Mike ‘The Situation’ Sorrentino used to earn up to $48,000 for making personal appearances at nightclubs, bars and liquor stores. The reality television personality gained fame on “The Jersey Shore,” which first appeared in 2009 on the MTV network. But on Jan. 15, Mr. Sorrentino surrendered to the Bureau of Prisons to serve time for conspiring to defraud the U.S. after allegedly failing to properly pay taxes on income of $8.9 million from 2010 to 2012.
“No matter what your stature is in our society, everyone is expected to play by the rules, and those who do not will be held accountable and brought to justice,” said Jonathan D. Larsen, special agent in charge of IRS-Criminal Investigation in Newark.
According to the September 2014 indictment, Mr. Sorrentino and his brother Marc Sorrentino failed to report all income received, inflated business expenditures, claimed disallowed expenses and evaded bank currency reporting requirements.
“The brothers allegedly claimed costly clothes and cars as business expenses and funneled company money into personal accounts,” said former U.S. Attorney for New Jersey Paul J. Fishman in a statement at the time. “The law is absolutely clear: telling the truth to the IRS is not optional.”
Mike Sorrentino is serving an eight-month sentence while his brother is spending two years in jail.
Below are three surefire ways to draw the attention of an IRS criminal investigator.
1) Failing to declare income
A currency transaction report is required for cash deposits of $10,000 or more. Under U.S. Code 5324 of the Bank Secrecy Act of 1970, structuring transactions to avoid reporting is a crime. In most cases involving average citizens, bank counter clerks complete the form when they know the customer. But when a taxpayer could have deposited $15,000 in cash in one bank but instead parcels the payment into one deposit of $7,500 and the remaining $7,500 in a different bank, such an act could be perceived by the government as an intent to avoid reporting.
“It’s not that banks are necessarily colluding or cooperating with the IRS,” said Antowoine Winters, a former criminal investigator with the IRS who now works as a certified financial planner in Dayton, Ohio. “Banks have regulatory requirements that obligate them to report these transactions.”
2). Diverting income or receiving income in cash
“You must keep track of cash payments and declare that income,” said Linda Y. Leitz, a certified financial planner and enrolled agent in Colorado Springs.
Rapper and actor Earl Simmons, whose stage name is DMX, learned that lesson the hard way. Mr. Simmons was released last week after serving one year in federal prison in West Virginia for allegedly cheating on his taxes by insisting to be paid in cash whenever possible and having royalty payments diverted to the accounts of financial surrogates.
Although it appears innocent, depositing a parent’s income into a child’s account, for example, could be interpreted as an affirmative act by the IRS. According to Mr. Winters, who worked for 10 years in an IRS field office, an affirmative act, like intent, is an element of fraud or evasion that implies a means to an end with a specific goal or aim.
“When someone actually paid another person for services related to the income, those expenses, if properly structured, can qualify as deductions but it must also involve actually paying for the services not just putting the income in a family member or friend’s account where the original recipient still has control and can spend it,” Ms. Leitz told Pacer Monitor News.
According to the Department of Justice, DMX participated in the “Celebrity Couples Therapy” television show in 2011 and 2012 and was paid $125,000. When taxes were withheld from the check for the first installment of that fee by the producer, he reportedly refused to tape the remainder of the television show until the check was reissued without withholding taxes.
3) Failure to file
While federal agents may be generally unconcerned with average taxpayers who make mistakes on their income tax returns, failing to file can incrementally morph into evasion over time.
“It has to be an ongoing pattern of behavior over a few years,” Mr. Winters said.
For example, when former Baltimore Police Commissioner Darryl de Sousa willfully failed to file income tax returns in 2013, 2014 and 2015, he violated 26 U.S.C. 7203 and Judge Catherine C. Blake assessed fees of $100,000 for each year.
“Willful is the key word,” said Charles McGimsey, a CPA in the tax litigation support and forensic accounting practice at Windham Brannon in Atlanta. “The IRS will prosecute if it determines a taxpayer intentionally tried to trick or deceive the government.”
On March 29, Mr. de Sousa will be sentenced in Maryland federal court.
“About 90% of our investigations involved Americans earning $100,000 or more per year unless it was refund fraud, which typically involved low- to middle-income average Americans,” said Mr. Winters.
For any and all taxes owed, the IRS can and does use tax levies to seize money from bank accounts. Tax liens are typically filed against property titles such as real estate to preserve the government’s interest in regaining back taxes.
For example, the IRS has allegedly filed a federal lien concerning $1.5 million in unpaid back taxes owed by Rick Ross, a rapper, record executive and entrepreneur, whose birth name is William Leonard Roberts II.
“The IRS can take anything with a tax lien but generally think it’s too much trouble to liquidate clothing or furniture,” Mr. McGimsey told Pacer Monitor News. “They may take expensive jewelry, cars and pieces of art but what the IRS really wants is real estate. They will seize and auction it.”