Why Criminal Tax Investigations are a US Government Priority

Why Criminal Tax Investigations are a US Government Priority

Criminal Tax Investigations are a US Government Priority

Why Criminal Tax Investigations are a US Government Priority: IRS (CI) Enforcement is on rise in 2021: In recent years, the Internal Revenue Service’s Criminal investigation unit has ramped up enforcement on various fronts. While the focuses of many of these investigations have somewhat shifted in the past couple of years, the Criminal Investigation Department is still focused on bringing down Taxpayers who have committed tax fraud and evasion. Despite the globalization of the US economy, the government has successfully developed methods and strategies for finding fraudsters across the globe. Let’s take a look at some of the recent focuses of the IRS (CI) Criminal Investigation Department.

Cryptocurrency & IRS Criminal Investigation

When it comes to cryptocurrency tax enforcement, the US government has pulled out all the stops in order to crack down on non-compliance. Some of the more recent actions include the arrest of the Bitcoin Fog for alleged money laundering, as well as the Massachusetts District Court agreeing to issue a John Doe Summons so the government can uncover what they believe to be non-disclosed cryptocurrency transactions. On the global front, the US has teamed up with other jurisdictions as part of the J5 Global Initiative to crack down on tax fraud — with a focus on cryptocurrency. In addition, the IRS is issued several 6173 and 6174 letters.

Offshore Accounts and Compliance

Over the past few years, The Criminal investigation Department of the IRS has investigated many tax players across the globe on matters involving non-reporting of offshore accounts. As recently as 2021 another foreign financial institution in Switzerland agreed to enter into a deferred prosecution agreement with the Department of Justice, which requires that institution to disclose taxpayer information — which may lead to multiple criminal investigations down the pipeline.

Willful Streamlined Procedures Leads to Criminal Investigations

If a taxpayer is willful, they do not qualify for the streamline program — which is a program designed to assist non-willful taxpayers with safely getting into offshore compliance for prior year non compliance. For years, we have been helping to warn taxpayers about the risk they are taking if they do this. Some inexperienced offshore tax counsel still to take taxpayers into the streamline program when they were willful — and the US government has already initiated multiple criminal proceedings for people who get caught in this scheme.

Syndicated Conservation Easement

The Syndicated Conservation Easement in and of itself would not be a scam — other than the fact of how it is carried out. Taxpayers invest into a company that operates by way of a flow-through organization. The company obtains a property which it intends on contributing as a charitable donation — so that the company can take the deduction — which flows through to the individual members. The company attains a false appraisal value — which far exceeds the real value of the charitable donation — and taxpayers end up taking huge deductions in order to artificially reduce their tax liability. These are common in the United States and abroad.

Top 5 IRS (CI) Criminal Investigation Cases for 2020/2021

For the first time, the Internal Revenue Service’s Criminal Investigation Division (IRS-CI) is issuing its Top Five Cases of the year in a multi-day countdown via the agency’s Twitter handle @IRS_CI. The five-day countdown will run from December 28, 2020 through January 1, 2021 and highlight some of the agency’s most prominent and high-profile investigations conducted in 2020.

This page contains a summary of the Top Five Cases of 2020 of the IRS (CI) Criminal Investigation Unit:

Former Tax Lawyer Sentenced

    • On February 3, 2020, James Roy McDaniel was sentenced to 60 months in federal prison for evading the payment of over $1.5 million in taxes, which the Judge ordered him to pay as restitution.

    • This is McDaniel’s second criminal tax offense. Previously in 2004, McDaniel, an attorney, pleaded guilty to filing a false income tax return for failing to report income he earned from 1997 – 2001, creating a tax loss of $677,368. In that case, McDaniel was sentenced to 3 years of federal custody and ordered to surrender his law license in California.

    • The IRS assessed McDaniel more than $1.4 million in taxes, interest and penalties. Following this conviction, McDaniel attempted to evade payment of the $1.5 million he owed the IRS by creating two shell companies – Davis Bell Consulting LLC and James Roy Consulting LLC – where he directed payments for tax and estate planning consulting work he performed after he was released from prison.

    • Between May 2008 and late 2018, McDaniel attempted to mislead federal tax authorities and conceal his income by directing other people to sign documents identifying themselves as the sole managing members of the shell companies. McDaniel directed them to open bank accounts where he deposited checks for his tax and estate planning work.

Tax Preparer Sent to Prison

    • On August 28, 2020, Winfred Fields was sentenced to 109 months in prison and three years of supervised release for the preparation of false returns, conspiracy and mail fraud.  

    • Fields prepared and submitted false amended tax returns and false nonresident tax forms (1040NR) to the IRS for tax years 2007 through 2012 for foreign persons working on vessels on the Outer Continental Shelf of the U.S. Fields falsely claimed these workers were exempt from U.S. tax under a tax treaty between the U.S. and the U.K., Spain and New Zealand. Fields required direct receipt of the refunds so he could negotiate the checks and take his fee off the top; $2,500 for the first return and $1,000 for any additional returns.  

    • Eventually, Fields stopped sending the refunds to his foreign clients.  

    • As a result of his tax scheme, Fields fraudulently obtained refunds from the IRS totaling $3,097,974.19 of which approximately $1,302,271.75 he kept for himself.

169 Months’ Imprisonment for Money Laundering

    • On June 25, 2020, Jonathan Jacome was sentenced on June 23 to 169 months in prison, followed by 36 months of supervised release. Jacome was also ordered to pay restitution in the amount of $7,760,585.

    • His sentence stems from his involvement in a SIRF and money laundering scheme. Jacome also admitted that he committed the underlying crimes of theft of public money, wire fraud, and bank fraud.

    • Jacome was a leader and organizer in a sophisticated scheme that used stolen identities to file fraudulent tax returns.

    • As a result of his scheme, he obtained over $7.7 million in fraudulent federal tax refunds. Jacome opened three check cashing businesses solely to carry out the fraud scheme. He used these businesses to process the fraudulently obtained Treasury checks.

Israel’s Largest Bank Admits to Conspiring with U.S. Taxpayers to Hide Assets 

    • On April 30, 2020, Bank Hapoalim pleaded guilty and Bank Hapoalim B.M. entered into a deferred prosecution agreement for conspiring with U.S. taxpayers and others to hide more than $7.6 billion in more than 5,500 secret Swiss and Israeli bank accounts and the income generated in these accounts from the Internal Revenue Service.

    • As part of the resolutions, along with resolutions entered into with state and federal partners, Bank Hapoalim B.M. (BHBM), Israel’s largest bank, and Bank Hapoalim (Switzerland) Ltd. (BHS), its Swiss subsidiary, agreed to pay approximately $874.27 million to the U.S. Treasury, the Federal Reserve, and the New York State Department of Financial Services.

    • The resolution is the second-largest recovery by the Department of Justice in connection with its investigations since 2008 into facilitation of offshore U.S. tax evasion by foreign banks.

Global Disruption of  Three Terror Finance Cyber-Enabled Campaigns

  • On August 13, 2020, three forfeiture complaints and a criminal complaint were unsealed in the District of Columbia detailing a coordinated effort to dismantle three terrorist financing cyber-enabled campaigns. These campaigns involved the (1) al-Qassam Brigades, Hamas’s military wing, (2) al-Qaeda, and (3) Islamic State of Iraq and the Levant (ISIS).

  • These actions represent the government’s largest-ever seizure of cryptocurrency in the terrorism context. These three terror finance campaigns all relied on sophisticated cyber-tools, including the solicitation of cryptocurrency donations from around the world. The action demonstrates how different terrorist groups have similarly adapted their terror finance activities to the cyber age. Each group used cryptocurrency and social media to garner attention and raise funds for their terror campaigns.

  • Pursuant to judicially-authorized warrants, U.S. authorities seized millions of dollars, over 300 cryptocurrency accounts, four websites, and four Facebook pages all related to the criminal enterprise. Treasury Secretary Steven Mnuchin presented the Secretary’s Honor Award to Special Agent Christopher Janczewski of the Washington Field Office for his role in this case.

Recent Criminal Investigation (CI) Cases

Here are some of the recent case provided by the CI unit at the IRS:

Rahn+Bodmer Enters into Deferred Prosecution Agreement: Criminal Investigation Case 1

    • Audrey Strauss, United States Attorney for the Southern District of New York, James C. Lee, Chief of the Internal Revenue Service-Criminal Investigation (“IRS-CI”), and Stuart M. Goldberg, Acting Deputy Assistant Attorney General for the Department of Justice’s Tax Division, announced the filing of a criminal Information against Rahn+Bodmer Co. (“R+B”), a financial institution located in Zurich, Switzerland. The Information charges R+B with one count of conspiring to help U.S. accountholders evade their U.S. tax obligations, file false federal tax returns, and otherwise defraud the Internal Revenue Service (“IRS”) by hiding hundreds of millions of dollars in offshore bank accounts at R+B.

    • Ms. Strauss, Mr. Lee, and Mr. Goldberg also announced a deferred prosecution agreement with R+B (the “Agreement”), under which R+B admits to its unlawful conduct in assisting U.S. accountholders in violating their legal duties. R+B’s admissions are contained in a detailed Statement of Facts attached to the Agreement. The Agreement requires R+B to provide ongoing assistance to the Department of Justice and to pay a total of $22 million in restitution, forfeiture, and penalties. If R+B abides by all of the terms of the Agreement, the Government will defer prosecution on the Information for three years and then seek to dismiss the charge.

    • Manhattan U.S. Attorney Audrey Strauss said: “As Rahn+Bodmer now admits, it aided U.S. taxpayers in evading their tax responsibilities to the tune of more than $16 million. This venerated banking institution knowingly offered banking services that assisted its U.S. customers in evading their tax obligations, and affirmatively schemed to conceal from the IRS the assets and income of U.S. accountholders. Now Rahn+Bodmer will pay $22 million and commit to helping the Justice Department uncover tax evasion by U.S. customers.”

    • IRS-CI Chief James C. Lee said: “Through a years-long scheme, the R+B bank hid the assets of U.S. accountholders to shield them from their tax obligations. Today’s admission and agreement provide a clear path to recovery of funds owed to the U.S. government, and sends a strong signal that offshore accounts are not beyond the reach of special agents with IRS CI.”

    • Acting Deputy Assistant Attorney General Stuart M. Goldberg said: “Under today’s resolution, Rahm+Bodmer is paying $22 million for helping U.S. accountholders evade their taxes and has agreed to fully cooperate with investigations into those taxpayers. With the April 15 tax filing date fast approaching, there is a clear message for those intending not to pay their fair share – nothing remains hidden forever.”

    • According to the Agreement, the accompanying Statement of Facts, and other documents filed today in Manhattan federal court:

    • From at least in or about 2004 and continuing until at least in or about 2012, R+B conspired with certain of its U.S. accountholders and others to defraud the United States with respect to taxes, file false federal tax returns, and commit tax evasion. R+B’s bankers assisted U.S. accountholders in concealing their ownership and control of assets and funds held in undeclared R+B accounts, which enabled those U.S. accountholders to evade their U.S. tax obligations. R+B admitted to holding undeclared accounts on behalf of approximately 340 U.S. taxpayers, who collectively evaded approximately $16.4 million in U.S. taxes between in or about 2004 and in or about 2012. The assets under management that R+B held for undeclared U.S. accountholders increased from approximately $391 million in 2004 to approximately $550 million in 2007, its peak year for undeclared assets under management.

    • In furtherance of the scheme to help U.S. taxpayers hide assets from the IRS and evade taxes, R+B undertook the following actions, among others:

Tax Preparer Indicted for Filing False Returns: Criminal Investigation Case 2

    • Jacksonville, FL — A federal jury has found Paul Berkins Moise guilty of 14 counts of filing false returns on behalf of (unknowing) clients and 3 counts of filing false tax returns on behalf of himself. Moise faces a maximum penalty of three years in federal prison for each count. The United States will also seek restitution for the tax losses arising out of the fraud. Moise’s sentencing hearing is scheduled for August 9, 2021.

    • Moise had been indicted on February 6, 2019.

    • According to testimony and evidence presented at trial, Moise owned and operated a tax preparation business in Jacksonville. Between February 2013 and March 2017, Moise defrauded the IRS by filing returns for his clients in which he grossly inflated deductions for state and local sales taxes, unreimbursed employee expenses, and gifts to charity by cash or check.

    • For example, on one tax return, Moise claimed a sales tax deduction of $5,883 for a client who had a gross income of $43,476. In order for that client to claim a sales tax deduction that large, the client would have had to have made taxable purchases totaling $89,926 (including the tax) — or more than twice the client’s claimed gross income.

    • Trial evidence also showed that Moise grossly underreported his own income on tax returns he filed for himself for the years 2013, 2014, and 2015. On his 2013 return, Moise reported $10,160 in income when he actually earned at least $83,848 that year. On his 2014 return, Moise reported $2,695 in income when he actually earned $252,652 that year. On his 2015 return, Moise reported $10,255 in income when he actually earned $234,936 that year.

    • This case was investigated by the Internal Revenue Service – Criminal Investigation. It was prosecuted by Assistant United States Attorney Arnold B. Corsmeier.

    • te: April 27, 2021

Taxpayer Pled Guilty to Tax Evasion: Criminal Investigation Case 3

    • Boise — Scott Koritansky of Meridian, pleaded guilty to income tax evasion, Acting U.S. Attorney Rafael M. Gonzalez, Jr. announced today. Sentencing is set for July 27, 2021 before Chief U.S. District Judge David C. Nye at the federal courthouse in Boise.

    • According to court documents, from 2004 through 2010, Koritansky earned combined income totaling over $500,000 but did not pay any taxes those years. The Internal Revenue Service (IRS) conducted an investigation and notified Koritansky that he owed taxes for calendar years 2004 through 2010. Koritansky took numerous steps to conceal his income and evade his tax obligations. For example, Koritansky never maintained his own bank account but deposited his business income into the accounts of others and directed them to make purchases on his behalf and pay his own personal expenses using funds in the bank accounts of these third parties. The expenditures included rent payments, private school tuition payments, and checks made out to cash.

    • Tax evasion is punishable by up to five years in federal prison, up to three years of supervised release, and a fine of up to $250,000.

    • This case was investigated by IRS Criminal Investigation and Idaho State Tax Commission.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure. 

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