Recently in Tennessee Tax Evasion Category

Taxpayers Should Be Wary of Phone Calls from the "IRS"

March 26, 2014, by The McKellar Law Firm, PLLC

Taxpayers have lost more than $1 million this year in a scam where telephone callers are impersonating Internal Revenue Service officials. The impersonators are calling taxpayers and telling them they owe the IRS money and request payment via phone using a prepaid debit/credit card or wire transfer. If the caller balks at making the payment they are threatened with loss of driver's license, deportation, and/or imprisonment.

When calling, the scammers know the last four of the taxpayer's social security number and have a phone number that appears to be the IRS on a caller ID. In some cases they also follow up with taxpayers via official looking emails and call back claiming to be the police or the department of motor vehicles to further their ruse. Again, the caller ID supports the impersonator's assertions.

The IRS first warned of this scam in November 2013 and included it on its Dirty Dozen tax scam list for 2014. At first the scam seemed to be targeting new immigrants, but has since hit almost every state in the U.S.

The IRS wants taxpayers to know that its agents will not make these type of threats, or request bank card or bank information via phone. If you or someone you know gets a call like this and do NOT owe taxes to please call 800-366-4484; if you do owe taxes please call 800-829-1040. You may also check the IRS' website at www.irs.gov to view its current Dirty Dozen scam list.

Sources

http://www.forbes.com/sites/ashleaebeling/2014/03/21/if-the-irs-calls-hang-up/

http://money.cnn.com/2014/03/20/pf/taxes/irs-phone-scam/

www.irs.gov

Search Warrant Executed by IRS & FBI for Knoxville-Based Pilot Flying J

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

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."

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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

Knoxville Couple Found Guilty of Tax Crimes after Falsely Claiming $591,000 Refund

April 8, 2013, by The McKellar Law Firm, PLLC

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.

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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.

Nashville Tax Return Preparers Face Mo' Problems

December 7, 2012, by The McKellar Law Firm, PLLC

As I have written about previously, tax return preparers can face both civil and criminal penalties for preparing false or fraudulent tax returns. One such tax return preparer company, Mo' Money Taxes, is now dealing with a civil injunction lawsuit, which was filed earlier this week against them in Nashville by the U.S. Attorney's Office in Middle Tennessee, according to published reports.

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The Justice Department's lawsuit claims that defendants Toney Fields and Trumekia Shaw did "intentionally prepare and file fraudulent federal income tax returns to obtain improper tax refunds for customers." Claimed tax losses by the Government could exceed $5 million in tax year 2011. Some of the alleged errors committed by employees of Mo' Money Taxes include: using taxpayers' end-of-the-year pay stubs (instead of W-2 forms) to assist in preparing tax returns; manufacturing fake W-2 forms; and claiming false tax credits for child tax credits, incorrect number of dependents, and false charitable donations.

This civil injunction in Nashville is the latest legal battle against Mo' Money Taxes, and follows the arrest of franchise owner Jimi Clark and four Mo' Money employees in October, 2012, for conspiracy to commit tax fraud by falsely claiming educational tax credits on 47 returns filed in 2009. Additionally, the Memphis-based company has hundreds of people claiming that they never received their tax refund checks.

New Jersey Couple Sentenced to 44 Months Imprisonment for Failure to Pay Employment Taxes

December 6, 2012, by The McKellar Law Firm, PLLC

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.

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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.

Morristown, Tennessee Veterinarian Sentenced for Tax Structuring

September 4, 2012, by The McKellar Law Firm, PLLC

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.

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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."

An Overview of Tax Crimes Sentencing pursuant to the U.S. Sentencing Guidelines

July 25, 2012, by The McKellar Law Firm, PLLC

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:

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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.

Knoxville, Tennessee Couple Indicted for Tax Fraud and Filing False Claims for Refund

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.

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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.

Tennessee Man Pleads Guilty to Filing False Form 941 Quarterly Tax Return

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.

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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.

Nashville "Accountant" Sentenced to 24 Months in Prison for Preparing False Tax Returns

December 15, 2011, by The McKellar Law Firm, PLLC

All Certified Public Accountants (CPAs), or those claiming to be CPAs, are not created equally. Case in point is Elmer Virula formerly of Nashville, Tennessee. In a press release by the Department of Justice on December 5, 2011, the DOJ stated that Virula was sentenced to twenty-four months in prison for fraudulent preparation and submission of tax returns to the IRS and was fined $167,535.00 for false claims, credits and deductions, and he is no longer allowed to act as a CPA or prepare any tax returns for others.

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Virula was indicted on April 8, 2010 for sixteen counts of aiding and assisting in the preparation of false income tax returns. He owned three tax preparation businesses located in Tennessee that almost exclusively assisted the Hispanic community. For the tax years of 2003 to 2006, Virula prepared returns claiming fraudulent fuel, education, and telephone excise tax credits.

During the sentencing hearing witnesses testified that Virula represented himself as a CPA and minister to the Hispanic community when in fact he did not even have a college degree. It was also testified by witnesses that Virula trained his employees on how to enter false credits on client's tax returns.

Christopher Henry, Special Agent in Charge of IRS Criminal Investigations, sent a warning to those seeking tax preparation services for the upcoming tax season. He stated that taxpayers should choose their preparers carefully and be sure to understand their returns fully as they are ultimately responsible for what is claimed. Jerry Martin, United States Attorney, echoed Agent Henry's sentiments by stating, "Those that attempt to defraud the IRS and prey upon the immigrant community should be aware that the federal government...will prosecute them to the fullest extent of the law."

Johnson City Man Indicted for Evading Tennessee Sales Tax

December 12, 2011, by The McKellar Law Firm, PLLC

As any good criminal defense lawyer will tell you, evading tax responsibilities often leads to drastic consequences. As a prime example of such consequences, the Kingsport Times reports that Dean Stover of Johnson City, Tennessee was indicted on November 9, 2011 for four counts of evasion of sales tax in violation of Tenn. Code Ann. § 67-1-1440(d). According to the story, Mr. Stover purchased four vehicles and falsified records of his purchases resulting in $14,933.76 in unpaid sales tax.

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T.C.A. § 67-1-1440(d) makes it lawful for "any person to delay, hamper, hinder, impede, obstruct or thwart the state of Tennessee in the collection of any of its lawful revenue, or to deprive the state of the realization of such revenue at the time it is lawfully entitled thereto by any artifice, design, false weight or measure, stratagem, or by the falsification of any record, report or return required by law."

Mr. Stover is facing a maximum sentence of two years and possible fines of $3,000.00 for each count of tax evasion. He surrendered himself to authorities on November 21, 2011 and his bond was set at $20,000.00. Revenue Commissioner Robert H. Roberts vowed to aggressively pursue all individuals that attempt to defraud sales tax and offered this case as an example of those efforts.

Does the Attorney-Client Privilege Extend to Accountants and CPAs?

July 18, 2011, by The McKellar Law Firm, PLLC

One of many sensitive issues that a criminal tax attorney must address is whether the attorney-client privilege extends to those involved in a case, and in particular, whether such privilege applies to accountants and CPAs who work on the case. In United States v. Kovel, 296 F.2d 918 (2nd Cir. 1961), the Second Circuit Court of Appeals extended the attorney-client privilege to accountants assisting attorneys in criminal tax claims. This has become known as "Koveling" and has allowed accountants--known as Kovel accountants--to assist practicing tax attorneys giving legal services to clients. However, this privilege does have some caveats that, if not known, could cause ordinarily privileged information to be released to the IRS if one is not careful.

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Under I.R.C. § 7525, privileged communications between a taxpayer and an accountant are only available in non-criminal tax matters. Koveling allows this privilege to extend to criminal tax cases when accountants assist attorneys render legal services. This privilege is similar to the work product privilege, which allows any information that was given while anticipating litigation to be protected from opposing counsel.

If a taxpayer is facing criminal tax charges, it is unwise to have the taxpayer's regular accountant be the Kovel accountant in the criminal tax claim. While the regular accountant may already know the ins and outs of the taxpayer's current situation, this will only hurt the taxpayer. While Koveling protects information gathered by an accountant assisting an attorney anticipating litigation, any information gathered outside of that scope is fair game for the IRS. A regular accountant may know the taxpayer's situation from the outset, but that opens the risk that the accountant may already know information that would be damaging to the taxpayer before litigation was anticipated. The accountant then would have to release that information to the IRS if they requested it. A new accountant, on the other hand, could successfully gather privileged information since everything they gather is "Kovelized."

Another important fact is that Koveling only applies to providing legal services. As an example, an accountant would not be a Kovel accountant for merely filing tax returns. But, if tax returns are prepared along with some legal service, then Koveling may apply. A taxpayer's safest course of conduct would be to have a Kovel accountant work with attorneys in developing information, and then have another accountant actually prepare the tax returns if a client wanted both services performed. While this option is more costly since it would require hiring two different accountants, this course of action provides the greatest protection to a client/taxpayer.

Ultimately, while Koveling can be very beneficial in helping tax attorneys assist clients facing criminal tax charges, this privilege is not absolute. If a Kovel accountant provides any services other than legal services for an attorney's client, or is a client's regular accountant before the client is charged with a tax crime, the Government could bypass the Kovel privilege--thereby allowing a client's potentially damaging information to be released to the IRS or Department of Justice.

Tennessee Woman Sentenced to Federal Prison for Tax Evasion and Wire Fraud

Kingston, Tennessee resident Jessica Potter Stafford, 34, was sentenced today in the Eastern District Court by U.S. District Court Judge Thomas W. Phillips, to serve 27 months in prison and pay restitution of almost $120,000 to the Internal Revenue Service and $111,794.35 to her former employer, Robert McManus. This sentence is a result of Stafford pleading guilty on February 3, 2011, to 10 counts of wire fraud and three counts of income tax fraud.

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According to a press release from the United States Attorney's Office, Stafford was employed as Director of Administration for several businesses owned by Robert McManus. In the course of her employment, she was issued credit cards to be used for the sole purpose of paying expenses relating to her employment duties. Stafford later admitted that from January of 2005, through August of 2008, she used company credit cards to charge more than $200,000 in personal charges at local retail stores. The filed plea agreement states that Stafford then paid for the unauthorized charges with McManus' funds. Stafford admitted that she incurred income that she failed to report on her federal income tax returns for 2006, 2007, and 2008.

As with many economic crimes, the underlying economic fraud (i.e., the wire fraud) was also accompanied by tax related charges. The philosophy of the Government is rather straightforward: if someone steals funds, he/she is not going to report this income on his/her tax return. Failure to report income on a tax return is tax fraud. In other words, the tax fraud charges are like shooting fish in a barrel for the Government if they can prove the non-tax related fraud charge (e.g., wire fraud). In this case with defendant Stafford, according to her plea agreement, she failed to report over $405,000 in income during these years, resulting in additional tax due to the United States of over $119,000.

Oklahoma Woman Sentenced to 46 Months for Tax Evasion and Mail Fraud

March 1, 2011, by The McKellar Law Firm, PLLC

After pleading guilty in federal court of tax evasion and mail fraud, an Oklahoma woman received a 46-month sentence and was ordered to pay over a million dollars to her former employer and over $325,000 to the Internal Revenue Service. The Oklahoman, via its NewsOK.com website, reports that Debra Minshall, age 49, defrauded her former employer, a Chevrolet car dealership, for over 6 years. Minshall was accused of using company checks to pay her own credit card bills.

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People who are accused of committing economic crimes, such as mail fraud, will almost inevitably have tax crime allegations as well. One of the obvious reasons for this occurrence is the fact that people who are stealing or defrauding someone of money are usually not going to report their ill-gotten gains in a tax return. In other words, if someone files a tax return which reports $75,000 in income, but the person also embezzled $85,000, then the person's true income would not be $75,000. Therefore, a prosecutor could argue that the person has committed tax fraud by filing a false tax return.

26 U.S.C. § 7201 governs federal tax crimes, and the Tennessee version of the crime of tax evasion can be found at Tennessee Code Annotated § 67-1-1440(g). The required elements for 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).

Federal Prosecutors Seek Injunction Against North Carolina Man Promoting Religious Tax Scam

January 17, 2011, by The McKellar Law Firm, PLLC

Criminal Tax Attorneys often venture into the civil arena of tax disputes, especially when potential federal criminal tax issues are looming. Such is the case of North Carolina man Andrew DeDominicis of Dallas, North Carolina. In an earlier blog post, I discussed the dangers of "corporation sole" and the IRS' view of these entities.

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Federal prosecutors claim that DeDominicis encouraged people to form or declare themselves to be churches in an effort to evade taxes. According to a January 14, 2011 article in The Washington Post, DeDominicis has earned over $280,000 over the past 8 years by assisting 163 people in 34 states form Nevada corporations to improperly protect for-profit income under the guise of the sole corporation tax structure.

The Washington Post article noted, "Prosecutors said DeDominicis urged participants to keep some of his materials private and discouraged them from consulting an attorney or a tax professional." As a tax attorney, I have a difficult time believing that it's ever a good idea to embark in tax planning without consulting a professional.

For those who followed DeDominicis' advice, they are undoubtedly wishing they had consulted a legitimate tax professional prior to following the advice of someone who simply created a website aiming to lure people into giving funds to form a bogus corporation sole. In addition to any criminal implications, DeDominicis and his followers are now looking at costly fines and penalties being assessed against them, and the little they believed they were saving by following DeDominicis' plans is gone.