Tax Lawyers

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Tax Avoidance & Evasion

If there’s anything about the tax law that the average person is confused about, it’s the difference between tax avoidance and tax evasion and the related question of how the I.R.S. decides whom to prosecute. The confusion isn’t surprising when you consider how confused even so-called authorities are about the difference between the two.

Although the concepts “tax avoidance” and “tax evasion” have profoundly different meanings and consequences, not infrequently, the two are used interchangeably and by people who should know better. For example, when Franklin Delano Roosevelt delivered his 1937 message to Congress requesting legislation to close what he saw as flagrant loopholes in the federal tax laws, FDR referred to a Treasury Department report in the following way: “This report reveals effort at avoidance and evasion of tax liability so widespread and so amazing both in their boldness and their ingenuity that further action without delay seems imperative.”

One knowledgeable legal writer once began a chapter entitled “Prevention of Tax Evasion and Avoidance” [!] by saying: the term evasion does not, as it sometimes does, connote any act to which criminal or civil penalties might apply.”

This interchangeable use of important concepts has not been limited to presidents and scholars. Even the courts have used “tax avoidance” and “tax evasion” interchangeably. . . .Even worse, the Internal Revenue Code sometimes fails to distin­guish between “tax avoidance” and “tax evasion.”

For example:
If. . . the principal purpose for which such acquisition was made is evasion or avoidance of Federal income tax. … . if it is established. . . to the satisfaction of the Secretary. . . that such corporation is not formed. . . to evade or avoid United States income taxes.

Given this kind of sloppiness in dealing with two crucially important but quite different concepts. Unfortunately, this sort of confusion reigns not only among ordinary people but even among otherwise knowledgeable lawyers.

Even the Internal Revenue Manual itself isn’t as helpful as it could, and should, be: “Avoidance of tax is not a criminal offense. All taxpayers have the right to reduce, avoid, or minimize their taxes by legitimate means. The distinction between avoidance and evasion is fine yet definite. One who avoids tax does not conceal or misrepresent but shapes and preplans events to reduce or eliminate tax liability~ and then reports the transactions. On the other hand, evasion involves deceit, subterfuge, camouflage, concealment, some attempt to color or obscure events, or making things seem other than they are. Example: Mr. Maple purchased the stock on January 2d. Mr. Maple decided on December 3d of that year to sell the stock, which would have resulted in a substantial, recognized short-term capital gain. Upon realizing the benefits derived from the long-term capital gain provisions of I.R.C., Mr. Maple waited until February [of the next year] to sell the stock. This is an act of tax avoidance. If Mr. Maple did not realize the benefits which could be gained from the long-term capital gain treatment until after the stock was sold in December [of the first year], and he then altered the date on the purchase statement and reported the sale as a long-term capital gain with a purchase date of [a year earlier], his acts would be tax evasion.

Well, maybe that example from a court is helpful, but it’s not good enough. It’s not good enough because knowing the difference between avoidance and evasion is knowing the difference between legal and illegal conduct.

Net Worth Prosecution

The usual strategy is for the Government to produce evidence of the defendant’s receipt of specific items of reportable income that do not appear on his income tax return or appear in diminished amount. ( United States v. Horton).

There are several ways, both direct and indirect, that the government can prove there’s been an understatement or failure to report of taxable income.

One way is through “specific items.” Another is by the “Net Worth” method. This technique involves the process of deduction. Here’s how the Supreme Court of the United States explained the “Net Worth” method in a leading case that approved its use:

In a typical net worth prosecution, the Government, having concluded that the taxpayer’s records are inadequate to determine income tax liability, attempts to establish an “opening net worth” or total net value of the taxpayer’s assets at the beginning of a given year. It then proves the taxpayer’s net worth increases for each succeeding year during the period under examination. It calculates the difference between the adjusted net values of the taxpayer’s assets at the beginning and end of each of the years involved. The taxpayer’s nondeductible expenditures, including living expenses, are added to these increases. If the resulting figure for any year is substantially greater than the taxable income reported by the taxpayer for that year, the Government claims the excess represents unreported taxable income. ( Holland v. United States).

Knowing the Supreme Court’s “formula” for how the government proves a net worth case is one thing. It’s quite another to see how a net worth investigation/prosecution works.

The elements of attempted tax evasion under 57201 are (1) an addi­tional tax due and owing, (2) an attempt to evade or defeat that tax, and (3) willfulness. * * * The Government makes out a prima facie case under the net worth method of proof if it establishes the defen­dant’s opening net worth. . .with reasonable certainty and then shows increases in his net worth for each year in question which, added to his nondeductible expenditures and excluding his known nontaxable receipts for the year, exceed his reported taxable income by a substan­tial amount. * * * The jury may infer that the defendant’s excess net worth increases represent unreported taxable income if the Government either shows a likely taxable source * * or negates all possible nontaxable sources. … the jury may further infer willfulness from the fact of underreporting coupled with evidence of conduct by the defendant tending to mislead or conceal.

Failure to File Tax Returns

Section 7203 of the Internal Revenue Code provides that:

Any person required under this title to pay any.. .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. . . tax, make such return, keep such records, 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 crime].

‘Failing” to File

Here’s the typical failure-to-file situation: April 15th rolls around, and the taxpayer neither requests an extension of time to file nor files a tax return. Or the taxpayer, with every intention of filing, doesn’t get around to it in time. That, too, is a failure to file. And the delinquency lasts forever it’s not cured by a late filing. ‘While the I.R.S. may not bother you if you file late, it can.

Did you neglect to sign your tax return, either accidentally or on purpose? Technically, your unsigned return is no return at all.

These are easy cases. But there’s one that’s hard and can put you in a “damned if you do/damned if you don’t” position. Suppose you’re willing to file a tax return but have a real conflict. You may be afraid to answer truthfully because you may be confessing to a crime. At the same time, you may be afraid to answer falsely because you don’t want to violate Internal Revenue Code Section 7206(1) [providing false information], not to mention any other federal perjury statute. And you may be afraid that filing a blank or incomplete return (as a matter of principle) might be considered “no return,” laying you open to prosecution for a Section 7203 failure to file violation.

This conflict, these fears, are real for a lot of people Take a look at this authentic “Dear Taxpayer” letter sent by the I.R.S.:

We received a Form 1040, U. S. Individual Income Tax Return, for the above year from you, but it is not acceptable as your income tax return. A taxpayer’s return, which does not contain any infor­mation relating to the taxpayer’s income from which the tax can be computed, is not a return within the meaning of the Internal Revenue Code or the regulations adopted by the Commissioner. The statutory requirements for filing and the criminal penalty for noncompliance are given on the back of this letter. This letter constitutes notice to you of the legal requirements concerning filing of income tax returns. Noncompliance may subject you to prosecution under Internal Revenue Code Section 7203, which is reproduced on the back of this letter. Blank Forms 1040 are enclosed for your convenience.

The Consequences

Since it’s pretty clear that the government won’t have much difficulty proving all four elements of a Section 7263 failure to file prosecution, it’s important to know exactly what consequences are in store for anyone who’s convicted. Potentially, there are two. One is bad enough. But the other one

— seriously misunderstood by most people can be devastating.

A “simple” Section 7203 failure to file a violation can also lead to some­thing unknown and totally unexpected by the average person. I’m talking about tax evasion. I’m talking about a Section 7201 violation. I’m talking about a felony.

Section 7201 of the Internal Revenue Code punishes attempts to evade tax payments. What is the current penalty for a Section 7201 felony convic­tion? Up to five years in prison and a fine of up to $100,000 for indi­viduals and $500,000 for corporations. As I’ve said, Section 7201 is the premier tax evasion statute in the government’s arsenal.

‘While, at first glance, it may look like failure to file an income tax return is simply that and nothing more, this is not necessarily so. The horrendous fact is that sometimes failure to file (Section 7203) can easily trigger a tax evasion charge (Section 720 1).

Two cases demonstrate the very real danger. They raise what I call the “Positive Action” principle. . . .

Case one. An accountant whose business was preparing other people’s tax returns, taking their money, and turning over both to the I.R.S., failed to file a few returns and turn over some of the money. Convicted under Section 7201 for evading taxes, he appealed, contending that, at worst, he’d com­mitted only a Section 7203 failure to file offense. His conduct, he argued, was too “passive” to amount to the kind of “willful” behavior that Section 7201 requires. On this much, the defendant (an accountant) and the government agreed: failing to file returns and pay taxes didn’t constitute a willful attempt to evade those taxes. There must be something more, some positive attempt to evade. But the defendant and the government disagreed about whether that something more had occurred in his case.

The government argued that it had: the accountant prepared the tax returns; he took payment from his clients; he prepared his own checks, payable to the IRS; he addressed envelopes to the I.R.S.; he showed the returns and checks to his clients; he gave them receipts; he assured them their taxes had been paid. What is the government’s conclusion? These were sufficiently positive acts to constitute a willful attempt to evade taxes.

But the court sided with the accountant: “[a] fter careful and extended consideration, this Court has concluded that the defendant’s reprehensible actions, designed to hinder detection of the strictly local crime of embezzlement, do not constitute such affirmative conduct as clearly and reason­ably infers a motive to evade or defeat tax.”

The defendant was saved in this situation. Why? Probably because the court viewed him as nothing more than a garden-variety embezzler. But, by clear implication, what would have sunk the accountant was any behavior that the court might have interpreted as an attempt to evade taxes. In this case, the court disagreed with the government that the defendant’s behavior showed an anti-tax motive. Woe unto the accountant if the court had thought otherwise.

Indeed, in another case a few years later, with almost identical facts, the court did agree with the government.

Case two. An experienced tax attorney prepared tax returns. His clients wrote checks payable to him, covering both the tax due and his fee. He deposited the checks in a special trust account, from which he drew checks payable to the I.R.S. After he failed to send the I.R.S. all of the tax returns and tax money, he was convicted of tax evasion under Section 720 1 . He appealed.

But this court sided with the government, openly disagreeing with the court in the earlier case involving the accountant. This time, the attor­ ney’s failure to file and pay was considered sufficient affirmative conduct to qualify as tax evasion. It was enough that the defendant had falsely repre­sented to clients that their returns had been filed and their taxes paid. This was conduct amounting to a Section 7201 violation, a felony. Why did the court side with the government against the defendant? Because it relied on a United States Supreme Court case that I’ve quoted from before, Spies v. United States, which shows clearly how easily a Section 7203 failure to file case can become a Section 7201 attempt to evade a case:

We think. . . Congress intended some willful commission in addi­tion to the willful omissions that make up the [failure to file crime] . . . .We would think willful affirmative attempt may be inferred from conduct such as keeping a double set of books, making false entries or alterations, or false invoices or documents, destruction of books or records, concealment of assets or covering up sources of income, handling of one’s affairs to avoid making the records usual in transactions of the kind, and any conduct, the likely effect of which would be to mislead or conceal.

From all of this I hope that you can see that one of the worst pitfalls for committing what they believe are merely criminal tax misdemeanors is that those lesser crimes can be used to provide the willfulness element, which is an essential ingredient in a Section 7201 criminal tax evasion felony case.

A final note on this point.

These illustrations are only illustrations. They’re not meant to be exhaustive. The inescapable conclusion, however? The prosecutors and the courts can infer from virtually any positive action a “willful” attempt to evade under Section 7201. Failure to file can readily become tax evasion. A misdemeanor can readily become a felony.

Lying About Taxes

‘When the subject is taxes, the government takes a very dim view of lying. So dim that Congress has given the I.R.S. a variety of weapons, some quite powerful, to use against people who lie about their taxes.

The mildest provision is misdemeanor Section 7207 of the Internal Revenue Code, which provides that anyone who: willfully delivers or discloses to the [I.R.S.] . . . .any list, statement or another document, known by him to be fraudulent or to be false as to any material matter, shall be fined not more than $1,000, or impris­oned not more than 1 year, or both.

Then there are the felony provisions. One is Section 7206(1) of the Internal Revenue Code, which provides that anyone who: willfully makes and subscribes any return, statement, or another 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 shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $5,000, or imprisoned not more than3 years, or both, together with the costs of prosecution.

Also available to federal prosecutors for use against people who lie about their taxes is the government’s general perjury statute, another felony:

Whoever (1) having taken an oath before a competent tribunal, officer, or person, in any case in which a law of the United States authorizes an oath to be administered, that he will testify, declare, depose, or certify truly, or that any written testimony, declaration, deposition, or certificate by him subscribed is true, willfully and contrary to such oath states or subscribes any material matter which he does not believe to be true; (2) or in any declaration, certificate, verification, or statement under penalty of perjury as permitted under section 1746 of title 28, United States Code, willfully subscribes as true any material matter which he does not believe to be true; is guilty of perjury and shall.. .be fined no more than $2,000 or imprisoned not more than five years, or both (18 United States Code Section 1621).

Although violation of the so-called tax perjury statute (Section 7206(1)) and the general perjury statute are serious felonies, for a variety of reasons, the prosecutors can’t always convict; for example, a tax perjury conviction requires a signed document, and a general perjury conviction requires an oath be taken. There are other reasons, and because of the government, prosecutors often turn to yet another federal statute, an easier one to convict for lying about taxes:

Whoever, in any matter within the jurisdiction of any depart­ment or agency of the United States, knowingly and willfully makes any false…statements shall be fined no more than $10,000, imprisoned no more than five years, or both.

Among the most significant points to be made about all these statutes is that if a false tax return is filed, prosecutors can bring multiple federal criminal tax charges under various federal felony statutes, including:

Section 7201’s tax evasion provisions, the tax perjury statute (Section 7206(1)), the general perjury statute (Section 1621), and Section 1001.

Once an affirmative, willful, material, false statement to the I.R.S., Section 1001 has been violated; there is usually no defense.

Recognizing this fact underscores the most important point of all about Section 1001. Of all the many federal tax crimes, there is probably less reason to violate Section 1001 than any other.

Why? Because all a taxpayer has to do is keep his mouth shut with the I.R.S. agent, resisting any temptation to explain, convince, deny, assure, or persuade. Remember this: only those who have made a statement have been convicted of violating Section 1001. Thus, the ultimate defense is this: never talk to government agents except through a qualified lawyer.

Offshore Asset Protection

Let’s start with an explanation of offshore asset protection trusts. No better summary exists than appeared in the Rutgers Law Review several years ago.

Generally, OAPTs [Offshore Asset Protection Trusts] are trusts created under the laws of certain foreign jurisdictions to shield the assets transferred to the trust from future creditors. Numerous devices fall under OAPTs. An OAPT is typically established under laws ofa foreign jurisdiction with trust legislation supportive of OAPTs. Once framed, the trust is irrevocable. The trust may terminate in a relatively short period, such as ten years, with the sett­br [creator] retaining a reversionary interest. Alternatively, the trust term may be tied to the lives of the senior or one or more beneficiaries. Beneficiaries of the trust are members of the Settbor’s family, such as spouses and children, and may include the senior. The trustee is a foreign trust company or financial institution.

Ordinarily, the trust vests the trustee with unfettered discretion over the distribution of income or principal among the designated beneficiaries. The senior, however, typically reserve some measure of control over the trust either through membership in a “committee of advisors” or as a self-designated protector of the trust with authority, among other things, to replace the trustee.

OAPTs are utilized primarily for two reasons: (1) they offer added protection from creditors compared to domestic spend­thrift trusts, and (2) they offer this added protection without the settlor divesting total control over the transferred assets. For these reasons, OAPTs have become the most popular vehicles for foreign asset protection planning. In fact, current estimates suggest that a staggering amount of $1 trillion of foreign trust funds are held in asset protection trusts. One reason behind the explosion in OAPTs is that the class of OAPT seniors has expanded from its traditional base of the “super rich” to include less-well-heeled newcomers whose professions or businesses leave them vulnerable to potentially devastating litigation risks. These trusts are now popular among professionals such as doctors, lawyers, and accountants as ways to shield their assets from runaway malpractice claims. Recently, they have also been suggested as a way to insulate officers and directors of companies that face potential environmental tort liability.

In short, irrevocable trusts are formed in hospitable offshore jurisdictions for the purpose of shielding assets from creditors, certainly future creditors, and sometimes even existing ones. The trustees are offshore individuals and entities that appear to possess complete discretion regarding every aspect of the trusts. In turn, contrary to what is allowed by United States trust law, the creators of OAPTs can continue to control the trustees and, thus, the trusts themselves. Countless billions of dollars are already in these trusts, as more and more they become available to, and utilized by, the kind of people we all know.

Suing the IRS

Frequently, one result of criminal (and other) tax cases is the frustrated taxpayer’s strong desire to sue the I.R.S. and/or its agents.

This can be done, but it’s a very complicated undertaking, especially because there are several different theories that you can base a lawsuit on. There are other problems, as well. Needless to say, not all of the possible theories have been tested in court. Nor have all the wrinkles of suing the I.R.S. and its agents been litigated. But there have been some cases on this tantalizing subject, and you can learn some of the answers from them.

Civil Rights Statutes: In the case of Betlygn v. Shy, three of a corporation’s employees (doubt­less, tax protesters), sought damages for the allegedly illegal withholding of taxes from their paychecks. Named as defendants were the district director of the I.R.S., a revenue agent in his office, and an employee of the corpo­ration that employed the plaintiffs. In essence, the plaintiffs didn’t want their employer to withhold taxes from their wages. The corporation notified the I.R.S., the I.R.S. investigated and concluded that the law required taxes to be withheld. The I.R.S. instructed the corporation to withhold, and it did.

As it turned out, only one of the named defendants was properly served with the legal papers: the I.R.S agent who was sued in his capacity not his official capacity.

The plaintiffs sued the agent based on three sections of Title 42 of the United States Code: 1983, 1985, and 1986. Here’s what the Court had to say:

Section 1983 provides no cause of action [no claim) against fed­eral officers or private individuals acting under.. . federal law. [A Section 1983 claim must allege a violation of state law].

* * ‘K Plaintiffs have not alleged any action by defendants that could con­ceivably be considered as having been taken under. . . .state law. Plaintiffs’ section 1983 claims, therefore, must fail. Both the 1985 and 1986 claims also cannot be maintained. Plaintiffs have alleged no racial or other class-based discrimination. Such allegations, how­ever, are essential elements of a claim under sections 1985 and 1986.

Betlyon clarifies that an irate taxpayer’s lawsuit against a federal I.R.S. agent (in his individual, not official capacity) for violating civil rights statutes is going nowhere. Section 1983 penalizes only persons acting in connection with state law; sections 1985 and 1986 are rooted only in racial or similar discrimination.

Re-Entering the Tax System

Years ago, while practicing law, I received a touching anonymous letter asking this question: “What could a person do if he filed ‘Fifth Amendment’ tax returns or has not filed returns at all? How could he get back into the filing system without being penalized for all the previous years?”

The answer to this question was impossible to explain simply. So, I provided a general answer. Here it is. Tax evasion, failure to file, and filing false returns, are serious federal tax crimes. Very few lawyers, even those in criminal defense practice, know much about these and related crimes ~__ let alone accountants. People in the anonymous letter writer’s position need first-rate professional help. Under no circumstances should they try to re-enter the filing system by themselves. What s necessary is “making a deal.” That’s Rule One.

Rule Two: don’t throw yourself at the mercy of the I.R.S., the United States Attorney, or the Department Justice. Your advisor must thoroughly analyze your tax situation to ascertain just what federal laws you may have broken and the extent of your tax liability. Then, and only then, when you both know the strengths and weaknesses of your situation, is it time to make an overture to the proper authorities?

Rule Three: be prepared to spend a not-insubstantial sum of money. Apart from a knowledgeable professional’s cost, surfacing from the non-tax underground can be costly. In addition to a likely fine, plus payment of all taxes and interest owed, there’s the fraud penalty to be considered: an additional 50% of the taxes owed. But as expensive as the surfacing can be, in most cases, it will be cheaper (in strictly financial terms, that is) than if the I.R.S. moves in first. Make it real: if the government gets to you before you get to it, in addition to all the civil liability, there’s the real pos­sibility of a criminal charge.

Now let’s look at how this “re-entry” problem occurs. However, there are many specifics of what might start someone thinking about making a voluntary disclosure; classically, there are three main situations. The first involves someone who sees himself as potentially implicated in an I.R.S. investigation of someone else’s tax affairs. For example, a tax investigation of a restaurateur suspected of squirreling away large amounts of unreported cash could point to a dentist who received (and didn’t report) some of that cash in return for fixing the teeth of the restaurateur’s child. Once the dentist learns that the restaurateur is being inves­tigated for possible tax violations, it will surely occur to the dentist that perhaps he should make a voluntary disclosure.

The second classic situation is when an individual gets pangs of conscience, really believing (for whatever reason) that he has done the wrong thing in not filing, not reporting or underreporting income, taking excessive deductions, or in otherwise filing a false tax return. For example, a genuine religious conversion may cause an individual to reassess his entire past conduct, including certain shortcuts that may have been taken with the I.R.S. Believe it or not; this phenomenon is not uncommon.
Perhaps the most common example is the individual who simply can no longer live worrying about what can happen if he’s caught. Many people who have cut a tax corner live with the relentless fear that they may be found out and have to pay a very heavy price. These, too, are the kind of people who wonder whether they should make a voluntary disclosure. Until the early 1950s, the Internal Revenue Service had a policy that it would not prosecute anyone voluntarily disclosing a tax crime.

If, before an investigation had started, an errant taxpayer voluntarily disclosed that he had committed a tax crime and then corrected the problem, no prosecution would be recommended by the I.R.S. (Needless to say, interest and penalties would be assessed).

Tax Attorneys & IRS

Few principles of law have been as rigorously adhered to as the attorney-client privilege. With narrow exceptions, the privilege bars an attorney from revealing information provided by a client. Indeed, there has been serious debate as to whether a lawyer can even reveal information from a client concerning the client’s past or future commission of a crime. Here’s how the Supreme Court of the United States explained the attorney-client privilege:

Confidential disclosures by a client to an attorney made to obtain legal assistance are privileged. * * * The purpose of the privilege is to encourage clients to make full disclosure to their attorneys. if the client knows that information could more readily be obtained from the attorney following disclosure than from himself in the absence of disclosure, the client would be reluctant to confide in his lawyer, and it would be difficult to obtain fully informed legal advice.

Professor Wigmore, a preeminent American authority on the subject, has defined the attorney-client privilege this way:

“Where legal advice of any kind is sought from a professional legal adviser in his capacity as such, the communications relating to that purpose, made in confidence by the client, are at his instance per­manently protected from disclosure by himself or by the legal adviser, (unless] the protection be waived.

Income tax preparation can be legally performed by lawyers and nonlawyers alike. Income tax return preparation undeniably involves the application of the tax laws to each taxpayer’s unique financial circumstances. However, although that fact might sup­port a lawyer-nonlawyer distinction in other contexts, the Court does not believe it compels such a distinction in the income tax return preparation context. Unlike most other areas in which statutes impose legal obligations on the citizenry, the government has researched and interpreted the tax laws for the taxpayer in advance in the income tax return preparation context. The results of the government’s efforts are manifested in the variety of income tax return preparation instructions and informational publications issued by the government. These instructions and publications are supposedly written in everyday language to permit a taxpayer to prepare his or her own return. To the extent that the taxpayer can­not understand the instructions or simply does not wish to be subjected to this universally frustrating task, the taxpayer is free to engage the services of lawyer or nonlawyer tax return preparers, who can also find guidance in the government-issued instructions and pamphlets.

The Court is not unmindful that questions occasionally arise in the income tax preparation context, which requires research and interpretation of the tax statutes and regulations beyond that mani­fested in the government-prepared instructions and pamphlets. However, the differences between lawyer and nonlawyer income tax return preparers are in degree, not in kind.

Search Warrants Criminal Tax

One of the most powerful weapons in the government’s arsenal for obtaining information is the search warrant. It is quite different from the s administrative summons, which is powerful enough in its own right. No better explanation of the criminal tax search warrant can be found than in the opinion of the United States Court of Appeals in a case entitled Marvin v. United States.

The Manrins seek the return of records concerning Dr. Marvin’s chiropractic practice seized by Internal Revenue Service agents during a criminal tax investigation.

Kenneth Wissell, an IRS agent, and Clara June Astorino, a clinic employee, swore in person to affidavits before a federal magistrate.

The Astorino affidavit provides information about practices used at the clinic for recording and reporting income and includes estimates of income earned at the clinic but concealed. Her affidavit also describes the financial records of the clinic and indicates where they may be found.

Wissel’s affidavit reiterates information found in the Astorino affidavit and includes statements bolstering Astorino’s reliability In addition, based on information received from Astorino and on gross receipts reported to the IRS by the Marvins, Wissel’s affidavit contains estimates of unreported income of substantial amounts.

Based on these affidavits, the magistrate issued two search warrants. The warrants provide for the seizure of records reflecting the Marvins’ taxable income from the clinic’s operation for specified years. One warrant authorizes a search for these items at the clinic operated by the Marvins. Another warrant authorized a search of a residence owned by the Marvins and rented to Bill Kelly but limits the search to the area under the stairway leading to the second floor. The warrants were executed, and records were seized at both locations.

The first issue we consider is whether the affidavits which supported the issuance of the warrants provided probable cause.

The Marvins contend, in particular, that Astorino’s affidavit is defi­cient because it contains no showing of her credibility and veracity and that as a consequence, the reliability of the information she provided was not shown. ~ * * The sufficiency of the Astorino affidavit is important because Wissel’s affidavit is largely based on the information included in Astorino’s affidavit.

We believe, however, that the affidavits are adequate to support a determination of probable cause. “The task of the issuing magistrate is simply to make a practical, common-sense decision whether given all the circumstances outlined in the affidavit, * ** there is a fair probability that contraband or evidence of a crime will be found in a particular place. And a reviewing court simply must ensure that the magistrate had a substantial basis for. . .concluding that probable cause existed.

In her affidavit, Astorino described her duties and responsibilities at the clinic and related in detail the procedures for keeping records, the method by which income was concealed, and the places where documents reflecting income were stored. Wissel verified some of this information in his affidavit. In addition, Astorino signed the affidavit in person before the magistrate.

How Confidential Are Tax Records?

Frequently I’ve been asked to explain the extent to which tax returns and the information contained in them are confidential or otherwise inaccessible to the government. It’s an interesting and important question, and there’s a lot of misinformation around on the subject.

Section 6 1 03 of the Internal Revenue Code provides that tax returns and “return information” are confidential (at least as a general proposition).

Look at the legislative history of Section 6103. You will find that in enacting it; Congress was concerned about how much access the government had to and the use it could make of tax informa­tion collected by the Internal Revenue Service. However, not surprisingly, Congress also fully recognized that the government needed that material.

Therefore, as with most Congressional legislation, Section 6103 repre­sents a compromise: an attempt to balance the individual’s right to financial privacy against the legislature’s perceived recognition that the government needed tax return information.

Before we go any further, two points have to be made. First, Section 6103 applies only to information initially obtained by the Internal Revenue Service. The Section is inapplicable, and thus no protection is afforded by it, if tax information was obtained by a Justice Department lawyer from a source other than the Internal Revenue Service.

For example, suppose the Justice Department serves a grand jury subpoena on an accountant and obtains a copy of the accountant’s client’s tax return. In that case, there is no issue of confidentiality under Section 6103. The Section simply does not apply.

Second, some definitions. “Return” means any tax or informa­tion return filed with the Internal Revenue Service. “Return information” means any financial data or other information concerning a taxpayer obtained by the I.R.S. from someone other than the taxpayer. “Taxpayer return information” is “return information” obtained from, or on behalf of, the taxpayer.

Section 6 1 03 (a) provides that all returns and return information shall be confidential. Government officers and employees are forbidden from disclosing any return or return information they have obtained concerning their service as government officers.


It is, of course, these exceptions that concern us.

Under Section 6103(h) returns and return information, including tax-payer return information, are available to Treasury Department employees whose official duties require access for “tax administration purposes.” (A written request is not even necessary.)

What are “tax administration purposes?”

According to a past Justice Department Institute on Criminal Tax Trials, “tax administration”:. . . means the administration, management, conduct, direction, and supervision of the execution and application of the internal revenue laws or related statutes, and the development and formulation of federal tax policy relating to existing or proposed internal revenue laws, and related statutes. (Related statutes are those nontax statutes having enforcement rather than a Lictual relationship to tax administration.more

Why hire a tax attorney instead of a CPA?

Most people assume that CPAs handle all tax issues. While it’s true that CPAs handle most tax issues, in many cases, a better alternative is a tax attorney – somebody well-schooled in both state and federal tax laws.

Usually, a tax attorney will have more specialized knowledge about how the IRS and state tax offices work and how to settle cases with them. If your tax liability is not significant, a tax attorney is probably overkill – you should consult a CPA. However, if you are facing thousands of dollars in tax penalties, an attorney may help you settle your case for much less than you owe.

Another advantage of working with a tax attorney is that an attorney-client privilege protects the relationship – the IRS cannot require your tax attorney to testify against you – a CPA may be required to.

What is a Tax Attorney?

Tax lawyers handle cases that deal with the taxing of an individual by the government. The IRS is responsible for enforcing Internal Revenue laws, and a tax attorney should be called upon when dealing with the IRS. A tax lawyer will advise clients on their dealings with the IRS. A good tax attorney has a vast knowledge of the internal revenue code, which makes up all federal tax laws.

Where to look

Finding a tax attorney shouldn’t be difficult – looking around on the internet or even yellow pages you should find a lot of options. Remember, though, that you are seeing advertisements – just because you have seen an advertisement does not say anything about the quality of the representation you can expect.

The best way to find an attorney specializing in tax law is to get a referral from somebody else that has been in your situation. This doesn’t mean to go talk to your friend who was convicted of a DUI last year – you don’t need a criminal defense attorney, you need a tax specialist.

If you don’t know somebody who has been in your situation you need to get on the internet and look around for a real person who has – they are out there. Also, when you get a referral from somebody, make sure they had no prior relationship with the attorney they are referring – a lot of times people will exaggerate how good their close friends or family really are.

A tax attorney assists individuals and companies with preparing and filing their income tax returns with the federal, state, and sometimes with local government. A tax lawyer will also assist with determining tax liability, particularly for companies that have to pay various forms of taxes including payroll taxes, and may have to defend their clients against claims of unpaid tax by one of the respective governments.

Facts About Tax Law

Tax lawyers deal with a very touchy issue in the government, tax. Tax lawyers can give accurate legal advice about tax laws if they are called upon for such information. Tax cases can be very serious matters when they involve big companies and corporations that deal with large sums of money. In such cases, a tax attorney should be present to sort through all the bureaucracy involved in tax cases.