Eleventh Circuit Upholds Tax Evasion Conviction and Sentence as Reasonable – U.S. v. Paul

May 22, 2013 by David S. Seltzer

I’ve written here several times about tax evasion and tax crimes, particularly in the context of the IRS investigation of UBG customers’ overseas holdings. A case out of the Eleventh U.S. Circuit Court of Appeals, which is the federal appeals court that serves Florida, reinforces my previous warnings that there are serious consequences for tax crimes. In U.S. v. Paul, the Eleventh Circuit affirmed the conviction and sentence of William Paul for tax evasion and failure to file a tax return. Paul argued that the court erred in admitting as evidence a child support order, not granting him a delay after he decided to represent himself, adding a sentence enhancement for obstruction of justice, and failing to dismiss the failure to file charge. The Eleventh Circuit upheld all of the decisions.

Paul was the office manager for his wife’s medical practice. In that role, he decided in 2004 to change the practice’s legal status from an S corporation to a nonprofit organization, listing himself as the president of the nonprofit. Nonprofits are required to file a Form 990 tax return every year, and Paul apparently filed in 2004 and 2005, but not in 2006 or 2007. At trial, his wife and an IRS agent both testified that Paul arranged the practice’s affairs in order to avoid taxes. This behavior included, among other things, construing his wife’s income as a loan in order to avoid having to report income and thus pay taxes on it. After the federal government discovered the fraud, the income was underreported. For example, a late return for tax year 2006 reported $2,589 in income for Mrs. Paul, but her “loan agreement” with the medical practice put it at $400,000.

Paul appealed his conviction and sentence of 53 months in prison, an upward departure from the U.S. Sentencing Guidelines. He argued that he should have been granted a delay to prepare after deciding to represent himself, but the Eleventh disagreed. Paul didn’t show he was prejudiced by the lack of a continuance, the court said, because he had already had two continuances and had adequate access to discovery materials. He argued that the child support order was admitted in error, but the court said Paul had invited this by saying he didn’t object, and it was withdrawn as irrelevant in any case. The government proved that Paul violated tax laws willfully, the Eleventh said, noting that he knew he had to file Form 990 and had deliberately arranged his wife’s affairs to avoid having either of them pay taxes personally. Because he used sophisticated means to avoid it—depositing the “loans” into 35 bank accounts created for 13 shell businesses within the nonprofit—he merited his sentence enhancement. The Eleventh also upheld a sentence enhancement for obstruction of justice because Paul interfered with his wife’s communications with her attorney and encouraged her to plead not guilty.

The Guidelines sentencing range for Paul, with the sentence enhancements, was 33 to 41 months in prison. That’s already a lot of time in prison for tax evasion, but the court added another entire year because it felt the Guidelines didn’t adequately reflect the seriousness of the case. Indeed, the Eleventh Circuit noted that the maximum penalty permitted by law is 21 years; Paul received four and a half years. Nonetheless, most criminal defendants in tax cases receive probation. That’s most likely in cases where the losses to the government were low or the defendant’s behavior was not intentional; tax law is so complex that accidents do happen. When they do, however, the possibility of prison makes it absolutely vital to retain an experienced criminal defense attorney.

Seltzer Law, P.A., represents Floridians who are facing an IRS investigation or tax-related criminal charges. For a free, confidential case evaluation, don’t hesitate to call us today at 1-888-THE-DEFENSE (1-888-843-3333) or send us an email.

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