Another tax season has come to an end. Now the IRS begins reviewing returns searching for discrepancies and underreported income.
The Service also works in coordination with other federal agencies to investigate fraudulent schemes. Masslive.com reported on a prison sentence handed down in one of these at the beginning of the month.
An insurance salesman was investigated for stealing from clients. As part of his Massachusetts insurance business, the owner also acted as a financial adviser for several clients. He allegedly stole money from three of these clients and used the money (almost a half million dollars) on internet gambling.
Tax evasion charges
The allegations related to theft, so why was he charged with tax fraud? Over the years the theft occurred, he underreported his income on federal tax returns. As a result, he avoided paying $144,000 in federal taxes.
A federal judge in U.S. District Court in Boston sentenced him to 18 months in prison. When he finishes the prison term, he will still be subject to three years of probation. He must also pay restitution of more than $600,000. Tax evasion charges themselves can carry heavier penalties that the theft or embezzlement charges.
Tax court controversies are not always prompted by alleged criminal activity. A business owner handling the books could make a mistake. For instance, employee withholdings could be incorrect with a simple math error. Borrowing from payroll withholdings to offset negative cash flow is different, however. The failure to make payroll tax payment can even trigger criminal charges.
Whenever your business receives additional attention from the IRS, speak with an experienced attorney about the situation.