15 01-15 everything you wanted to know about going to jail

LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
SUITE 445
12100 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90025
www.GivnerKaye.com
BRUCE GIVNER
(bruce@GivnerKaye.com)
OWEN D. KAYE
(owen@GivnerKaye.com)
KATHLEEN GIVNER
(kathy@GivnerKaye.com)
NEDA BARKHORDAR
(neda@GivnerKaye.com)
PHONE (310) 207-8008
(818) 785-7579
FAX (310) 207-8708
(818) 785-3027
January 15, 2015
EVERYTHING YOU ALWAYS WANTED TO KNOW ABOUT GOING TO JAIL
FOR TAX PROBLEMS BUT WERE AFRAID TO ASK

LAW OFFICES
GIVNER & KAYE
Everything You Wanted To Know About
Going To Jail For Tax Problems
But Were Afraid to Ask
December 18, 2014
Page 2 of 16
Introduction.
A. Tax Avoidance v. Tax Evasion.
Tax avoidance vs. tax evasion:
IRM Section 25.1.1.2.4 (01-23-2014)
Avoidance vs. Evasion
1. Avoidance of tax is not a criminal offense. Taxpayers have the right to reduce,
avoid, or minimize their taxes by legitimate means. One who avoids tax does not
conceal or misrepresent, but shapes and preplans events to reduce or eliminate tax
liability within the parameters of the law.
2. Evasion involves some affirmative act to evade or defeat a tax, or payment of
tax. Examples of affirmative acts are deceit, subterfuge, camouflage, concealment,
attempts to color or obscure events, or make things seem other than they are.
3. Common evasion schemes include:
 Intentional understatement or omission of income;
 Claiming fictitious or improper deductions;
 False allocation of income;
 Improper claims, credits, or exemptions; and/or
 Concealment of assets.

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December 18, 2014
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B. The Environment.
Stolen identity is a national CI priority. The IRS now has 5,000 cases in inventory.
Recognizes it will not prosecute itself out of this. Bulk of the work is civil, not criminal.
Other priority is offshore tax evasion. The Swiss takedown was, for the IRS, a force
multiplier event. Other countries started wanting to work with the IRS. Long before SARs the
IRS knew it wanted to harness bank operations officers who see suspicious activity all the
time. SARs are now a great wealth of leads for the IRS and other enforcement agencies.
Number of SARs has created an embarrassment of riches. Half of all grand jury indictments
are based on SARs. SARs go into one big databank (numbers into the tens of millions) with
Currency Transaction Reports which include CTR-Cs (from casinos) and not FBARs.
Internal referrals (disgruntled ex-wife, disgruntled employee) are around 40% of all
matters and are given a priority. Fraud technical advisors work with R.A.s to train them on
what a good fraud matter looks like so they act like a good third base coach for their civil
peers. So special agents get higher quality referrals.
C. The Sad Tale Of Alan and Jean Brown, Husband and Wife, Lawyers.
D. Bruce Givner’s Time In Front Of A Federal Grand Jury!!!!
E. Mubbayid Superseding Indictment.
F. The Code Sections.
1. §7201: Tax Evasion.1
The most well-known of crimes under the Internal Revenue Code.
Willful attempt to evade or defeat any tax imposed by Title 26.
Basic elements: (i) tax deficiency; (ii) affirmative act of evasion or attempted evasion of
the tax; and (iii) willfulness.
U.S. v. Wommer (9th
Cir. 9/17/14): failure to pay penalties and interest can lead to a
conviction of tax evasion.
1
Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the
payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction
thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more
than 5 years, or both, together with the costs of prosecution.

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GIVNER & KAYE
December 18, 2014
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U.S. v. Gorden (2008): corporation’s payment and deduction of $339,792 of sole
shareholder’s personal expenses was criminal.
U.S. v. Francis (2007): “Girls Gone Wild” Creator Joe Francis was indicated for
deducting more than $20,000,000 in false business expenses on the 2002 and 2003
corporate tax returns, including $3.78 million to build a residence in Punta Mita, Mexico.
The felony requires an affirmative act, e.g., the filing of a false retun. By contrast,
failing to file a return can only be a misdemeanor under §7203.
Evil motive, bad purpose or corrupt design are no longer necessary. Only “voluntary,
intentional violation of a known legal duty.”
Good faith misunderstanding of the law is a defense to a tax crime. The defendant’s
misunderstanding need not be objectively reasonable. Cheek v. U.S., 498 U.S. 192 (1991).
Claims that some of the provisions of the tax code are unconstitutional are not the result of
“innocent mistakes caused by the complexity of the [code]. Rather, they reveal the full
knowledge of the provisions at issue and a studied conclusion, however worng, that those
provisions are invalid and enenforceable.”
Negligence, even gross negligence, is insufficent to establish willfulness. Reckless
disregard for the trusth or negligent failure to inquire into the facts underlying criminal activity
does not support a conviction.
Good faith reliance on the advice of counsel or an expert tax preparer, after complete
disclosure of all relevant facts to the advisor, is also a defense to tax evasion. Nevertheless,
even though the taxpayer must specifically intend to violate the tax laws, the fact that that
was not his primary purpose or motivation is no defense to a charge under §7201.
Direct proof of willfulness is often unavailable. Circumstantial may consist of failure to
report a substantial amount of income, a consistent pattern of underreporting large amounts
of income, and the expenditure of large amounts of cash that cannot be reconciled with
reported income. An “affirmative willful attempt” can be inferred from, inter alia, keeping false
account books and records, destruction of records, concealment of assets or income,
avoidance of usual transactional records, and any other act likely to mislead or conceal. The
IRM lists potential “badges of fraud” that might be deemed to constitute a willful attempt to
evade tax:
 Understatement of income (e.g., omissions of specific items or entire sources of
income, failure to report substantial amounts of income received)

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December 18, 2014
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 Fictitious or improper deductions (e.g., overstatement of deductions, personal
items deducted as business expenses)
 Accounting irregularities (e.g., two sets of books, false entries on documents)
 Obstructive actions of the taxpayer (e.g., false statements, destruction of
records, transfer of assets, failure to cooperate with the examiner, concealment
of assets).
 A consistent pattern over several years of underreporting taxable income
 Implausible or inconsistent explanations of behavior
 Engaging in illegal activities (e.g., drug dealing), or attempting to conceal illegal
activities
 Inadequate records
 Dealing in cash
 Failure to file returns, and
 Education and experience
In U.S. v. Naselsky (3rd
Cir. 3/21/14) a lawyer created a string of misleading e-mails
intended to give the perception that the payments received from clients were loans and not
income. Senyzyn, TC Memo 2013-274 (12/2/13): former IRS agent’s conviction for tax
evasion is sufficient to establish liability for civil tax fraud.
2. §7202.2
Willful Failure to Collect or Pay Over Tax. Both the failure to truthfully account for and
the failure to pay over must be willful. So a failure of either is a violation.
2
Any person required under this title to collect, account for, and pay over any tax imposed by this title who
willfully fails to collect or truthfully account for and pay over such tax shall, in addition to other penalties provided
by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned
not more than 5 years, or both, together with the costs of prosecution.

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December 18, 2014
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Owner of temporary staffing agencY (movie producer for Bon Jovi) convicted for failing
to pay payroll tax. U.S. v. Harrison, 4th
Cir. 10/3/13.
Evidence of inability to pay and financial distress of the defendant can be excluded
from evidence. U.S. v. Easterday, 564 F.3d 1004 (9th
Cir. 2009).
3. §7203.3
Evasion: felony if (a) additional tax due and owing (exact amount not required); (b)
willfulness (voluntary, intentional violation of known legal duty – U.S. v. Pomponio, 429 U.S.
10 – 1976); and (c) overt act (something more than just not filing).
Failure to file: misdemeanor if taxpayer (a) was required to file; (b) did not file; and (c)
failure was willful. This is based on an omission of a statutory duty. The DOJ and IRS
remain alert to upgrading a willful-failure-to-file case to a tax evasion case under §7201 (just
need an affirmative act, e.g., concealment of assets, transactions in the names of aliases,
irregular currency transactions, prior, concomitant or later false statement, etc.).
Willful failure to file return, supply information of pay tax. A police officer provided
falsified tax returns to a bank in order to get a bigger loan that would have been warranted
based on his regular income tax return. U.S. v. Gordon, 6th
Cir. 8/1/12.
4. §7206: False Returns and Preparers of False Returns.4
False Returns and Preparers of False Returns. Felony if (a) make false declaration
under penalty of perjury; (b) know statement is false; and (c) willfulness. (No need to prove
additional tax is due as a result.)
3
Any person required under this title to pay any estimated tax or tax, or required by this title or by regulations
made under authority thereof to make a return, keep any records, or supply any information, who willfully fails to
pay such estimated tax or tax, make such return, keep such records, or supply such information, at the time or
times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a
misdemeanor and, upon conviction thereof, shall be fined not more than $25,000 ($100,000 in the case of a
corporation), or imprisoned not more than 1 year, or both, together with the costs of prosecution. In the case of
any person with respect to whom there is a failure to pay any estimated tax, this section shall not apply to such
person with respect to such failure if there is no addition to tax under §6654 or 6655 as to the failure. In the case
of a willful violation of any provision of §6501I, the first sentence of this section shall be applied by substituting
“5 years” for “1 year”.
4
7206(1) Declaration Under Penalties Of Perjury. Willfully makes and subscribes any return, statement, or
other document, which contains or is verified by a written declaration that it is made under the penalties of
perjury, and which he does not believe to be true and correct as to every material matter; or (2) Aid Or
Assistance. Willfully aids or assists in, or procures, counsels, or advises the preparation or presentation under,
or in connection with any matter arising under, the internal revenue laws, of a return, affidavit, claim, or other
document, which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with
the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or
document….

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GIVNER & KAYE
December 18, 2014
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This felony provision, is violated by, inter alia, any person who willfully makes any
document under the Internal Revenue laws that he does not believe to be true and correct
and any person who willfully aids or helps in the preparation of any document under the
Internal Revenue laws that is fraudulent or false. It is the most frequently charged criminal
tax violation. This statute is used by the government where it is possible to prove the falsity
of a return but where it would be difficult to establish the requirement of §7201 that the
falsification was motivated by tax evasion. Thus, §7206 is a lesser included offense of
§7201. As §7206(1) proscribes the making and subscribing of a return, only the taxpayer
himself may be prosecuted under this provision.
According to the court in U.S. v. Balistrieri, “the essence of the offense under §7206(1)
is the lack of belief in the truth and correctness of the matter represented… . An inaccurate
statement, in and of itself, is not a violation of §7206(1).” Thus, there must exist sufficient
proof that the taxpayer did not believe that the statements contained in his return were true
and that the untrue statements were made willfully. Reliance on the advice of a professional
preparer may serve as a defense under §7206(1) if the defendant provided full information to
the preparer and then filed the return without having reason to believe it was incorrect.
In U.S. v. Robinson, the court dismissed an indictment charging the taxpayer with
violating §7206 for claiming deductions for retirement plan contributions that were never
made, because the IRS failed to establish that the taxpayer's failure was willful at the time the
returns were filed. The court explained that taxpayers are permitted to claim deductions for
contributions to retirement plans not yet made so long as the contributions are made by the
due date of the return. The court dismissed the indictment because the IRS failed to prove
that when the taxpayer claimed the deductions he had no intention of making the
contributions.
On some returns (e.g., corporate Form 1120 and partnership Form 1065) the material
falsehood may be found on the balance sheet. Hence, although a tax deficiency is not
involved, a crime may have been committed. Also, a violation may occur if taxpayer X
overreports income by reporting income of taxpayer Y. “The accuracy of items of taxable
income reported on the return of one individual or entity may affect the ability of the IRS to
assess the tax liability of another taxpayer. Furthermore, overstated income may shield from
scrutiny falsely inflated deductions.”
Did you know that the government uses Facebook to find taxpayers and help convict
them? U.S. v. Legaspi, N.D. Ca. (7/3/14).
Kawashima v. Holder, 132 S. Ct. 1166 (2012): convictions under §7206 are
“aggravated felonies” and are thus deportable offenses under the Immigration and Nationality
Act. Ninth Circuit affirmed.

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December 18, 2014
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5. §7207: Submitting False Documents.5
This is a misdemeanor and the statute is violated by any person “who willfully delivers
or discloses to the Secretary [of the Treasury] any list, return, account, statement, or other
document,” or other disclosures regarding private foundations or information required as to
certain retirement and bond-sharing plans under §6047(b), “known by him to be fraudulent or
to be false as to any material matter.” It is also a misdemeanor to fail to notify the Secretary
that an organization is a political organization under §527(i) or to fail to make the required
disclosures of expenditures and contributions under §527(j).
§7207 differs from the more serious §7206(1) in that the latter requires a subscription
under penalties of perjury while the former does not; liability can attach under §7207 even
when the taxpayer delivers a document prepared and signed by another person. Moreover,
while attempted evasion under §7201 requires an actual tax deficiency, the §7207 offense
does not; the fact that a false statement does not actually influence the IRS is immaterial.
6. §7212(a): Interfere With The Internal Revenue Laws.6
This section covers two broad categories of tax crimes.
§7212(a) makes any threats or forcible endeavor designed to interfere with IRS
employees a felony.
The other portion, known as the “omnibus clause,” prohibits any act that
corruptly obstructs or impedes or tries to obstruct or impede, the due administration of the
Code. The omnibus clause generally is reserved for conduct occurring after a tax return has
5
Any person who willfully delivers or discloses to the Secretary any list, return, account, statement, or other
document, known by him to be fraudulent or to be false as to any material matter, shall be fined not more than
$10,000 ($50,000 in the case of a corporation), or imprisoned not more than 1 year, or both. Any person
required pursuant to §6047(b), 6104(d), or subsection (i) or (j) of §527 to furnish any information to the
Secretary or any other person who willfully furnishes to the Secretary or such other person any information
known by him to be fraudulent or to be false as to any material matter shall be fined not more than $10,000
($50,000 in the case of a corporation), or imprisoned not more than 1 year, or both.
6
(a) Corrupt Or Forcible Interference. Whoever corruptly or by force or threats of force (including any
threatening letter or communication) endeavors to intimidate or impede any officer or employee of the United
States acting in an official capacity under this title, or in any other way corruptly or by force or threats of force
(including any threatening letter or communication) obstructs or impedes, or endeavors to obstruct or impede,
the due administration of this title, shall, upon conviction thereof, be fined not more than $5,000, or imprisoned
not more than 3 years, or both, except that if the offense is committed only by threats of force, the person
convicted thereof shall be fined not more than $3,000, or imprisoned not more than 1 year, or both. The term
“threats of force”, as used in this subsection, means threats of bodily harm to the officer or employee of the
United States or to a member of his family.

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December 18, 2014
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been filed, where the actions by the taxpayer or other person has impeded or obstructed the
audit or investigation.
The statute generally covers the same type of conduct chargeable under the federal
criminal conspiracy statute (18 USC 371), but is used when that section is unavailable due to
insufficient evidence of a conspiracy.
§7212(a) is sometimes referred to as the “single-person conspiracy” statute. The
statute may be used for specific acts of obstruction during the course of an audit or criminal
investigation and when individuals, such as a tax protest promoters, engage in large-scale
conduct involving actual and potential tax returns of third parties.
“Corruptly” means to act with the intent to secure an unlawful advantage or benefit for
either oneself or another. §7212(a) is directed at efforts to bring about a particular advantage
such as impeding collection of one's taxes, taxes of another, or the auditing of one's or
another's tax records.” The benefit sought under the statute by the defendant may be
financial, but need not be. However, mere harassment of an agent, if not done to obtain
some undue advantage, may not rise to the level of a §7212(a) violation.
U.S. v. Meredith, 685 F. 3d 814 (9th Cir. 2012): the Ninth Circuit acknowledged that
mere advocacy of tax evasion cannot support convictions for conspiracy or fraud. However,
it opined that in this case the defendants went beyond mere advocacy to create a “vast
enterprise” that helped clients hide their income from federal and state tax authorities. The
actions included providing explicit instructions on how to evade taxes, drafting letters to the
IRS, structuring and selling “pure trusts,” and serving as trustees.
7. §7216: Unlawful Disclosures.7
Return preparers who knowingly or recklessly make unauthorized disclosures or use
of information furnished in connection with the preparation of an income tax return are subject
to criminal sanctions under §7216. A violation of §7216 is a misdemeanor, with a maximum
penalty of up to one year imprisonment or a fine of not more than $1,000, or both, together
with the costs of prosecution. §6713(a) prescribes a related civil penalty for unauthorized
disclosures or uses of information furnished in connection with the preparation of an income
7
(a) General Rule. Any person who is engaged in the business of preparing, or providing services in connection
with the preparation of, returns of the tax imposed by chapter 1, or any person who for compensation prepares
any such return for any other person, and who knowingly or recklessly—(1) discloses any information furnished
to him for, or in connection with, the preparation of any such return, or (2) uses any such information for any
purpose other than to prepare, or assist in preparing, any such return, shall be guilty of a misdemeanor, and,
upon conviction thereof, shall be fined not more than $1,000, or imprisoned not more than 1 year, or both,
together with the costs of prosecution.

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December 18, 2014
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tax return. The penalty for violating §6713 is $250 for each disclosure or use, not to exceed a
total of $10,000 for a calendar year.
Under the regulations, a tax return preparer may not may not disclose or use a
taxpayer's tax return information before obtaining a written consent from the taxpayer. The
taxpayer's consent must be specific, knowing and voluntary. “tax return preparer” generally is
someone engaged in the business of preparing or helping in preparing tax returns, including
those who provide auxiliary services such as developing software to prepare or e-file a return.
The regulations apply to paid preparers, software developers, Electronic Return Originators
(EROs), and other persons or entities engaged in tax return preparation services or services
that are auxiliary to return preparation. They also apply to most volunteer tax preparers, for
example Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE)
volunteers and employees and contractors employed by tax preparation companies in a
support role.
8. §7213(d): Software.8
Any person who willfully divulges or makes known software to any person in violation
of §7612 may be guilty of a felony, punishable by a fine of not more than $5,000 dollars, or
not more than five years in prison, or both, plus the costs of prosecution. The term “software”
(as defined in §7612(d)) includes any computer software source code and computer software
executable code.
9. §7213A: Browsing.
In response to instances where IRS employees were scanning computer tax files of
acquaintances, family members, and celebrities, the Taxpayer Browsing Protection Act was
passed in 1997. Under these provisions, IRS employees (and others working for the federal
government or for state governments) can be subject to criminal fines and imprisonment for
unauthorized inspection of taxpayers' federal tax returns or return information. Government
employees and others listed in §6103(n) are subject to a fine of $1,000 and/or imprisonment
of not more than one year, plus costs of prosecution, for browsing through taxpayers' tax
files. Upon conviction, the employee will be dismissed from office or discharged from
employment.
8
Any person who willfully divulges or makes known software (as defined in §7612(d)(1)) to any person in
violation of §7612 shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $5,000, or
imprisoned not more than 5 years, or both, together with the costs of prosecution.

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December 18, 2014
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Taxpayers can recover civil damages from the government for unauthorized browsing
of their tax returns and records by IRS employees. The Treasury Secretary must notify the
taxpayers involved when any person is indicted or criminally charged with browsing.
10. Related Offenses Under The Criminal Code.
Related Offenses under the Criminal Code inclusing conspiracy, false statements,
false claims, perjury, mail fraud, aiding and abetting, failure ti file currency transaction reports
and related “structuring” violations and failure to file FBARs.
18 U.S.C. §371: Conspiracy to Defraud The U.S.9
Here’s a statement of the mission of a U.S. qualified charity: “The foundation helps
severely wounded soldiers [of a foreign country] and provides these brave idnividuals with
financial assistance for medical and psychological treatments, education and training, small
constructions projects, advocacy and general financial aid. In allocating resources, we
consider each soldier’s individual situation and need. This assistance serves as aid above
and beyond that provided by the Ministry of Defense. The foundation provides help in areas
of advocacy, evaluation, medical and psychological treatment, education and training, and
general financial aid.”
Here’s another: “We are dedicated to providing the soldiers [of a foreign country] and
their families with educational programs, financial assistance, social activities and spiritual
and cultural needs. Many of our soldiers answer the call of duty at any given time to protect
our homeland and their families struggle while they are gone. We also provide a Legacy
program for bereaved families who have lost a love one in the line of duty.”
G. Getting Into Trouble Yourself.
Your client tells you that he has $500,000 of unreported income from prior years and
$1,000,000 of taxable income for the current year. Assume you are able to help the client
come up with as much in deductions as possible. How much can you legally and ethically
come up with for the current year? What is a Klein conspiracy?10
If the client tells you that
he has unreported prior years’ income does that cause a loss of the attorney-client privilege?
9
If two or more persons conspire either to commit any offense against the U.S., or to defraud the U.S., or any
agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the
object of the conspiracy, each shall be fined under this title or imprisoned not more than five years, or both.
If, however, the offense, the commission of which is the object of the conspiracy, is a misdemeanor only, the
punishment for such conspiracy shall not exceed the maximum punishment provided for such misdemeanor.
10
18 U.S.C. § 371. Conspiracy to commit offense or to defraud United States. If two or more persons conspire
either to commit any offense against the United States, or to defraud the United States, or any agency thereof in

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H. Eggshell Audits.
The client tells you, after an audit starts: “You recall that securities account that Sally
and I have? Well, from time to time over the years, Sally and I took small amounts of cash
from the cash register to pay for personal items and to pay vendors. We didn’t take very
much in the beginning. However, as Sally and I approached retirement, we began to keep
more and more of the cash out of the cash register. And, well, we sort of deposited the
money that we ‘skimmed’ from the business into our brokerage account.”
An eggshell audit arises when a taxpayer who has filed one or more false returns in
previous years is selected for audit. The eggshell analogy is used to illustrate how this
examination can go from being civil to criminal at the drop of a hat. Indeed, civil audits
are one of the primary sources of referrals to Criminal Investigations (CI).
There are three potential outcomes to an eggshell audit:
1. The R.A. may not notice the problem. In that case, the taxpayer is never presented
with the dilemma of responding to that issue. The R.A. will close the audit with any
civil recommendations which are appropriate.
2. The R.A. may spot the issue, but the taxpayer’s representative convinces the R.A. that
the case is best resolved civilly and that the taxpayer’s conduct does not warrant a
referral to Criminal Investigations (CI). (The role of the unseen Fraud Referral
Specialist must be considered at every step!)
3. The R.A. determines that the case has sufficient criminal potential and refers it to CI.
This can happen anytime during the audit, but often happens toward the end when the
agent analyzes what he has and confers with the FRS. In this situation, the
representative must make sure that the taxpayer does not do anything during the
course of the investigation to exacerbate his problems.
any manner or for any purpose, and one or more of such persons do any act to effect the object of the
conspiracy, each shall be fined* not more than $10,000 or imprisoned not more than five years, or both. If,
however, the offense, the commission of which is the object of the conspiracy, is a misdemeanor only, the
punishment for such conspiracy shall not exceed the maximum punishment provided for such misdemeanor. *
As to offenses committed after December 31, 1984, the Criminal Fine Enforcement Act of 1984 (P.L. 98-596)
enacted 18 U.S.C. §3623, which increased the maximum permissible fines for misdemeanors and felonies.
Where 18 U.S.C. § 3623 is applicable, the maximum fine under §371 for felony offenses committed after
December 31, 1984, would be at least $250,000 for individuals and $500,000 for corporations. Alternatively, if
any person derives pecuniary gain from the offense, or if the offense results in a pecuniary loss to a person
other than the defendant, the defendant may be fined not more than the greater of twice the gross gain or twice
the gross loss.

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I. Tips for surviving the Eggshell Audit:
1. Establish your priorities and communicate to the client. Primary goal:
prevent a criminal referral. Secondary goal: reduce potential adjustments and tax liability.
2. Don’t make your client’s problems your own. Don’t do something during
the audit that is itself criminal or otherwise subject to penalty. Don’t advise the client to
present a document know that it may be false as to a material matter. §§7206(2) and 7212.
3. Interview all potential witnesses ASAP. Nail down their testimony before
the R.A. has an opportunity to influence their memory with leading questions, etc. Use a P.I.
to avoid a suggestion of witness tampering or obstructing justice. Keep the client away from
the witnesses.
4. Control and advise the client. Limit contact between the client and the
R.A. Wolf of Wall Street in which Jordan Belfort (Leonardo DiCaprio) unsuccessfully tried to
talk his way out of a bunch of white-collar crimes but created new ones when he tried to bribe
the FBI agents. Agents cannot draw an adverse inference from silence!!
5. Conduct a shadow investigation. Talk to any witnesses with whom the
government has spoken. Easy since the IRS must notify the taxpayer before contacting third
parties and keep records of such contacts. §7602(c). IRS must notify taxpayers of
summonses to third parties. §7609(a)(1) (does not apply to CIs). File an FOIA request.
Order account transcripts thourgh the IRS Practitioner Hotline or Form 4506.
6. Stay in touch with the R.A. If the R.A. goes silent, that may be a
warning.
7. Dealing with the agent. If the preparer has knowledge of the problems,
then pick a preparer who specializes in controversies. Changing reps in midstream alerts the
R.A. to the possible existence of fraud. If the R.A. makes serious allegations, then bringing in
an attorney will not be a surprise. If requests are made for sensitive documents, then your
client may need to invoke the Fifth Amendment, and your hand is forced.
8. Disabuse your client of the notion that if the audit turns criminal, he can
just pay up and move on.
J. Whistleblower Awards.
§7623(a) has its origins in legislation enacted in 1867. The new law - §7623(b) –
established a “Whistle-blower Office”. The first award went, in 2011, to an in-house CPA who

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GIVNER & KAYE
December 18, 2014
Page 14 of 16
complained about a tax lapse at his company. He got $4.5 million and the IRS netted
$20,000,000. Awards must be at least 15% but no more than 30% of collected proceeds.
K. Statutes Of Limitation.
§6531 creates a general 3-year limitation period or prosecution of tax crimes.
However, the six-year "exceptions" encompass virtually all tax crimes prosecuted with any
frequency. See, e.g., U.S. v. Hayes, 322 F.3d 792 (4th Cir. 2003) (absence of explicit
reference to §7206(2) within §6531 does not preclude application of 6-year limitations period;
language in §6531(3) is virtually identical to §7206(2), the only omission is reference that
defendant's false statements related to a material matter); U.S. v. Workinger, 90 F.3d 1409
(9th Cir. 1996) (6-year statute of limitations applies to count charging individual with corruptly
obstructing and impeding due administration of tax laws by submitting inaccurate financial
forms to IRS); U.S. v. Gollapudi, 947 F. Supp. 763 (D.N.J. 1996), aff'd, 97-2 USTC 50,978
(3d Cir 1997) (6-year statute applies to criminal action under §7202 against corporate officer
for willfully failing to collect, account for, and pay over payroll taxes to the government); U.S.
v. Brennick, 908 F. Supp. 1004 (D. Mass. 1995) (6-year exception to 3-year limitations period
for criminal prosecutions applicable to offense described in §7203, not §7202). But see U.S.
v. Heinze, 361 F. Supp. 46, 54 (D. Del. 1973), where a three-year limitation period was
applied to a charge of conspiracy to violate §7206(2).
L. Tax Loss Computation Critical Under Sentencing Guidelines.
In general, “tax loss” determines “offense level” which determines guideline range of
sentence (including months of incarceration).
District Court authorized to order restitution to compensation the victim (IRS) for the
loss caused by the taxpayer. 18 U.S.C. §3556. Restitution is assessable as a tax. IRC
§6201(a)(4). No need for a notice of deficiency. §6213(b)(5). No statute of limitations on the
assessment. §6501(c)(11). The IRS can enter into an installment agreement to collect the
restitution assessment, but cannot accept an OIC.
Five circuits, including the Ninth, have concluded that a defendant cannot reduce the
tax loss with unclaimed deductions.

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December 18, 2014
Page 15 of 16

LAW OFFICES
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December 18, 2014
Page 16 of 16

Internal Revenue Manual
Exhibit 25.1.1-1
Criminal Violations
Criminal Statutes Elements Necessary For Prosecution
Title 26 USC §7201 (Evasion) Felony
(1) Willfulness
(2) Attempt to evade or defeat (usually involves concealment or
deception) tax or payment thereof
(3) Tax deficiency
Title 26 USC §7202 (Trust Fund Violation—
Willful Failure to Collect or Pay Over Tax)
Felony
(1) Willfulness
(2) Requirement to collect, truthfully account for, and pay over
employment taxes
(3) Either failure to collect any tax or failure to truthfully account
for and pay over any tax or both
Title 26 USC §7203 (Failure to File or Failure to
Pay) Misdemeanor
(1) Willfulness
(2) Requirement to file a return, pay an estimated tax or tax,
maintain records, or supply information
(3) Failure to file a return, pay an estimated tax or tax, maintain
records, or supply information
Title 26 USC §6050I in Conjunction with 26 USC
§§7203 and 7206 (Trade or Business Required
to File a Form 8300 for Receiving More Than
$10,000 Cash) Felony
(1) Willfulness
(2) Subject to reporting requirement relating to cash of more than
$10,000 received in trade or business
(3) Evasion of reporting requirement by:
a. Causing a trade or business to fail to file report, or
b. Causing a trade or business to file false report, or
c. Structuring transactions to avoid report
Title 26 USC §7204 (Employee Wage
Statements) Misdemeanor
(1) Duty to deduct and withhold employment tax or income tax
(26 USC 3102(a), 3402(a)
(2) Duty to timely furnish to the employee a written statement
showing specified information concerning the deductions (26
USC 6051)
(3) Furnishing a false or fraudulent statement to an employee, or
the failure to furnish a statement to an employee at the required
time and in the required manner
(4) Willfulness
Title 26 USC §7205 (False W–4) Misdemeanor
(1) Duty to supply information to employer regarding income tax
withholding (26 USC 3402(f)(2)
(2) Furnishing false or fraudulent information or failure to supply
information, which would require an increase in tax to be withheld
(3) Willfulness
Title 26 USC §7206(1) (False return) Felony
(1) Making and subscribing a return or other document under
penalties of perjury
(2) The return, statement or other document, which was false as
to a material matter
(3) Belief that it is not true and correct as to every material matter
(4) Willfulness
Title 26 USC §7206(2) (Assisting in Preparation
of False Return) Felony
(1) Aiding or assisting in, procuring, counseling, or advising the
preparation or presentation of a document in connection with
matters arising under the internal revenue laws
(2) Document was false as to a material matter

(3) Willfulness
Title 26 USC §7206(4) (Removal or
Concealment with Intent to Defraud) Felony
(1) Tax imposed on property
(2) Property on which tax is imposed or will be imposed or levy is
authorized
(3) Removal or concealment
(4) Intent to evade or defeat assessment or collection of tax
Title 26 USC §7206(5) (Compromises & Closing
Agreements) Felony
(1) Willful concealment of property or
(2) Willful withholding, falsifying and destroying records.
(3) Receives, withholds, destroys, mutilates, or falsifies any book,
document, or record, or makes any false statement.
Title 26 USC §7207 (Submission of False
Documents) Misdemeanor
(1) Wilfulness
(2) Delivery or disclosure to any officer or employee of the IRS of
any list, return, account, statement, or other document
(3) Return, statement, or other document is false or fraudulent as
to a material matter
(4) Knowledge of material falsity
Title 26 USC §7212(a) "Omnibus Clause" )
Felony
(1) Corrupt effort, endeavor, or attempt
(2) To impede, obstruct or interfere with
(3) Due administration of Title 26
Title 26 USC §7212(a) (Corrupt or Forcible
Interference) Felony or Misdemeanor
(1) Use of force or threats
(2) To intimidate, impede or obstruct
(3) An officer or employee of the U.S. acting in official capacity
under Title 26
Title 26 USC §7212(b) (Forcible Rescue of
Seized Property) Felony
(1) Forcible rescue or attempt to forcibly rescue
(2) Seized property
(3) Knowledge of seizure
Title 26 USC §7215 (Collection & Paying Tax)
Misdemeanor
(1) Taxpayer was a person required to collect, account for, and
pay over income tax withholding on wages and FICA taxes
(2) Taxpayer was notified of the failure to collect, account for, and
pay over
(3) Taxpayer failed to collect, account for, and pay over the taxes,
while not entertaining a reasonable doubt as to whether the law
required the taxpayer to do so, and the failure was not due to
circumstances beyond the taxpayer’s control
Title 26 USC §7232 (Failure to Register) Felony
(1) Fails to register in connection with taxable purchase — diesel
fuel and special motor fuels or
(2) Falsely represents that he is registered or
(3) Willfully makes false statement in an application for
registration.
Title 18 USC §2 (Aiding and Abetting) Felony or
Misdemeanor
(1) Commission of a crime charged by another person
(2) Taxpayer knowingly assisted or participated in the venture
(3) Crime completed
(4) Taxpayer's intent to cause another to commit a crime, and
(5) Guilty knowledge
Title 18 USC §152(1) (Concealment of Property)
Felony
(1) Bankruptcy proceeding was in existence;
(2) Individual fraudulently concealed the property from the
custodian; and
(3) Property belonged to the bankruptcy estate.

Title 18 USC §152(2) (False Oath or Account)
Felony
(1) Existence of a bankruptcy proceeding;
(2) Statement under oath;
(3) Statement must be material;
(4) Statement must be false; and
(5) Statement was made knowingly and fraudulently.
Title 18 USC §152(3) (False Declarations) Felony
(1) Existence of a bankruptcy proceeding;
(2) Individual made a false declaration, certificate, verification, or
other statement in relation to the bankruptcy proceeding;
(3) Statement was material; and
(4) Statement was known to be false.
Title 18 USC §152(4) (False Claims) Felony
(1) Bankruptcy proceedings have commenced;
(2) Individual presented or caused to be presented a proof of
claim in the bankruptcy;
(3) Proof of claim was false as to a material matter; and
(4) Individual knew the proof of claim was false and acted
knowingly and fraudulently.
Title 18 USC §152(5) (Fraudulent Receipt of
Property) Felony
(1) Individual receives a material amount of property from a
debtor;
(2) Such transfer occurred after the filing of a case under Title
11; and
(3) Acts were done with the intent to defeat the provisions of Title
11.
Title 18 USC §152(6) (Extortion and Bribery)
Felony
(1) Individual gives, offers, receives, or tries to obtain money or
property, remuneration, compensation, reward, advantage, or
promise for acting or forbearing to act in any case under Title 11;
and
(2) Action was made knowingly and fraudulently.
Title 18 USC §152(7) Fraudulent Transfer or
Concealment) Felony
(1) Individual fraudulently transferred or concealed the
defendant's property or the property of another; and
(2) Such act of transfer or concealment was done with the intent
to defeat the provisions of Title 11, or in contemplation of a case
under Title 11.
Title 18 USC §152(8) (Destruction or Alteration of
Recorded Information) Felony
(1) Bankruptcy proceeding existed;
(2) Individual concealed, destroyed, or mutilated the documents;
(3) Such documents related to the property or financial affairs of
the debtor; and
(4) Individual acted knowingly and fraudulently.
Title 18 USC §152(9) (Withholding of Recorded
Information) Felony
(1) Bankruptcy proceeding existed;
(2) Individual withheld from the trustee entitled to its possession;
books, documents, records, or papers;
(3) Such documents related to the property or financial affairs of
the debtor; and
(4) Individual withheld the documents knowingly and fraudulently.
Title 18 USC §157 (Bankruptcy Fraud) Felony
(1) Defendant devised or intended to devise a scheme or artifice
to defraud; and
(2) For the purpose of executing or concealing such scheme or
artifice or attempting to do so;
(3) Files a petition under Title 11; or
(4) Files a document in a proceeding under Title 11; or
(5) Makes a false or fraudulent representation, claim, or promise

concerning or in relation to a proceeding under Title 11.
Title 18 USC §286 (Conspiracy to Defraud the
Government with Respect to Claims) Felony
(1) An agreement, combination, or conspiracy to defraud the U.S.
(2) By obtaining or aiding to obtain the payment of any false,
fictitious or fraudulent claim.
Title 18 USC §287 (False Fictitious or
Fraudulent Claims) Felony
(1) Knowingly makes or presents (statute does not require that
person providing false information to return discounter* who filed
return actually file return to be guilty under 287)
(2) False, fictitious or fraudulent claim
(3) Knowing that claim filed is false, fictitious or fraudulent.
Note:
Files return for a percentage of the refund.
Title 18 USC §371 (Conspiracy) Felony
(1) The general conspiracy statute encompasses two distinct
types of conspiracies;
a. Conspiracy to commit any federal offense
b. Conspiracy to defraud the U.S. or any agency thereof, which
includes the IRS
(2) Essential elements of a §371 offense are:
a. Agreement by two or more parties
b. To commit an offense against the U.S.; or, to defraud the
U.S. or one of its agencies
c. Overt act by one or more of the parties in furtherance of the
agreement
d. Requisite intent to defraud or to commit the substantive
offense
Title 18 USC §1001 (False Statements) Felony
(1) Either:
a. Falsifying, concealing or covering up any material fact by any
trick, scheme, or device; or
b. Making false, fictitious or fraudulent statements or
representations; or
c. Making or using any false writing or document.
(2) Knowingly and willfully.
(3) In a matter within the jurisdiction of a department or agency of
the U.S.
(4) False matter was of a material nature.
Title 18 USC §1956 (Laundering of Monetary
Instruments) Felony
(1) Whoever, knowing that property involved in a financial
transaction represents proceeds of a specified unlawful activity
(SUA).
(2) Conducts such a financial transaction, which in fact involves
proceeds of a SUA:
A.
i. with the intent to promote the carrying on of SUA; or
ii. with the intent to engage in conduct constituting a violation of
§7201 or 7206 of the IRC; or
B. knowing the transaction is designed in whole or in part:
i. to conceal or disguise the nature, location, source, ownership,
or control of the proceeds of SUA; or
ii. to avoid a transaction reporting requirement under State or
Federal law.

Texas Lawyers Fought the IRS and Won
John Council
Texas Lawyer
April 12, 2007
Two weeks before tax day, married lawyers Alan and Jean Brown were signing their
names to the back of a familiar-looking green and yellow U.S. Treasury Department check
that most Americans associate with a tax refund.
The check the San Antonio couple endorsed on March 30 was an Internal Revenue
Service refund of sorts -- but not in the traditional sense.
The $1.34 million check was the result of a settlement between the Browns and the
government in Alan Brown, et al. v. U.S., a Federal Tort Claims Act (FTCA) suit the couple
filed three years ago in the U.S. District Court for the Western District of Texas.
The couple filed the civil suit after they were caught up in a complicated tax
prosecution in which Alan Brown, a well-known criminal defense attorney with Brown &
Norton, and Jean Brown, a family law solo, allege they were targeted by overzealous IRS
agents, which led to the Browns being indicted in 2003 by a federal grand jury in Austin,
Texas, for allegedly filing false personal tax returns between 1994 and 1997.
In their first amended complaint in their civil suit, the Browns alleged, among other
things, that IRS agents had authorized a warrantless search of their offices, records and
home that was without probable cause; that the defendants and/or other "investigative or law
enforcement officers" used false or misleading evidence to seek a search warrant, justify the
grand jury investigation, and the indictments; and that the government, "through its
'investigative or law enforcement officers,' maliciously prosecuted Alan Brown through and
including a lengthy criminal trial without probable cause, which proximately caused plaintiffs
to suffer significant damages."
The Browns further alleged in a response pleading that IRS agents made "material
misrepresentations and omissions to their supervisors, prosecutors, and a grand jury."
After a five-week trial before U.S. District Judge Lee Yeakel of Austin in U.S. v. Alan
Brown, a jury acquitted Alan Brown in 2005. The government later dismissed the indictment
against Jean Brown.
While the settlement check that resulted from their civil suit will just about cover the
Browns' legal expenses in their criminal tangle with the government, the couple says the
money represents something more important -- that the fight with the government finally is
over.
"While we believe we would have gotten a lot more in trial, it would have hung up on
appeal," says Jean Brown, who adds that she was indicted merely because she filed a joint
tax return with her husband. "And we wanted to get our lives back together professionally
and emotionally. And we didn't want to give them another day of our lives."

Texas Lawyer re: Alan and Jean Brown
April 12, 2007
Page 2 of 4
"The further away you get from it the better," says Alan Brown. "But when it started
off, I was totally terrorized."
Larry Wright, an IRS regional spokesman in San Francisco, refers questions about the
Browns' civil suit to the Assistant U.S. Attorneys who were involved in the FTCA suit.
Julie Zatz, an Assistant U.S. Attorney in L.A. who handled the FTCA civil suit after the
U.S. Attorney's Office for the Western District of Texas recused itself, says the government
did not admit any liability in settling the case. The U.S. Attorney's Office for the Western
District recused itself because Alan Brown regularly defended clients in federal court who
were being prosecuted by the office.
"It did not settle for anything that the agents had alleged to have done or failed to do,"
Zatz says. Rather, she explains, the government wanted to contain its litigation costs by
settling the suit.
But Bill Reid, a partner in Austin's Diamond McCarthy who represented the Browns in
their civil suit, disagrees with Zatz. It is unusual for the government to settle such a case for
more than $1 million, he says.
"The thing is, this is not your normal tax case," says Reid, who is a former Assistant
U.S. Attorney for the Western District of Texas. "Generally, they're not paying that ... on a
malicious prosecution case."
BIZARRE HISTORY
The Browns didn't know the IRS was investigating them until 2000, when IRS agents
served a search warrant on their house and on Alan Brown's law office. The agents went
through the Browns' personal and professional lives in ways they never could have imagined,
Jean Brown says.
"They picked through my trash; there isn't a merchant in town they didn't talk to," she
says. The agents also ended up seizing hundreds of Alan Brown's client files, crippling his
practice, he says.
In 2002, the Browns filed a motion before U.S. District Judge Orlando Garcia of San
Antonio to have Alan Brown's files returned, which Garcia granted.
Garcia's 20-page opinion ordering the return of the files laid out some of the more
unusual details of the case: IRS agent James Maxwell obtained a search warrant for the
Browns' home and Alan Brown's law office at Brown & Norton based on information provided
by a confidential informant who had managed the bookkeeping in Alan Brown's law office.
The employee told Maxwell that Brown's law office cash receipts book showed that he had
been under-reporting his taxable income for years.
But the employee's credibility was compromised, according to Garcia's opinion.
Among other things, the employee's boyfriend was serving 18 years in the federal
penitentiary for various drug-related convictions, and she allegedly had laundered money

April 12, 2007
Page 3 of 4
through Alan Brown's law office. She hoped federal prosecutors would reduce her
boyfriend's sentence if she turned in Brown, according to the opinion.
"Yet Maxwell disclosed none of this to the magistrate judge" who approved the search
warrant, Garcia wrote.
Garcia also concluded that Maxwell -- as an experienced tax fraud investigator and
certified public accountant -- should have known that the cash receipts book at Alan Brown's
law office included entries that were not taxable income, items such as payments for bail
bonds or retainers paid by clients.
"Despite this knowledge, Maxwell told the magistrate judge that the receipt books
indicated Brown had received tens of thousands of dollars that he failed to report on his tax
returns," Garcia wrote.
"Therefore, Maxwell's statements are knowingly or recklessly false," Garcia wrote,
approving the return of the materials seized from Alan Brown's law office.
Prosecutors appealed Garcia's order to the 5th U.S. Circuit Court of Appeals, which
reversed Garcia in 2003. The court found that Alan Brown had failed to prove the necessary
harm requiring the return of the seized materials.
Prosecutors presented their case against the Browns to a federal grand jury in Austin,
which indicted the couple for allegedly filing false income tax returns.
Alan Brown's trial lasted five weeks and ended with the jury acquitting him. The
indictment against his wife was dismissed.
Brenda Morris, a chief deputy in the U.S. Department of Justice's Public Integrity
Section who prosecuted the Browns, did not return a telephone call seeking comment.
Jason Collins, an associate with Austin's Diamond McCarthy who also represented the
Browns in their civil suit against the government, believes IRS agents targeted Alan Brown
because he was a high-profile attorney who had defended big-name clients such as former
U.S. Rep. Albert Bustamante, professional boxer Tony Ayala and country music star Johnny
Rodriguez.
Collins says because Alan Brown is successful, he has paid hundreds of thousands of
dollars in taxes over the years. And the IRS wrongly accused him of owing $80,000 more.
"They took a guy who pays his taxes and chewed he and his family apart over this,"
Collins says.
THE BUSINESS
When Alan Brown was indicted in 2003, he was earning nearly $1 million a year, his
lawyers say.
The next three years, the Browns' legal practices took a huge hit, losing nearly $1.5
million in business, Collins maintains.

April 12, 2007
Page 4 of 4
Alan Brown says he had to inform all of his clients who had cases pending in the
federal courts in San Antonio that he was under federal indictment. Most of his clients stuck
by him, he says.
"You didn't want to fool a client. A lot of people still wanted to hire us," Alan Brown
says. "And the town and the lawyers stuck by me."
One state judge and two prosecutors in San Antonio even testified at the trial as
character witnesses for the couple, he says.
Jean Brown says her family law practice also took a hit after she was indicted.
"One client fired me because she thought I was going to be preoccupied with my own
case," Jean Brown says. "I managed to practice good law, but it wasn't a lot of law. I was
very depressed.
"I went to my 35th high school reunion and looked around and thought I would have
been voted the least likely to have been federally indicted," Jean Brown says.
To pay for their criminal defense lawyers, the Browns took out a second mortgage on
their house, spending just over $1 million in legal fees. "And that was people being nice to
me. If it was a company it could have been $5 million," Alan Brown says. "Discovery was
huge," he says, adding that the government had close to 30,000 files.
After paying their legal bills, there won't be any money left over from the settlement,
Jean Brown says.
"The settlement certainly won't put any extra change in our pocket, but it will be able
for us to get out of the hole," Jean Brown says. "Is any one of us going to quit working? No."

Case 4:05-cr-40026-FDS Document 218 Filed 03/08/2007 Page 1 of 22

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