NYC Tax Evasion Defense Lawyer

What to Do if Under Investigation for Tax Crimes

Video Transcript:

David Cohen:

Immediately, upon learning that the IRS is investigating your company, you must contact a criminal lawyer.

Judy Maggio:

Do you know what tax evasion is and if accused, what should you do? We're gonna find out right now when we Ask the Lawyer on this episode. Hi everybody, I'm Judy Maggio with AskTheLawyers.com, and my guest today is New York City attorney, David Cohen. Before we get started though, a reminder that if you have a question for David, simply go to AskTheLawyers.com and click on that button that says Ask a Lawyer, or you can call the number on your screen. Thanks so much for being with us today, David.

David Cohen:

Thank you having me, Judy.

Judy Maggio:

First of all, tell me a little bit about your experience representing people who've been accused of tax evasion.

David Cohen:

Sure. At CFP Law, we have represented individuals, CEOS, financial officers, directors of corperations that have been accused of tax evasion prior to the United States Attorney's Office investigating them as part of the IRS civil and criminal investigation units, and also post-indictment. We've been doing it for oh, last 15 to 20 years and have thankfully been very successful helping our clients avoid the harshest penalties.

Judy Maggio:

Explain the difference between tax avoidance and tax evasion.

David Cohen:

It's a great question Judy. Tax evasion is a failure to pay taxes that are due, and that is a crime where tax avoidance is not a crime, it's very legal, and it allows you to place certain holdings of certain of your assets in a tax shelter, it allows you to postpone taking income. So you will not be taxed immediately and you can reinvest that money, you can put it in a retirement account, and ultimately when you have access to that money, you will be taxed at a lower rate. Tax avoidance: legal. Tax evasion: illegal.

Judy Maggio:

So when we're talking about evading taxes, let's drill down a little bit. What are some examples of something that would be legal behavior versus something that would be illegal behavior?

David Cohen:

Sure. Tax evasion, which is illegal behavior, is most often found with companies that try to either pay people off the books, they don't report all of their income, for instance, from vendors, they don't report their income that they have received from various sources, and they try to hide that income, either by... When they pay their employees, they don't pay the payroll taxes because they are paying them what people refer to as off the books, meaning they are giving them cash or they're giving them a check, but they're giving it from a different source. So when it comes time to pay the payroll tax, they don't pay the payroll tax on it. That's illegal. When you do a tax avoidance, for instance, a common one in real estate is a 1038 exchange where you sell a primary residence, and instead of paying the tax on the income that you've generated, you've taken that money and you re-invested it, and you avoid paying any tax right there because you've invested it in a lawful manner.

Judy Maggio:

Are corporations or individuals indicted for tax evasion? What's the difference there?

David Cohen:

Well, most of the times, it's the individuals. Corporations can also be charged with tax evasion, but there's an individual who's ultimately making those decisions, and oftentimes we have found that it comes down to the president or the CEO of the company, they are responsible or the chief financial officer, they are ultimately responsible for reporting income of the company. So for instance, if you have a company who is gross income over the course of the year is a few million dollars and they have a payroll let's say that is $800,000. They make a decision to pay part of that $800,000 to their employees off of the books. Ultimately the corporation gets investigated for reasons that maybe we can go into later, but then they get investigated and it's determined that employee X is reporting on his payroll or in his W-2, which you've given to him, that he's only made $75,000, but it turns out that he's received another $25,000 or $30,000 either in cash payroll or in kind gifts, which was not reported. When that happens, the IRS, hopefully only their civil investigation division, but it could be the criminal investigation division, will do an audit of your company and ultimately come to the officers of that company and asking them to explain the discrepancy.

Judy Maggio:

So what are some potential penalties for tax evasion?

David Cohen:

Well, tax evasion, if it gets to that point, you have violated the federal statute, and that's a problem. It's 26 United States Code 7202, and that's a willful avoidance of paying taxes. A willful evasion, see even I can mess up the words occasionally, a wilful evasion of paying taxes. The maximum penalty is five years in federal prison or a $10,000 fine. Now, of course, if you are found guilty and you haven't paid $200,000 or $300,000 or $500,000 in taxes, this is just a fine on top of the IRS fine, the interest that will be due, the penalty plus the original taxes will all be due as well. 

Judy Maggio:

So what can a criminal defense attorney do for those who've been accused or indicted for tax evasion?

David Cohen:

Sure, oftentimes, we will get notified prior to an indictment. It almost always comes down to the IRS is going to conduct the investigation, where people don't know about this, Judy is the IRS has their own investigatory unit, and they are the ones who uncover the failure to pay taxes. When that happens, what we have found is that the CEOS that we have represented, they will be contacted by the IRS civil division, or if it's gotten to a point that it's been going on for years, it may be the IRS Criminal Division, and they will come and ask the financial officers of that company about their payroll, they won't go subpoena all of the bank records, they will subpoena their payroll records, they will actually talk to individual employees of that company. Immediately upon learning that the IRS is investigating your company, you must contact a criminal lawyer, and at CFB Law, this is where we get involved, and this is where we can assist you in responding to the IRS. Properly responding to the IRS, even if you've done something wrong in the past, could quickly help you avoid any criminal sanctions and criminal sanctions are the most severe. We want to get ahead of that and we want to work with the IRS. We want to amend if necessary, previously filed returns or if necessary pay penalties for failing to file on proper times, but we want at all costs, avoid them making a referral to the United States Attorney's Office.

Judy Maggio:

Such great information today, David. Thank you so much for answering our questions.

David Cohen:

Thank you, Judy, and you're very welcome.

Judy Maggio:

And that's going to do it for this episode of Ask the Lawyer. My guest has been New York City attorney David Cohen. And a reminder, if you wanna ask David any questions at all, go to AskTheLawyers.com and click on the Ask a Lawyer button. Thank so much for watching. I'm Judy Maggio with Ask the Lawyers.

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