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Recent Criminal Tax Prosecutions Illustrate Continued Pursuit of Non-Filers

Although prosecutions for tax evasion and filing false tax returns receive considerable media attention, the Department of Justice continues to stress the need for taxpayers to meet their tax filing obligations through their prosecution of willful non-filers.  Although not a felony – like tax evasion (26 U.S.C. § 7201) or filing a false return (26 U.S.C. § 7206) – the deliberate non-filing of a tax return is a criminal misdemeanor and often constitutes a “badge of fraud” that leads the Internal Revenue Service to refer a civil examination to its Criminal Investigation Division.  Each offense carries a maximum penalty of $25,000 ($100,000 for a corporation) and up to one year of incarceration.

The elements of the offense under 26 U.S.C. § 7203 are: (1) willfulness and (2) the failure to pay any tax or estimated tax, make a return, keep any records, or supply any information required to be supplied under the Internal Revenue Code.  There is no requirement that any affirmative, wrongful act be performed – the mere omission of a statutory duty suffices.  And a showing of willfulness only requires the “intentional violation of a known legal duty.”  Moreover, the government need not even prove that any tax was due and owing from the unfiled tax return and, therefore, deliberate failure to file a Form 1065 or Form 1120S could result in criminal liability.

A sample of recent criminal tax sentences illustrate the potentially severe consequences resulting from the willful non-filing of tax returns:

United States v. Eric T. Plantenberg, Crim. No. 3:2013-CR-00123 (W.D. Wisc., July 10, 2014).  In this case, the owner and president of three self-help companies pleaded guilty to three counts of failing to file income tax returns.  As a result, he failed to report more than $1.3 million in earnings and failed to pay more than $367,000 in federal income taxes.  Mr. Plantenberg was sentenced to 12 months and one day in prison.

United States v. J. Scott Vrieling, Crim. No. 2:11-CR-00057 (E.D. Wash., May 6, 2013).  In this case, the owner of an independent insurance agency, licensed to sell employee benefits, health insurance, and other insurance products, was convicted for four counts of failing to file income tax returns.  Mr. Vrieling was sentenced to 24 months in prison and was ordered to pay over $939,000 to the IRS for unpaid taxes, file all delinquent tax returns, and pay all applicable penalties and interest.  He was also fined $100,000.

United States v. Kendall O. Marquar, Crim. No. 2:14-CR-00043 (E.D. La., Sept. 9, 2014).  Mr. Marquar was sentenced to 12 months of home detention for willfully failing to file tax returns and was ordered to pay over $156,000 in restitution.  Marquar, who was a businessman, owned a maintenance and construction company and failed to report that income on tax returns for three years.

United States v. Anthony D. Rolfe, Crim. No. 3:14-CR-00490 (N.D. Tex., June 16, 2015).  In this case, an employee of a pain management clinic, who was responsible for making deposits for the clinic, delivering office supplies, and distributing marketing material, was sentenced to 22 months in prison for failure to file income tax returns.  For two years, records showed that payments exceeding $500,000 and received by Mr. Rolfe were deposited into a bank account in the name of an LLC, of which Mr. Rolfe was managing partner, and were not reported on his tax returns.  Instead of paying taxes, these deposits were used on clothing and jewelry, vacations, nightclub tabs, and yacht rentals.

United States v. Nicholas Lepore, Crim. No. 1:14-CR-00680 (March 13, 2015).  In this case, the owner and operator of a landscaping and irrigation company was sentenced to 12 months and one day in prison for tax evasion.  During the years of 2007 through 2010, Mr. Lepore failed to file individual income tax returns and corporate tax returns for his subchapter S corporation.  Furthermore, Mr. Lepore did not include various customer checks as income on his tax returns, but instead disguised the nature of the deposits by cashing them at local check cashing businesses.  These actions were among the items considered as overt acts supporting the tax evasion.  Mr. Lepore’s tax loss exceeded $80,000 and he was also ordered to pay a fine of $5,000.

Although the criminal offense is completed when the tax return is not filed timely, prophylactic measures can often be taken to reduce or eliminate exposure to potential criminal and civil penalties; however, these steps usually must be taken before a civil examination or criminal investigation is initiated by the government.  The type of action required depends upon the facts of each case and the intent or knowledge of the individual when the return was not filed.  Appropriate responses may include voluntary disclosures pursuant to the Internal Revenue Service’s Voluntary Disclosure Practice (seeInternal Revenue Manual 9.5.11.9 (12-02-2009)), filing past due tax returns and related claims for penalty abatement, and efforts to affirmatively engage with the Internal Revenue Service to address overdue filing and payment obligations.

If you have unfiled tax returns, you should contact a tax attorney to discuss an appropriate course of action.  For a free consultation, please contact Brandon N. Mourges at 410.951.1149 orbmourges@rosenbergmartin.com.

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Phone: 410-727-6600
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