Tuesday, March 17, 2009

Offshore Funds - How Not to Respond to the IRS Risk

We have covered the Government's most recent initiatives involving U.S. taxpayers with offshore funds and noted that coming clean fast is the way to go, at least for most of the U.S. taxpayers at risk.

TIGTA reports a cautionary tale of a U.S. taxpayer who took another approach. That taxpayer sought to hire hit man to kill the IRS agent conducting an audit. That taxpayer also sought to have the hit man burn the IRS office. Neither of these actions would have been counseled by those who practice in this area. (Actually, that is too sweeping a statement, what I mean is that I cannot imagine that either of these actions would have been counseled by those who practice in this area.)

The full report is:

March 6, 2009
Man Sentenced in Murder for Hire Plot of IRS Revenue Officer

On March 5, 2009, U.S. District Court Judge James S. Moody, Jr., imposed a sentence of 30 years imprisonment on Florida businessman Randy Nowak. He noted that, after having listened to Nowak's recorded conversations with an undercover agent posing as a hit man, he had concluded that Nowak had "no conscience."

Nowak was convicted by a Federal jury in December 2008 of attempting to murder a U.S. officer or employee and for using a facility of interstate commerce with the intent that a murder-for-hire be committed.

According to court documents, in June 2008, Nowak, owner of RJ Nowak Enterprises, Inc., had been looking for someone to kill an Internal Revenue Service (IRS) employee who was auditing him because he stood to lose $4,000,000 that he had hidden offshore.

Nowak met with an undercover Federal Bureau of Investigation (FBI) Task Force agent who was posing as a hit man in July 2008. Nowak paid him $10,000 as a down payment to kill the IRS Revenue Officer. Nowak also asked the undercover agent if he would be willing to burn down the IRS's office in Lakeland.

Nowak was charged in a criminal complaint filed in July 2008 with attempting to kill an IRS Revenue Officer who was engaged in the performance of official duties. At that time, Nowak had an outstanding IRS liability of approximately $300,000 related to his personal income tax obligations, and he had four years of outstanding corporate tax returns for his business that he had not filed.

The case was worked jointly with the FBI.


  1. I read recently that most federal tax crimes result in a plea agreement. Why is that?

    I enjoy your blog.

  2. I read recently that most tax crimes result in a guilty plea. Why is that?

    Great blog.

  3. To Anonymous.

    Most charges of federal crimes -- tax crimes are just a subset of federal crimes -- are resolved by plea. That phenomenon is built into the overall criminal system.

    I will only address certain features that are important for tax crimes. The purpose of the criminal tax system is to support the tax system. In formulating the tax crimes and how they will be administered, the focus is on how they encourage the highest level of voluntary compliance. Given limited investigative, prosecutorial and judicial resources that can be devoted to crimes in a system where hundreds of millions of returns are filed, the policy call is that only a limited number of actual tax crimes can be investigated and prosecuted but that, within the set of crimes investigated and prosecuted, the Government will focus particular attention in developing the case so that the relatively few cases that are brought will result in conviction. Systemically, it is more important, for example, that 3,000 cases be brought with 95% conviction rates than that 100,000 cases be brought with a 50% conviction rate. Then, facing almost certain conviction after indictment, most defendants will plead rather than go to trial because of incentives that are at the heart of the federal plea system -- i.e., more favorable sentencing.

    Jack Townsend

  4. Thank you, Jack. That was a wonderful answer. I am thinking about starting my own tax controversy practice and therefore need to advise clients on whetehr to go to trial or take a deal. Always a difficult conversation, I'm sure. One of the things I thought about in conjunction with this issue is whether a lawyer asks his client to sign some kind of release where the client understands he is plea bargaining of his own free will and he understands the ramifications of taking a plea. Client could come back later to sue if he thinks he could have had a shot at trial.

    Thank you again for a great blog.



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