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 For Tax Evasion or Tax Fraud, Prison Can Follow 

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Michael Santos

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Business owners rarely understand the consequences that follow for those who violate tax laws. I know because I served time in prison with business owners that prosecutors targeted for tax offenses. Some men served time for tax evasion, despite their not knowing that their decisions could lead to prison. Others served time for tax fraud but didn’t consider themselves criminals.

In today’s blog, I will explain a lesson I learned about tax evasion from Mark, an individual who served time with me in a minimum-security federal prison camp. Tomorrow I’ll write about Adam, a man who pleaded guilty to tax fraud. Both articles will suggest strategies that individuals may consider if prosecutors target them for tax evasion or tax fraud.

Tax Evasion:

I met Mark while we served time together inside of a minimum-security federal prison camp. Mark owned a building supply company that he operated for several years. Mark’s company generated annual revenues in the $5 million range. Over the years Mark deployed some of his earnings to build a portfolio of rental properties.

Mark looked for properties that he could improve by remodeling with the types of supplies that he carried in his store. Yet rather than purchasing the appliances and supplies from his store, he simply removed them from inventory and delivered them to his properties. Mark deducted the inventory from his financial reports as a “loss,” which served to make it appear that his retail business was less profitable than was actually the case.

A disgruntled employee turned Mark into the IRS. That allegation led to a visit from two agents of the IRS. Rather than retaining defense counsel, Mark chose to respond to the questions from the IRS agents. His lies got him into more trouble. An investigation followed. Then the agents referred his case to the Criminal Investigation Division (CID) of the IRS. Criminal charges for tax evasion followed. After a prolonged legal battle, Mark pleaded guilty to tax evasion. He expected that he would receive a 36-month sentence. During the sentencing hearing, however, his judge imposed a 60-month sentence.

When Mark and I walked around the track together in the prison camp, I asked Mark to help me understand his thought process. In light of what he learned while going through the system, I wanted to know what he would do differently. Mark said that while he was in business, he operated under the assumption that since he owned the retail store independently, and since he owned his investment properties independently, he could do whatever he wanted with his inventory. He couldn’t believe that the IRS considered him a criminal and he initially believed that he could fight the case.

Mark had an opportunity to settle the case by paying back taxes and a fine. Thinking he could beat the charges, however, he told lies that resulted in more charges. His attorney eventually persuaded Mark to plead guilty. Mark changed his plea reluctantly.

Following his guilty plea, he went through a Presentence Investigation. Mark’s misunderstanding of the process resulted in his making things worse. He chose to be uncooperative with the probation officer and said that he only pleaded guilty to avoid the possibility of a longer sentence, but that he didn’t really do anything wrong.

As a consequence of Mark’s misunderstanding of the Presentence Investigation, he missed an opportunity. Whereas he could have made decisions that would have led to a lower sentence, the Probation Officer made a note of Mark’s refusal to accept responsibility. Because of Mark’s “refusal to accept responsibility,” Mark did not get to take advantage of a mechanism that would result in a lower sentence. Further, the Probation Officer accused Mark of lying during the interview. She advised the judge to “enhance” Mark’s sentence for an “obstruction of justice.” The judge agreed and sentenced Mark to 60 months in federal prison.

Mark said that he learned a great deal by going through the process of a criminal prosecution for tax evasion. The crime was one thing, but he said that his failure to understand the importance of Presentence Investigation resulted in his receiving a sentence that was two years longer than it should have been. Mark regretted that he didn’t take more time to understand the entire process of the criminal justice system. If he knew more, he would have made different decisions.

If you’re reading this blog, I have a question for you. Do you know how the decisions you’re making today can influence your life tomorrow? If you’d like to learn more about how to prepare in the event of a criminal prosecution, contact me at [email protected] now.

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