Tax Attorney in NYC Criminal Tax Fraud Defense

The prosecution contended that no actual exchange of goods or services occurred between the individual proprietorship and the corporation despite the issuance of electronic tax invoices totaling millions of dollars.

Investigators argued that the client established the corporation solely as a paper company to facilitate tax evasion. 

They claimed the invoices were fabricated to inflate expenses and unlawfully reduce taxable income.

Based on these assertions, the client was charged with Criminal Tax Fraud in the First Degree and Offering a False Instrument for Filing, facing potential incarceration and significant monetary penalties.

The defense maintained that the two business entities operated independently and served distinct legitimate business purposes within the manufacturing process.

The proprietorship focused on initial procurement and labor intensive assembly, while the corporation handled advanced processing and final distribution. 

The defense asserted that the invoices represented real transfers of inventory and allocation of labor costs necessary for production. 

The client insisted that the corporate structure was adopted for liability protection and operational efficiency rather than tax avoidance.

New York Tax Law Article 37 governs crimes related to tax fraud and evasion. 

Specifically, New York Tax Law Section 1806 defines Criminal Tax Fraud in the First Degree, a class B felony, which applies when a taxpayer willfully commits a tax fraud act and the amount of tax liability evaded exceeds one million dollars. 

The statute requires proof that the accused knowingly and with intent to defraud the state paid less than the tax liability that was due. 

Additionally, New York Penal Law Section 175.35, Offering a False Instrument for Filing in the First Degree, penalizes presenting a written instrument to a public office with the knowledge that it contains false information and the intent to defraud.

A central legal issue in this matter was the economic substance doctrine, which examines whether a transaction has a substantial purpose aside from the reduction of tax liability. 

New York courts look beyond the form of a transaction to its substance to determine if it is a sham.

To secure a conviction, the prosecution needed to demonstrate that the corporation had no valid business purpose and that the invoiced transactions were illusory. 

Conversely, the defense needed to show that the entities engaged in arm's length dealings and that the invoices reflected actual economic activity.

To dismantle the claim that the corporation was a mere shell, the defense gathered extensive records demonstrating the physical reality of the business. 

This included commercial lease agreements for separate facilities, utility bills showing consumption consistent with manufacturing, and payroll records verifying the employment of distinct staff for each entity.

The attorney presented production logs and inventory transfer receipts that matched the dates and amounts on the disputed tax invoices.

These documents provided irrefutable proof that goods were physically moved and value was added at each stage of the process.

The defense utilized New York Court of Appeals precedents regarding the recognition of corporate entities to argue that the client had a legal right to structure the business through multiple entities.

Counsel emphasized that the issuance of tax invoices followed standard accounting principles for intercompany transactions.

By presenting expert testimony from forensic accountants, the defense illustrated that the tax liability reported was consistent with the actual flow of goods and services. 

The argument highlighted that the transfer of components between the proprietorship and the corporation was a necessary logistical step, not a fraudulent scheme.

The court determined that the prosecution failed to prove that the corporation was a sham or that the invoices were fraudulent. 

The judge accepted the evidence presented by the defense, which confirmed that the corporation maintained independent employees, facilities, and production capabilities. 

The court ruled that the transactions between the proprietorship and the corporation possessed economic substance and were conducted for valid business reasons. 

Consequently, the logic that the transactions were nonexistent was deemed legally insufficient.

Based on the finding that the business operations and invoices were legitimate, the court issued a verdict of not guilty on all counts of Criminal Tax Fraud and Offering a False Instrument for Filing.

The client avoided a lengthy prison sentence and substantial fines. 

This acquittal restored the professional reputation of the business owner and allowed the manufacturing operations to continue without the burden of criminal liability. 

The case established a significant reference point for defending against tax fraud accusations involving intercompany transactions in New York.