Client's Preparer under Criminal Investigation

David Warren Klasing

Case Conclusion Date:April 2, 2012

Practice Area:Tax Fraud / Tax Evasion

Outcome:In the end. Appeals settled with my client owing 65K in tax penalties and interest and all subsequent years amended and client back in full compliance. (no fraud penalties – no criminal charges)

Description:I just settled my biggest case that took 2.7 years to get through the system and involved a set of real estate brokers that were told to do the following by a tax practitioner that is now under criminal indictment – classic egg shell audit situation: For promoting this scheme and many others like it…. He had full color brochures touting that he could reduce any client’s tax liability by at least 40% and had lines out the door for his services. Set up 5 corporations. 1 S CA and 4 C all Nevada - Use a different fiscal year end for each C corporation. Each staggered by 3 months. 3/15 6/15 9/15 and 12/31. Ignore the controlled group election rules for all corporations. Funnel income out in 3 month increments form the S Corporation to the Nevada C Corporations calling it management fees. Ignore California income tax of all 4 C corporations. To boot - Place your 120K CA yacht into one of the NV C corporations and deduct it under meals and entertainment. Client was audited for 2006 and 2007. Hired totally incompetent E.A. that told him – stone wall. IRS wound up taxing all income in the S Corporation they audited (all deposits to S Corporation bank account) while disallowing all expenses. IRS assessed for 250K. IRS was clueless as to the entire scheme… I get the case as the 90 day letter is about to expire. I file an appeal and through the appeal get audit reconsideration. I negotiate my client’s criminal tax exposure away through total and absolute cooperation in telling my client’s story along with amending all subsequent years returns. IRS used the information gained in the audit reconsideration to build a criminal case against the preparer who is current being charged with aiding and abetting income tax evasion. Believe me I realize my client did not have totally clean hands in this situation. Really only two strategies in representing client’s with criminal exposure IMHO. Full cooperation or create an uphill battle for the service in building a case through 4th and 5th amendment defense strategies.– (over simplification but will suffice for now…) For more on this see: http://www.klasing-associates.com/Tax-Law/IRS-Criminal-Investigations.shtml http://www.klasing-associates.com/Criminal-Tax-Representation-FAQ/ http://www.klasing-associates.com/Tax-Law/Tax-Evasion-Fraud-Representation.shtml http://www.klasing-associates.com/Tax-Law/Tax-Preparer-Fraud.shtml

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