due to penalties and interest that accumulated.

The lesson to learn from Mr. Murray's case is that attempts to settle or reach payment agreements on IRS can be handled legitimately, or they can be handled the way which Mr. Murray chose to handle them. Programs like Offer in Compromise allow taxpayers an opportunity to settle back taxes if they qualify for the program.

Many people, lawyers included, are unaware of what "tax structuring" or "structuring payments" involves, but the consequences of engaging in this activity can be painful. 26 U.S.C. § 6050I and 31 U.S.C. § 5324 specifically prohibit "structuring" payments or deposits with the intent to evade tax responsibilities.

As an example, any person who receives $10,000 or more in cash is required to report this income/receipt to the IRS via Form 8300. However, some people choose to split (or structure) payments/deposits by making multiple deposits below $10,000, instead of making one deposit exceeding $10,000. Therefore, such a person would try to avoid the filing of a Form 8300, which means the money would not be reported to the IRS as required.

In an example closer to home, last month, Larry Mark Mangum, a veterinarian from Morristown, Tennessee, was sentenced by the U.S. District Court in Greeneville, "to serve 60 days in prison, five years probation, pay a $50,000 fine and complete 350 hours of community service" for structuring currency transactions to evade the reporting requirements made by the federal law, according to a press release from the Department of Justice. Mangum admitted he was making numerous deposits under $10,000 to keep the banks from filling out Form 8300 and reporting it to the Internal Revenue Service. In a two-year period, Mangum made over $400,000 cash deposits to three different banks.

31 U.S.C. § 5324(d) states that if a person violates this law, he/she can serve up to 5 years in prison and be fined. If a person "violates this section while violating another law of the Unites States or as part of a pattern of an illegal activity involving more than $100,000 in a 12-month period shall be fined twice the amount provided in subsection (b)(3) or (c)(3) of section 3571 of title 18, United States Code, imprisoned for not more than 10 years, or both."

Determining the appropriate sentence for tax-related crimes can often cause even experienced criminal defense attorneys to struggle. The main hurdle in determining the appropriate Sentencing Guidelines range is calculating the appropriate "tax loss." This short blog entry will not address all the nuances in determining tax loss, but rather will focus on how the Sentencing Guidelines are applied once the tax loss amount has been determined.

One of the factors which a sentencing judge will consider is the "Tax Table" contained in Section 2T4.1 of the Federal Sentencing Guidelines. Although the Sentencing Guidelines are advisory only, they can be helpful to assist in determining a potential range of punishment that a judge may consider when sentencing a taxpayer convicted of committing a tax crime. The table below classifies the appropriate offense level in light of the amount of tax loss.

Tax Guidelines

§2T4.1. Tax Table
Tax Loss (Apply the Greatest) Offense Level
(A) $2,000 or less 6
(B) More than $2,000 8
(C) More than $5,000 10
(D) More than $12,500 12
(E) More than $30,000 14
(F) More than $80,000 16
(G) More than $200,000 18
(H) More than $400,000 20
(I) More than $1,000,000 22
(J) More than $2,500,000 24
(K) More than $7,000,000 26
(L) More than $20,000,000 28
(M) More than $50,000,000 30
(N) More than $100,000,000 32
(O) More than $200,000,000 34
(P) More than $400,000,000 36.

Once the amount of Tax Loss has been determined, a taxpayer will know his/her Offense Level. The Offense Level will correspond to a range of punishment (in months) as set forth in the Sentencing Table below:

The Sentencing Guidelines are one of many factors which a sentencing judge should consider before sentencing a convicted tax defendant. An experienced criminal defense and tax attorney can be an invaluable asset in presenting the best case possible for convicted tax defendants.

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.

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.

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According to a press release by the U.S. Attorney's Office for the Eastern District of Tennessee, a grand jury has found probable cause to indict James and Beverly Beaver, both 67, for conspiracy to defraud the United States and by filing false claims for tax refunds. Mr. Beavers was formerly employed as a research director for an engineering institute at the University of Tennessee.

According to the indictment, the Beavers filed a false 2008 tax return and false amended 2006 and 2007 tax returns, which were filed by their accountant Penny Jones, who is/was a partner in PMDD Services, LLC, an Idaho-based tax return preparation firm. The 2008 return claimed that the Beavers were entitled to a nearly $600,000 refund, and the amended tax returns allowed the Beavers to receive $193,056 and $202,625 in tax refunds. The accountant was then paid $59,405 for her services. The Beavers also allegedly tried to hide their assets from possible IRS collection by transferring real estate title for their personal residence and a store that they own to "nominee trusts."

The Beavers are being charged with these tax crimes in the Eastern District of Tennessee, while the accountant and others in her firm are being charged with various tax crimes in the Southern District of Florida. If convicted, each defendant faces a maximum potential sentence of 20 years in prison, a criminal fine up to $1 million, and possible restitution to the IRS.

Criminal defense attorneys who focus their practice on criminal tax matters will often deal with personal income tax fraud or evasion. However, prosecutions against business owners for criminal tax fraud is an ever-present threat for entrepreneurs.

In a case that hits awfully close to home, the United States Attorney's Office for the Eastern District of Tennessee recently posted on its website that a local small business owner has pled guilty to filing a false quarterly tax return (Form 941), also known as an Employer's Quarterly Federal Tax Return. Stanley Veltkamp of White Pine, Tennessee was the co-owner of a local Marina in Jefferson County. According to his plea agreement, Veltkamp would pay a portion of his employees' wages in check and a portion in cash in order to have the marina avoid paying its Social Security and Medicare taxes to the United States. Mr. Veltkamp now faces up to three years in prison and a $250,000 fine.

Employers are required to accurately complete a Form 941 and submit it to the IRS each quarter to report its employee's wages. When this form is submitted, employers are to also include a payment consisting of the amount withheld from an employee's paycheck. Failure to comply with federal tax laws could lead to criminal prosecution.

As we approach the dreaded tax return filing season, the IRS is contemplating ways to crack down on those who would like to steal tax refunds. Reuters reports that in response to $130 million in stolen tax funds since last year, Florida Senator Bill Nelson has proposed new legislation that will allow the IRS to share tax return information with police. A pilot program in Tampa, Florida is being considered by the IRS due to the area being rampant with identity theft and tax refund fraud. The program would allow the IRS to share bogus tax return information with local law enforcement where fraud is suspected. Currently laws only allow the sharing of such information if the victim gives his or her permission.

The law that currently prevents the IRS from sharing taxpayer information has been on the books since 1976 when Congress made it a crime to disclose this confidential information. Nina Olson, national taxpayer advocate for the IRS, cautions that while some sharing may be necessary in some cases, there is a possibility that unauthorized parties could gain access to it. She proposes a modification of the 1976 law to allow access to the information but only for law enforcement purposes.

Privacy concerns are the main antagonist of the proposed law and program. As of yet, no date has been set for the Tampa pilot program to begin. However, if the program is successful, one should expect an increase in the number of criminal prosecutions for tax fraud.