The courts will look for evidence of factors indicating fraud and examine all of those present together to determine whether the defendant has committed tax fraud. These factors, called “fraud badges”, are general and intentionally general. Their existence will be determined at the discretion of the court. A good example of how credibility affects fraud badges is the case of Harrington v. Commissioner, which is presented below.

Maintaining credibility is essential to avoid the harshest FBAR penalties that can be imposed on those who break the law. International tax lawyers and CPAs holding a dual license within tax law firms of David W. Klasing are here to help. Call us at (800) 681-1295 with any questions about how credibility can be considered in your tax situation.

Lack of credibility as a fraud badge for the imposition of the civil fraud penalty

When assessing the existence of tax evasion, the IRS will present to the court any evidence that may present a “fraud badge”. Fraud badges can be expressly proven or implied on the basis of actions or inactions of the taxpayer. Credibility plays a critical role in many of the fraud badges that a court will consider when assessing a case of tax evasion or fraudulent reporting of foreign information.

Here are some of the fraud badges where credibility can come into play, especially in the Harrington case presented below:

• Lack of cooperation with tax authorities
• Make frivolous arguments
• Lack of credibility of the taxpayer’s testimony
• Implausible or inconsistent explanations for behavior
• Attempt to cover up illegal activities
• Filing false documents
• Deal in cash
• Establish multiple entities without commercial purpose
• Underestimate income
• Conceal income or assets
• Adopt a role model with the intention of deceiving

According to the case law, none of the fraud badges alone are sufficient to conclusively find fraud, but the existence of several factors is “compelling circumstantial evidence of fraud”.

Harrington: The court did not find the credible account holder

The defendant’s credibility in a voluntary assessment of the FBAR penalty came into play on July 26 of this year. In Harrington v. Commissioner, Harrington, the defendant taxpayer, was called to testify on his previous tax returns and information. The content of the accused’s testimony was considered by the court to be simply unbelievable and likely contributed to the assessment of the extent of the sanctions imposed by the FBAR against him. Judge Albert G. Lauber of the United States Tax Court has repeatedly observed in its opinion that the Court simply “did not find [Harrington’s] credible testimony. “

Fraud badges in Harrington

At one point, Harrington was asked to explain the nature of his connection to a UBS account under the name Reed International, Ltd. (the “Reed Account”). The company was incorporated in 1987 in the Cayman Islands and was originally intended to hold assets for a lumber company in which Harrington was invested.

Harrington testified that he did not have “access or control” of the funds held in the Reed Account and therefore could not withdraw funds from the account. Yet, according to the ruling, the court had already obtained documents that showed Harrington as the “beneficial owner” of the foreign account. Additionally, a document in evidence showed that Harrington had been given a power of attorney to manage the assets of the company, including the Reed account. In terms of fraud badges, this testimony certainly serves as an example of implausible and inconsistent explanations for the behavior.

The notice stated that Harrington was “often evasive or dismissive of the questions that counsel for the respondent and the Court put to him”. This quality may indicate satisfaction with certain signs of fraud in addition to a lack of credibility in the testimony, such as lack of cooperation with tax authorities and engaging in behavior with the intent to deceive.

Harrington attempted to remedy the inconsistencies recognized in his testimony by taking into account his age (he was 88 at the time of the trial).

But Judge Lauber didn’t believe it. According to the opinion, “the applicant testified intelligently at trial; he did not just remember a few trivial facts, but distorted critical facts and events. He may have forgotten that he signed a particular document in 2003, but he cannot have ‘forgotten’ that he was in control of valuable offshore investments. $ 3 million. “

The Court also noted the importance of Harrington’s misrepresentation. Harrington admitted that his statements filed between 2005 and 2009 omitted approximately $ 800,000 of income, which was substantial compared to the $ 170,000 they reported. The court ruled that the omitted income provided “further evidence of fraudulent intent.”

How the Harrington Does the decision affect you?

Harrington is a warning to anyone who may face voluntary civil sanctions from the FBAR, now or in the future. First, the government can implicate fraud based on circumstantial evidence. So, it is essential that when it comes to your finances, you behave in a way that eliminates any shadow of doubt about your transactions. Second, if you are to testify, you need good preparation in order to avoid the pitfalls that Harrington has gotten into. Namely, you will need coaching on strategies to convey all relevant information and cooperate with prosecutors while maintaining a certain level of discretion over your private financial matters.

We can help you establish the credibility you need to potentially avoid voluntary FBAR penalties.

Tax law firms from David W. Klasing are well equipped to provide you with the defense you need against the federal government. Our international tax attorneys and experienced CPAs are dual licensed and have dealt with the IRS for decades, and we can help protect you from heavy fines and criminal prosecution for tax evasion and foreign information reporting. Call us to schedule a discounted initial consultation at (800) 681-1295 or schedule online here.

To note: As long as a taxpayer who has deliberately committed tax crimes (potentially including un-filed foreign information returns coupled with positive U.S. income tax avoidance on offshore income) self-reports tax evasion (including including a scheme of unregistered declarations) through national or foreign voluntary disclosure before the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can normally be successfully returned to tax compliance and receive an almost guaranteed pass on criminal tax prosecutions and simultaneously often receive a break with civil sanctions that would otherwise apply.

He is imperative that you hire a experienced and reputable criminal tax defense lawyer to guide you through the voluntary disclosure process. Only a lawyer has the attorney-client privilege and work product privileges that prevent the same professional you hire from being potentially forced to testify against you, in particular when they have prepared the declarations which must be modified, during a tax audit, an investigation or subsequent criminal proceedings.

What’s more, only a lawyer may subject you to voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only a lawyer trained in criminal tax defense fully understands the risks and benefits of voluntary disclosures and how to protect yourself if you do not qualify for voluntary disclosure.

As Kovel’s uniquely qualified and experienced criminal tax defense lawyers, CPAs and EAs, our firm provides a one-stop-shop to efficiently achieve optimal and predictable results that simultaneously protect your freedom and your net worth. Check out our Testimonials to see what our clients have to say about us!

If you have not filed an FBAR for one or more years, or if you have omitted overseas taxable income from a tax return that could not be substantiated by an IRS or tax authority audit state, eggshell audit, reverse eggshell audit, or criminal tax investigation, it is in your best interest to contact an experienced tax defense attorney to determine your best path to tax compliance. federal or state without facing criminal prosecution.

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Public contact: Dave Klasing Esq. MS-Tax CPA, [email protected]

SOURCE Taxation Firms David W. Klasing, PC

SOURCE Taxation Firms David W. Klasing, PC