Am I Going to Jail for Tax Fraud?
Am I Going To Jail?
Every Client faced with a pending criminal case walks into my office, sits down, and invariably one of the first things asked is “am I going to go to jail for this?” Clients would obviously rather be given “probation” without jail (jail is formally called “incarceration”), or even “home confinement” (i.e., no jail, but you’re a prisoner of sorts, in your home).
Well, the answer about going to jail is “it depends.” Although that sounds somewhat vague, the reality is that each case is different and many arguments can be made so that a client does not have to “do jail time.”
In my career, I’ve represented thousands of Clients, and we have successfully avoided jail. For example, in one case I represented a Certified Public Accountant (CPA) who was brought up on charges of preparing false tax returns for her clients. The Judge did not impose incarceration but instead granted her probation. The reason? No one else could properly care for her husband.
In another case, a Client had committed Tax Fraud but the Judge believed that my Client would be better served performing “community service” (i.e., working in the community doing public service) rather than sitting in jail.
Another example — a Client owed the Internal Revenue Service (IRS) several hundred thousand dollars. The Government was going to indict him for tax evasion, specifically “evasion of payment” (which means he owed money to IRS and was taking active steps of concealment to avoid payment). This was just the tip of the iceberg. The IRS was threatening to audit my Client and if they did so, there were also be a number of charges for tax evasion (i.e., his records were a mess so he would end up owing more money to IRS for “unreported income” and “bogus deductions.”)
The result? No jail time, but instead “home confinement” and probation. Home Confinement means staying in your home for a period of time, and you are not allowed to leave except for medical or other similar reasons. The benefit? You are prisoner in your own home but that surely beats going to jail.
There are countless other reasons why a person does not have to go to jail. To understand how we get to those reasons, you have to know how the Federal Sentencing Rules work.
Federal Court – the Federal Sentencing Rules of Engagement
Federal Court Sentencing Rules are vastly different than state (i.e., California) court rules. Since most criminal tax cases prosecuted are federal, the following is applicable to federal court cases, specifically the garden variety “tax fraud” or “tax evasion” case as well as the “evasion of payment” cases.
In the “old” days, Judges in the U.S. District Court were free to impose sentences using their best judgment. (Impose Sentence, or Imposition of Sentence is the formal way of saying a Judge issues an Order indicating if the defendant is going to jail, granted probation, and other terms and conditions) Judges, like people, utilized specific skill sets to impose the sentence — i.e., they looked at the seriousness of the crime, the harm to victims, the specific characteristics of the defendant, and the effect on society. The system seemed to work, although there were complaints that some judges were more lenient than others. Of course, the opposite was true — some judges imposed severely harsh sentences. On the whole, things seemed to balance out.
However, in the late 1980’s, the U.S. Sentencing Commission was established and the first set of “Guidelines” were issued by the Commission. The Guidelines book, or Guidelines Manual as it is more commonly known, took every single federal criminal law violation (from tax evasion, bank robbery, murder, securities fraud, mail fraud, etc.), and put them in this Manual. Each criminal law violation had their own “offense levels.” The greater the crime, the higher the offense level. Stated another way, if the “tax loss” to the government was less than $5,000 of tax owed by a defendant, the corresponding offense level would be low. On the other hand, if the tax loss to the government was $100,000, then the higher offense level would apply.
Another way of looking at it, simply stated: The greater the crime, the more likely you would do some jail time because the “offense level” would increase.
These “base” offense levels would be adjusted upwards depending upon a lot of things — the defendant’s role in the offense, whether he utilized sophisticated means to evade tax, whether he pleaded guilty, whether he accepted responsibility, and many other characteristics. Ultimately the “total offense level” would be calculated and the Judges would simply go to the Guidelines Manual, take the “total offense level” in the “Sentencing Table” (which listed a calculation of months, i.e., 12-18 months, 15 to 21 months, and so forth), and from there they would impose the sentence within that range of months. The Sentencing Table lists different Zones (some of which all but guaranteed probation), and depending upon the Criminal History of the defendant (i.e., how many prior criminal convictions), the goal of every attorney was to get his or her Client into Zone A which would usually result in probation and “no jail time.”
Now Judges could “depart” from the suggested sentence looking at the Sentencing Table, and those “departures” could go “up” or “down.” Down is good because it means that the sentence would go down. Ultimately the Judge would be forced to impose a sentence within the Manual Guidelines, a somewhat robotic act. Most Judges, in candor, would state that they do not like the Guidelines since it removes their discretion to impose the sentence they, as Judges, believe is fair and just.
On January 12, 2005, the United States Supreme Court held in the consolidated cases of United States v. Booker and United States v. Fanfan, 543 U.S. 220, 160 L.Ed.2d 621, 125 S.Ct. 738, that the Sentencing Guidelines were simply “guidelines” for Judges and they were free to impose the sentence they felt was just and appropriate under the law. For the first time in many years, Judges felt freedom to do the job they were trained and qualified to do – impose a sentence upon a defendant that they believed reflected the seriousness of the crime as it applies to the specific individual defendant.
Courts will still be required to “consider” the guideline range, as well as any bases for departure from that range, but they will no longer be required to impose sentence within that range, even where there is no basis to depart.
The problem? Well, most of these Judges grew up on the judicial/court bench, using the Guidelines for so many years, they know of no other way to approach the case. So of course the Guidelines are still used but are are truly simply guidelines.
Ways To Avoid Jail
1. Step Up and Step Forward
Taxpayers who voluntarily step forward and resolve their tax situation will be given greater consideration by the Internal Revenue Service (and for that matter the California taxing agencies, the Franchise Tax Board, Employment Development Department, and the State Board of Equalization), the U.S. Department of Justice, the United States Attorney’s Office, and the California Attorney General’s Office.
There are a number of ways to “step up” and resolve tax problems. One method is to file amended tax returns with the taxing agencies. However, filing amended tax returns does present problems and should only be used in specific situations after consultation with a qualified criminal tax attorney. The reason? Filing amended tax returns is an “admission” regarding the amount owed, although it is not conclusive on the issue of criminal intent.
2. File a Voluntary Disclosure
A second method is to request the taxing agency to consider a Voluntary Disclosure. Over the past few years, the Internal Revenue Service has created a program called the Voluntary Compliance Initiative. The first one was in 2009 and the second in 2011. This dealt with off-shore income, aka foreign income. Penalties were substantially reduced. Although those Programs are technically closed, Voluntary Disclosure is alive and well. Several of my clients have decided to step up and come forward, voluntarily.
For example, the IRS recently announced in December, 2011, in IRS Field Service 2011-13, that It’s Not Too Late To Avoid Civil Penalties or Jail For Failure to Report Income & File Required Forms [Read my Recent Article, see below] The announcement recognizes that some taxpayers who are dual citizens of the United States and a foreign country may have failed to timely file United States federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs), despite being required to do so.Â Some of those taxpayers are now aware of their filing obligations and seek to come into compliance with the law. This fact sheet summarizes information about federal income tax return and FBAR filing requirements, how to file a federal income tax return or FBAR, and potential penalties.
NOTE: Here is a recent article I wrote on Voluntary Disclosure
NOTE: JUNE 18, 2014 – – The IRS came out with NEW and REVISED Rules and Procedures for the Offshore Voluntary Disclosure Program and the Streamlined Compliance Filing Procedures. Here are the links to two articles which are MUST reads:
3. Arguments to be Used In Court
In the event a defendant is facing criminal prosecution, there are many arguments that can be used to defeat jail time.
As mentioned above, Courts will still be required to “consider” the guideline range, as well as any bases for departure from that range, but they will no longer be required to impose sentence within that range, even where there is no basis to depart. Under 18 U.S.C.A. § 3553(a), the key requirement is that the sentence in each case be “sufficient, but not greater than necessary”:
“(A) To reflect the seriousness of the offense, to promote respect for the law, and to provide just punishment for the offense;
(B) To afford adequate deterrence to criminal conduct;
(C) To protect the public from further crimes of the defendant; and
(D) To provide the defendant with needed educational or vocational training, medical care, or other correctional treatment in the most effective manner.”
18 U.S.C.A. Â§ 3553(a)(2)
In determining whether the sentence is minimally sufficient to comply with the Â§ 3553(a)(2) purposes of sentencing, the Court must consider several factors listed in other subsections of § 3553(a), which are:
1. The nature and circumstances of the offense and the history and characteristics of the defendant;
2. The kind of sentences available;
3. The [advisory] guidelines and policy statements issued by the sentencing commission;
4. The need to avoid unwarranted sentencing disparities among defendants with similar records who have been found guilty of similar conduct; and
5. The need to provide restitution to the victims of the offense.
What does all this mean?
Simply stated it means that there may be many arguments and reasons to “avoid jail.” Everybody’s case is different and so is yours.
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Paul W. Raymond
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