Tennessee Federal Criminal Lawyer Blog

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."

Tax evasion cases provide a wide range of sentencing options for federal courts. A perfect example of a district court fashioning a "creative" sentence is the case of U.S. v. Samuel R. Ciccolini (Hat Tip to Jack Townsend's Federal Tax Crimes Blog).

In Ciccolini, Judge James Gwin of the United States District Court for the Northern District of Ohio sentenced 68-year-old Catholic Priest Samuel Ciccolini to a sentence of one day imprisonment, a fine of $350,000, and a restitution order of $3,500,000. The sentence was a result of Ciccolini pleading guilty to one count of structuring bank transactions to evade reporting requirements in violation of 31 U.S.C. Sec. 5324(a)(3) and one count of making a false income tax return in violation of 26 U.S.C. Sec. 7206(1).

The sentencing court stated that Ciccolini had deposited over a million dollars into his bank accounts in 139 separate transactions in an effort to evade bank reporting requirements, and that Ciccolini had filed a false U.S. income tax return in 2003, where he claimed his income for the year was $101,064 when it was in reality at least $508,126. Further, the Court notes that Ciccolini is unable to account for approximately $4.5 million in "income," which may be derived from embezzling funds from charitable organizations.

After reviewing the appropriate Sentencing Guidelines calculations and the factors set forth in 18 U.S.C. Sec 3553(a), the court chose to impose a financial penalty as opposed to a traditional incarceration penalty. The court reasons as follows:

In crafting a punishment that will most adequately deter similar conduct by other individuals in the future, the Court is influenced by the writings of Nobel Prize winning economist Gary Becker. In his seminal article on crime and punishment, Professor Becker recommends more emphasis on fines -- and less on incarceration -- for many white-collar or financial offenses. Becker theorizes that in financial crimes the incarceration of the specific offender is less important than providing a disincentive to future offenders through financial penalties. The Court generally agrees with these propositions and finds them persuasive here. See United States v. Turner, 998 F.2d 534, 535 (7th Cir. 1993) (agreeing with Becker's theory that fines are often an effective means of increasing deterrence). With Becker's theory in mind, the Court finds that imposing a financial penalty in the current case, rather than prison time, will adequately deter future financial crime.

Both Ciccolini and the United States have appealed the district court's sentence.

The federal government is continuing its crackdown on doctors and operators of pain clinics, with the most recent example being the arrest yesterday of five operators and employees of two Maryville, Tennessee pain clinics. The defendants were charged with conspiracy to distribute controlled substances, conspiracy to commit money laundering and structuring cash transactions to avoid federal transaction reporting requirements, according to the U.S. Attorney's Office for the Eastern District of Tennessee.

Each defendant faces a potential term of imprisonment of up to 20 years in prison. They also face fines and forfeiture damages in excess of $1 million and criminal forfeiture as alleged in the indictments.

The U.S. Attorney's Office says that the indictment is the result of a 13-month investigation by the Fifth Judicial Drug Task Force, a Drug Enforcement Administration Task Force, and the Internal Revenue Service-Criminal Investigations (IRS-CI).

People who are unfamiliar with health care fraud cases may be surprised to see that the Internal Revenue Service is involved in the investigation. However, it is more of the rule than the exception to have the IRS involved due to the likelihood of failure to report income and violation of tax structuring laws. Christopher R. Pikelis, Special Agent in Charge of the IRS-CI in Nashville, Tennessee says, "The Internal Revenue Service plays a very unique role in this fight, focusing on the illegal financial activities of the individuals and entities involved with these criminal acts. We are committed to investigating financial fraud and taking away the profits from, and assets used to commit, these crimes."

My advice to anyone running a pain clinic and fearing a possible government investigation is to contact an experienced health care fraud lawyer immediately. As this case illustrates, the Government had been investigating this matter for over a year before any arrest had been made. Having a defense team protecting your rights throughout the investigation is critical and may ultimately determine your chances of successfully defending any charges that may be brought against you.

Additional Resources
Press Release, "Operators and Employees of Two Maryville Pain Clinics Arrested," U.S. Attorney's Office, December 14, 2010
BreakthroughPainIndictment.pdf

Tax structuring is one method employed by alleged tax criminals to avoid the payment of taxes to the Government. The Internal Revenue Code (Section 6050I) requires that cash payments of $10,000 or higher be reported to the IRS via Form 8300. If you fail to do so and have the intent to evade payment or assessment of taxes, you may be guilty of tax structuring.

A typical tax structuring scheme involves persons making multiple deposits below the $10,000 mark in order to avoid having to fill out IRS Form 8300 and report said receipts to the IRS.

The statutory penalties for violation of the structuring transactions can be severe and are contained in 31 U.S.C. § 5324(d) as follows:

(d) Criminal Penalty.--

(1) In general.-- Whoever violates this section shall be fined in accordance with title 18, United States Code, imprisoned for not more than 5 years, or both.

(2) Enhanced penalty for aggravated cases.-- Whoever violates this section while violating another law of the United States or as part of a pattern of any 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) (as the case may be) of section 3571 of title 18, United States Code, imprisoned for not more than 10 years, or both.

Further, a typical tax structuring charge will be accompanied by charges for failure to file tax returns or filing false tax returns, with these charges each containing their own set of punishments.