I love the TV Series “Breaking Bad” on AMC. In a nutshell, it is about a tough luck high school chemistry teacher named Walter White who turns into a major drug dealer and murderer. This clip sets it up nicely.
Several episodes involve a cover-up of tax evasion. After her baby is born, Walter’s wife, Skyler, goes back to work at her job as a bookkeeper. Soon after returning to work, she notices accounting irregularities. In the tax world these are known as Badges of Fraud. She is now very worried that she will be brought into the problem as a co-conspirator since she signed off on the company’s financials. She doesn’t want the IRS to audit Walter and her – for obvious reasons.
The IRS then starts an audit of the company. At one point Skyler decides that in order to solve the problem all she has to do is pay the IRS and the criminal issues will go away. So she takes the drug money and pays the taxes.
In the show, Skyler’s maneuver works. In real life, agreeing that you owe money and then trying to pay your taxes after the special agent has showed up is troublesome.
Why is it bad to file amended returns and try to correct the problem once a criminal investigation has started?
Let’s look at what the Government has to prove in a tax evasion case:
First: That there exists a substantial tax deficiency owed by the defendant to the Internal Revenue Service, as charged;
Second: That the defendant committed at least one affirmative act to evade or defeat assessment or pay ment of the income tax[es] owed. An affirmative act includes any conduct the likely effect of which would be to mislead or conceal; and
Third: That the defendant acted willfully, that is, the law imposed a duty on the defendant, the defendant knew of that duty, and the defendant voluntarily and intentionally violated that duty.
In “Breaking Bad” acknowledging that there is more tax due establishes the first element. That just made the government’s job a lot easier.
Next, accounting irregularities could be considered an affirmative act. If the confession included that, the second element is satisfied.
So all that leaves for the government to prove is willfulness. In the show, Skylar gave an Oscar award-worthy performance and convinces the agent that the mistakes are simply a result of ignorance. Pretty far-fetched, in my view.
In real life, as the saying goes: When in a hole, stop digging. You are not going to be able to talk your way out of the problem with the IRS.
Skyler’s actions technically got her into a lot more trouble. In real life, she could probably be charged with tax evasion, conspiracy, obstruction of justice, and money laundering, among other things.
The best solution – always – is to decline to talk about the matter and retain counsel.
In response to a question you can politely say, “I wish to invoke my 5th Amendment Rights and I decline to answer any questions – please contact my attorney.” The Supreme Court recently held that you must expressly invoke the 5th Amendment to gain its protection.
If you talk to an IRS special agent two things are likely to happen: 1) you will knowingly or unknowingly confess to a crime, or 2) you will lie to a federal agent – which is another felony.
The Fifth Amendment is there for your protection – use it.