In our last post we discussed the possible consequences of failing to file a tax return and the case of one Wall Street law firm partner who pleaded guilty to tax evasion. The attorney was arrested after failing to file returns or pay taxes for several years. The charges against the attorney stated that instead of paying his $2,500,000 tax liability, the attorney funneled $3,000,000 to his rare-books business and took lavish international vacations.
The charges against the Wall Street lawyer follow another high profile case from July in which a bankruptcy partner at another prominent law firm was charged with tax evasion and tax fraud. Federal prosecutors allege that the attorney shirked his legal and ethical obligations by committing tax fraud and stressed the government’s commitment to battling tax evasion.
“Just like every ordinary citizen, privileged professionals have to pay their taxes too, and we will continue working with our partners at the IRS to ensure that they do,” U.S. Attorney Preet Bharara said.
Federal prosecutors say that the lawyer under-reported the income that he earned. In the years 2001 through 2004, the attorney earned approximately $5,388,699 but claimed only to have earned $2,097,211. He also fraudulently claimed expenses related to a fictitious solo law practice to reduce his tax liability by over $500,000.
The IRS alleges that it lost more than $1 million in taxes as a result of the false statements on the attorney’s returns. The attorney faces a significant amount of prison time and could be sentenced for up to 12 years because each tax fraud charge carries a maximum three year sentence.
Source: Thomson Reuters, “Wall Street lawyer used tax dollars for rare books: US,” Aug. 4, 2011; New York Times, “Former Sullivan & Cromwell Partner Pleads Guilty to Tax Evasion,” Peter Lattman, Aug. 4, 2011