Don’t Turn a Tax Debt Into a Prison Sentence
The case of a North Carolina physician recently sentenced to prison illustrates how a collection case can become a criminal case and ruin your life. The Department of Justice Press Release summarizes the doctor’s conduct ( his bad choices), excerpted in part as follows:
“According to documents and information provided to the court, from May 2012 to December 2015, Dr. David Russell, 66, took several actions to evade payment of federal income taxes, interest, and penalties he accrued over six previous tax years. Russell ignored a duly-issued Internal Revenue Service (IRS) summons to appear before an IRS collections officer with his pertinent financial records. After the IRS sought and received a court order compelling Russell to comply with the summons, he provided minimal information and omitted records related to any financial accounts and assets he may have had. Russell also hid his assets from the IRS by depositing his paychecks on a reloadable debit card and having wages issued in the name of a company he controlled rather than directly to himself. He also used a business to pay personal expenses. In addition to evading the payment of these taxes, Dr. Russell failed to timely pay the taxes due for the years 2013 through 2015.”
Many taxpayers find themselves in difficult financial circumstances, some as a result of lifestyle choices, and some as a result of unfortunate events, such as catastrophic illness, which leave them with a balance due to the IRS or other tax authority. The collection process has a great many opportunities for taxpayers to avoid involuntary collection measures (such as lien and levy). These options range from installment agreements, to Offers in Compromise, to Bankruptcy. There are hardship collection holds, and options for emergency relief but they all require one thing, a willingness of the taxpayer to be cooperative. When taxpayers engage in conduct which is intended to hide assets and impede collection, they run the risk of turning a simple collection case into a federal criminal matter, (ask Dr. Russell how his obstruction worked-out).
Ownership or control of foreign assets, or establishment of offshore trusts is an area of great focus by the IRS. A taxpayer with $10,000 or more in total, in offshore financial accounts, has a duty under the Bank Secrecy Act to report those accounts annually. The IRS offers voluntary disclosure programs that are designed to encourage taxpayers to come forward and report previously unreported or hidden accounts and unreported income. Some people have no intention of coming forward. They put assets offshore to hide them and they intend to keep them hidden. But international cooperative agreements, like those under the Foreign Account Tax Compliance Act, required foreign financial institutions to submit a report to the IRS periodically which discloses the identities of account holders who appear to be U.S. persons. If you have a tax liability and you show up on such a report you are likely to find yourself on the wrong side of a criminal tax investigation. But the use of offshore accounts is not the only way to turn a tax debt into a prison sentence. Again, just ask Dr. Russell.
Taxpayers with serious tax liabilities should engage counsel to work out their situation. The best time to start is at the audit phase, before a liability has been assessed. The next best time to engage a tax lawyer is upon receipt of the first bill. Skilled counsel will gather facts of your situation and contact the collection officer (known as a Revenue Officer) and begin discussion of how to resolve the case. But no matter where you are in the collection cycle, do not try to hide your assets or mislead the IRS, it will not work out well for you. Let skilled counsel negotiate for you. At least you should be able to sleep at night in your own bed at home.
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