Tax Attorney Was Willfully Blind to Unreported Income; Civil Fraud Penalties Imposed (Fiore, TCM)

An attorney who under reported his income was liable for civil fraud penalties under Code Sec. 6663 for the two tax years at issue because the underpayments of tax for those years were attributable to fraud. The individual was a highly respected tax attorney with an accounting background. he failed to keep adequate books and records and failed to cooperate with tax authorities. However, the government failed to show a pattern of consistent underreporting sufficient to support a finding of fraud. Although the taxpayer had tax deficiencies in prior years, those deficiencies were based on inflated expenses rather than underreported income. Further, the taxpayer’s admission in a plea agreement to criminal tax evasion in a later tax year did not include an admission of tax evasion for either of the tax years at issue.

However, there was clear and convincing evidence that he was willfully blind to the unreported income. Despite the individual’s busy schedule and poor record-keeping, he should have known from his educational background and work experience that there was a high probability that he was failing to report substantial amounts of income, particularly because his expenses had increased significantly during the years at issue. Further, the individual deliberately avoided steps to confirm the possibility of unreported income. He had access to available records such as bank statements, bills and deposit slips, but he failed to check his records before accounting for his income and preparing his tax returns. Therefore, based largely on the individual’s willful blindness, the government met its burden of showing his fraudulent intent to evade taxes.

O.G. Fiore, TC Memo. 2013-21, Dec. 59,422(M)

Other References:

Code Sec. 6663

CCH Reference – 2013FED ¶39,658.20

CCH Reference – 2013FED ¶39,658.475

CCH Reference – 2013FED ¶39,658.81

Tax Research Consultant

CCH Reference – TRC PENALTY: 6,058

 

AUTHOR

Wolters Kluwer Tax and Accounting

Wolters Kluwer Tax and Accounting is a leading provider of software solutions and local expertise that helps tax, accounting, and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed, accuracy and efficiency. Wolters Kluwer Tax and Accounting is part of Wolters Kluwer N.V. (AEX: WKL), a global leader in information services and solutions for professionals in the health, tax and accounting, risk and compliance, finance and legal sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialized technology and services. Wolters Kluwer reported 2016 annual revenues of €4.3 billion. The company, headquartered in Alphen aan den Rijn, the Netherlands, serves customers in over 180 countries, maintains operations in over 40 countries and employs 19,000 people worldwide. Wolters Kluwer shares are listed on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1 American Depositary Receipt program. The ADRs are traded on the over-the-counter market in the U.S. (WTKWY).

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