The most interesting cases I work are criminal cases for defendants accused of financial crimes such as money laundering, tax fraud, bribery and corruption, embezzlement, and investment fraud. I do my best work as a forensic accountant and fraud investigator in cases in which a trail of money must be followed through a complex web of people, entities, and bank accounts.

Peers and colleagues often question my desire to do criminal defense work. CPAs often see themselves as financial watchdogs, especially when they are providing traditional accounting or auditing services. The see themselves on the “right side” of the law, and can’t get their heads around the idea of a CPA helping a criminal.

You hear the commercials on television and radio almost daily: We can reduce your tax debt to pennies on the dollar.  The charlatans claim they can help get rid of your IRS debt and state income tax debt. Who they’re really helping is themselves…. to your wallet.

Probably the most well-known tax debt reduction professional was Roni Deutch, known as “The Tax Lady.”  Her firm purported to provide help to clients with Offer in Compromise needs, IRS installment agreements and Currently Not Collectible tax accounts. Unfortunately, it appears Roni took a lot of money from people and provided them little or no help in return.

Guest post by Lance Wallach

Taxpayers who previously adopted 419, 412i, captive insurance or Section 79 plans are in big trouble. In recent years, the IRS has identified many of these arrangements as abusive devices to funnel tax deductible dollars to shareholders and classified these arrangements as “listed transactions.”

These plans were sold by insurance agents, financial planners, accountants and attorneys seeking large life insurance commissions. In general, taxpayers who engage in a “listed transaction” must report such transaction to the IRS on Form 8886 every year that they “participate” in the transaction, and you do not necessarily have to make a contribution or claim a tax deduction to participate.  Section 6707A of the Code imposes severe penalties ($200,000 for a business and $100,000 for an individual) for failure to file Form 8886 with respect to a listed transaction.

Guest Post by Brian Mahany

Each year, the Treasury Department Inspector General for Tax Administration (”TIGTA”) audits the IRS to measure the agency’s performance. 2010 was not a great year for the Service or taxpayers.  The Inspector General concluded that,  ”During FY 2010, the IRS encountered many challenges, including a variety of tax provisions that were created, extended, or expanded.” There were over 100 new provisions alone just from the American Recovery and Reinvestment Act and the Patient Protection and Affordable Care Act.

To ease the burden of coming up to speed on these new laws, the IRS hired over 3000 new revenue agents, tax compliance officers and other personnel. Unfortunately, the private sector doesn’t have those same resources.

Guest Post by Lance Wallach

Many of the listed transactions that can get your clients into trouble with the IRS are exotic shelters that relatively few practitioners ever encounter. When was the last time you saw someone file a return as a Guamanian trust (Notice 2000-61)? On the other hand, a few listed transactions concern relatively common employee benefit plans the IRS has deemed tax-avoidance schemes or otherwise abusive. Perhaps some of the most likely to crop up, especially in small business returns, are arrangements purporting to allow deductibility of premiums paid for life insurance under a welfare benefit plan.

Guest Post by Lance Wallach

The IRS started auditing § 419 plans in the 1990s, and then continued going after § 412(i) and other plans that they considered abusive, listed, or reportable transactions, or substantially similar to such transactions. If an IRS audit disallows the § 419 plan or the § 412(i) plan, not only does the taxpayer lose the deduction and pay interest and penalties, but then the IRS comes back under IRC 6707A and imposes large fines for not properly filing.

Insurance agents, financial planners and even accountants sold many of these plans. The main motivations for buying into one were large tax deductions. The motivation for the sellers of the plans was the very large life insurance premiums generated. These plans, which were vetted by the insurance companies, put lots of insurance on the books. Some of these plans continue to be sold, even after IRS disallowances and lawsuits against insurance agents, plan promoters and insurance companies.

Guest Post by Brian Mahany

Business owners and corporate CFO’s all agree that tax audits aren’t fun. Let’s face it, “audit” is a dirty word. As our economy still continues to sputter, many state and local governments are getting frantic – the money needed to fund government simply isn’t coming in fast enough. What will the politicians do?  You decide the answer.

There are really just 3 choices.  Raise taxes (not politically popular), cut spending (also not popular among those receiving the spending) or collect more from existing taxpayers by increasing audits.  Guess what many tax authorities are doing?

The financial portion of a lawsuit is often high-stakes. This is especially true in cases of divorce, breach of contract, securities fraud, tax fraud, money laundering, and white collar criminal defense. Whether the other side is an individual, a company, or the government, you need an accurate analysis of the numbers for the benefit of your client.

From my Thought Leadership series at Securities Docket:

White collar crime cases tend to focus on the flow of money. Government investigators analyze the finances of a company or individual to determine where money came from and where it went. It is this trail of money that leads to evidence of a crime.

Sometimes the financial evidence is direct, but often it is indirect. Consider a case of alleged tax fraud, in which the government is trying to prove that a person or business had unreported income. The evidence may be large unexplained deposits to a bank account. If the source of the funds is unknown, the government may consider the deposits indirect evidence of unreported taxable income. Making such assumptions is often necessary when investigating financial frauds, as those committing fraud deliberately try to hide the true sources and uses of funds.

Below is a recent (short) video I put together to demonstrate my forensic accounting process. We talk about the types of cases that we do best, as well as show some of the unique parts of our process and the advantages for clients.