Tax Rep Network podcast

Transcript:

Eric:

Hey guys. So a lot of you have been asking for the Tax Rep Network swag; the T-shirts, the yeti travel mugs that we have, the bistro, the hot coffee mugs. Listen, if you want in, we do a weekly drawing, right.

How do you get into the drawing? Well, subscribe, give us a five star review if you like the program, send a screenshot of that to us here, all right, at hello@taxrepllc.com. All right. We will enter you into the draw, and we're sending out stuff every week. So if you want your Tax Rep swag, you want in on the drawing, go out, subscribe, if you like us, give us a five star review, take a screenshot of that on your phone, email that to hello@taxrepllc.com and you're in for the drawing.

All right. And once you're in, you're in every week, all right. So it's not just one week, every single week you'll be in. All right. Now, we only have two sponsors of the podcast. The reason for that is there's only two pieces of software that we use. And therefore, whatever we use is what we would recommend to other people.

The cornerstone of our representation practice is Tax Help Software. It's what we use for transcripts, it's what we use for intelligent ordering overnight to see everything that's changed on a daily basis with our clients. And it's what we use for our resolution work, offers in compromise, installment agreements, powers of attorney. You name it. All right.

So if you want, I'll put the link below, but check them out, taxhelpsoftware.com. We created two discount... Two special codes for you I should say; TAXREPTRIAL, all caps, one word, will get you a two-week free trial. And if you love it, TAXREP10, all caps, one word. TAXREP10, all caps, one word, will get you 10% off if you decide to purchase it.

The other vendor we use is E&Q. It's how I can call the government and get into the IRS in under three minutes, usually within 30 seconds. Now, if you're interested, we did an entire podcast episode on this called Dialing for Dollars. You can go check that out. There is a link below to a special deal.

We've arranged a deal for all of our listeners. You can get 200 minutes for $19.97. Trust me when I tell you, it will be the best $20 you've ever spent. It literally is going to change the way we practice.

We've probably cut $50,000 to $70,000 of billable time by not having to wait on hold to get to the government. All right. So go below, check them out, and hope you enjoy this episode. Thank you.

Thank you everyone for joining me on this week's Tax Rep Network podcast. I'm joined by a friend of mine, Sharon McCarthy. If you don't know Sharon, I'll try to keep this brief because her bio could take 30 minutes.

Sharon is a partner at Kostelanetz & Fink in New York, has extensive experience representing individuals and corporations in white-collar criminal matters as well as civil and criminal tax controversies. Her cases have included government investigations of tax fraud, mail and wire fraud, accounting fraud, antitrust violations, securities fraud including insider trading and market manipulation, bank fraud, construction fraud, and attorney misconduct.

Sharon is a fellow of the American College of Trial Lawyers. She also has an extensive background in public service. In 2011, she was appointed by the New York City police commissioner to the Crime Reporting Review Committee, whose report was issued in April 2013.

From May 2008 to March 2009, she served as special counsel to the New York State Attorney General in an investigation into whether there had been political interference with the New York State Police.

From 1994 to 2006, Ms. McCarthy served as an assistant United States Attorney in the Southern District of New York, where she served as lead counsel and supervisor of dozens of federal criminal jury trials and argued numerous appeals before the Second Circuit Court of Appeals.

While in the U.S. Attorneys office, Ms. McCarthy served as chief of the Violent Crimes Unit and deputy chief of the Criminal Division and served in the Public Corruption Unit. Ms. McCarthy was the recipient of the Director's Award for Superior Performance as an assistant United States Attorney in both 1996 and 1999.

Now, I have to stop otherwise we'll never get to the actual program, but I will put a link to Sharon's firm page so you can read her extensive bio and contact her if you'd like to consult with her on any case you or your client may have.

Sharon, welcome to the program. All right. So Sharon, listen, thank you for joining me on this week's podcast. Thanks for doing this.

Sharon:

It's a pleasure.

Eric:

Look, Sharon, in tax crimes, and not just in tax crimes, but pretty much all crimes, there's a requirement of willfulness, right. People don't go to prison for making a mistake. Can you define for the listeners what willfulness is when we're talking about tax crimes in particular?

Sharon:

Sure. And thank you again for having me here, Eric. Just want to thank you and your firm for being so supportive of all the lawyers at Kostelanetz & Fink, and we think you guys are great, so thank you.

Eric:

That means you don't know us that well. Anyway.

Sharon:

When you're talking about willfulness in connection with tax crimes, the best starting place is the Supreme Court's Decision in Cheek, the United States, which was decided in 1991.

And there the court said that the government must establish willfulness by proving the voluntary and intentional violation of a known legal duty. And that's a burden that cannot be satisfied by showing mistake, ignorance, or negligence by the taxpayer.

And it established as well that a good-faith misunderstanding of the law does not have to be objectively reasonable to negate willfulness. So that's a good place to start.

Eric:

No, no, absolutely. For those people who are listening who are not that familiar with tax crimes, if you go and look, there aren't that many in the Internal Revenue Code, but when you start looking at all of the other types of crimes like wire fraud, the things that we tend to see go hand-in-hand with tax crime; you've got evasion, both liability and payment, we're seeing a lot of evasion of payment stuff now; failing to pay over employment taxes, false statements or false documents, false claim for refunds, obstructing the IRS from doing its job.

So what makes something criminal? For instance, payroll tax cases, 80% of small businesses will fail, right, within five years. Many of them will do so, only payroll tax and sales tax. They're not all criminals. So how does the government identify which cases are criminal, which aren't? How do they pick, "This one we're going to go criminal on. This one we're not?"

Sharon:

Yeah. So a lot of it is the luck of the draw. Right? It's the agent who's investigating and how motivated the agent is, and it's the prosecutor who picks up the case and whether they see this as a winnable case.

But I think the factors that the government looks at are... They look very deeply into the defendant's conduct about the failure to pay or to file. What was the defendant doing? Was he or she being super callous about their responsibilities?

So using the example of a payroll tax case, the government often looks at: is the defendant living a lavish life otherwise, while they're not paying their payroll taxes? Are they taking that money and buying themselves a second home or a yacht or very fancy jewelry and clothing, going on nice vacations? Things like that.

Are they sending their kids to private schools and doing other things that they could be using the tax money for? Or are they doing anything to hide what they're doing? So as we all know in payroll tax cases, often the starting point for a government investigation is a raid on a check casher. That's one of the primary ways that people can hide their true income.

They may have an accountant preparing their returns. The accountant may just look at their bank statements. So if they're not putting their checks into their bank accounts, they're able to convince the accountant they don't have as much income as they have.

They're also able to pay their employees in cash and then avoid reporting that they have these employees on the payroll. So those are the sorts of things that the government will look at that show a level of intention by the defendant.

Eric:

Right. No, no, no, absolutely. And we've had a couple criminal payroll cases, and that's exactly what it's come down to.

Sharon:

Right.

Eric:

It's not almost to the point where... It's not that they couldn't pay the payroll tax, they just really didn't feel like it.

Sharon:

Correct.

Eric:

So when clients come to you, right, they're the target of an investigation by IRS, DOJ, more and more we're seeing both. IRS will bring in an AUSA right out of the gate and run it as a grand jury investigation. When that client shows up in your office, where do you begin?

Sharon:

Well, the very first thing is a very comprehensive interview of the client. We just want to know what happened, what was going on. If it's a business situation, tell us how the business operates, who else is involved, who are your outside advisors. That sort of thing.

It's important, often there are... People talk about interviewing your client or relationship with client sort of like peeling an onion, there are layers to that relationship and it develops over time. And the truth comes out oftentimes over time.

Eric:

Yep.

Sharon:

Because frankly, people are often embarrassed by what they've done, and they have an expectation, people have an expectation that they're going to meet their responsibilities because of their status in the company or their status in their communities, and so often it takes a little bit of time for that self-realization to come to fruition.

So the attorney really needs to take the time to get to know the client and to understand the facts and to make sure that the client understands that it's really important that they tell the truth to the lawyer.

Because really the worst thing that I can do for a client is to not investigate the facts, just accept on face value what the client says, and then parrot that back to the government. And if it's just not true, then I lose credibility with the government and I'm not going to be able to help that client, and the client loses the opportunity to potentially enter into fruitful negotiations.

So after getting my arms around the facts, the next thing I want to do is really analyze the financial situation. And that most often will require that I hire an accountant to come in as my Kovel accountant, so they're covered by the attorney-client privilege. And they will dig into the finances and the tax matters.

And in some cases, the best thing to do is to try to reconstruct what should have been reported and figure out what the government's damages are. And sometimes we're surprised, not often, but sometimes we're surprised that it's very little or there's no harm to the government, but often there is.

Eric:

Yep.

Sharon:

But it helps you at least to know what the facts are so that you can then go back to the government and try to talk to them about not killing the client in how they're going to proceed.

The other thing you want to find out is; did the client have any professional advice. Did they have a financial advisor? Did they have a tax advisor. Did they have an attorney who gave them advice? And sometimes we find some really bad advice is given. And I know you guys handled a lot of cases involving unreported foreign bank accounts, as do we.

Eric:

Yep.

Sharon:

And certainly in that area we found a lot of bad advice. And sometimes we were able to get the accountant or the lawyer to give us proof that they gave that bad advice. A lot of accountants did not understand that FBARs needed to be filed if you had a foreign account.

We had accountants who said in emails to us, "Oh no, you don't have to report until you bring the money into the United States." So once you have that golden nugget, you can go back to the government and say, "Look, here's why the client should not be found to have willfully violated the law."

Eric:

Well, what's interesting is, as you said, we have clients that are embarrassed, and often embarrassed about circumstances, not that they committed the crime, but why they did it.

We had a client who basically owed money, stopped filing. And so when the government came in... Stopped filing and was dealing in cash. So when the government came in they said, "Look, it's an evasion of payment. Yeah, we want the missing returns. Yeah, we want the... It's an evasion of payment. We have all the affirmative acts. We don't need anything else."

And that's the way it looked. Well, come to find out, we're working on the numbers, the client keeps trying to say, "Look, it really wasn't criminal. This is what I had to do." To the point where he really doesn't have the funds to fight it. We were going to hand him off to a public defender.

And right as we were transitioning him to the public defender, he informs one of my partners, "Well, when my wife got ill with cancer, I didn't have the money to keep up with the line of credit. They pulled my line of credit and they kept sweeping the account, so I would have to go to the check cashers." And this is the first we've heard of this.

Sharon:

Right.

Eric:

It's 14 months on, we're handing him off to a public defender for what I thought was simply going to be a plea deal. And I told the public defender, "I think he's got a defense."

Sharon:

Right.

Eric:

I know the way the government perceives it but that's not really what was happening. And I would have had him go get the stuff from the bank and the pulling of the line and the sweeping of the account, start documenting all that. So when you sit with the government, you tell them the story.

It is amazing to me that clients... Had he come in and just said, "Look, let me tell you what happened," and walked us through that, I think we could have done a better job and focused on that. And instead, we wasted a year and a half, they're ready to indict them, and no one dealt with it.

We talked about willfulness a little bit, and which I just brought up for the case, where look, the client... Is there an issue here of willfulness? So when you're going to look at that as a defense, where do you start as far as building the defense that it wasn't willful?

Sharon:

Yeah. One of the issues I just went over was, who was advising the client? That's obviously a very important issue, and digging into the bad advice. Because sometimes what happens is that maybe the account has made some mistakes that they're not either aware of or willing to admit, and they perpetuate those mistakes, and the client may not be savvy enough to understand that, so that's important.

And the other thing that you mentioned just now in the vignette that you just told was: does the client have any difficulties in their personal life that may carry over into their tax matters?

Similar to what you were talking about, I've represented someone with debilitating OCD. They were literally unable to open their mail, and there was a room that had just piles of mail that went up to the ceiling. And this was someone who otherwise was leading a normal life and seemed that he had everything going for him.

So this was tough to get the prosecutor to understand, appreciate the extent of the disability. It ultimately did not completely mitigate the crime but it was helpful in negotiating a non-custodial sentence.

The other issue to think about is particularly when you're representing a spouse. And often, I hate to say this, but often it's the wife, as opposed to the husband is often the person managing the financial affairs and the tax matters.

But sometimes it's even business partners. So the question may be: is there anything about the relationship that suggests that there is duress or there's a dress or there's mental or physical abuse going on that may overcome a person's will to meet their legal obligations?

So that's a really tough one. And I certainly have represented people who are not... I may sense that there's something going on like that. But unless they're willing to share with me the extent of the situation, I'm not going to be able to make use of it.

And it's a really delicate issue that often requires that you convince the client that maybe they need to go talk to someone, get some counseling, and that may free them up then to tell you about that issue. These are all issues that are relevant and things to explore when looking at willfulness.

Eric:

And you mentioned, the person... And we've had hoarders, the person with the mail, the unopened mail. Is there a level of incapacity that you found that you got a cross before the government takes it seriously?

Sharon:

Yeah. It's really hard frankly to convince the government that this is valid. And the one thing I wanted to talk about as we went down here a little bit further was the issue of non-filer syndrome.

Eric:

Yep.

Sharon:

So I know we'll get to that later, but that's something that I've sat on the panels with government lawyers who are just... They pooh-pooh that concept. And I was a government lawyer too, and I think that you have to have a high level of skepticism about people's excuses, if you will, for why they did not comply with the law.

But sometimes you have to put your skepticism aside and consider the facts as they're brought to you. And it behooves the the defense attorney to really develop those facts and to make sure that there's a credible presentation that can be made, not just parroting, as I said, what the client says.

Getting experts, getting documentary evidence of other areas of the client's life that may not be going so well as well. They may be running a successful business, but everything else around them may be falling apart.

So those are some of the things that you really need to figure out, and it's the peeling of the onion. Client will tell you these things over time.

Eric:

So when we normally talk about mental incapacity, the issue of insanity comes up. Now, do you actually have to be insane? Because I've gotten this actually from accountants, "Eric, my client's not really insane." I'm like, "They don't need to be insane to have a mental incapacity."

I had somebody who had... It was referred over from civil to criminal because of massive understatement of income, and expenses by the way, which I thought was interesting. He had seven back surgeries in a 14-month period and was on, at one point, one of the opioids, 18 pills a day.

Sharon:

Wow.

Eric:

So he had been retired. He had been a former manager for a big chain, but he kept doing the books and records for his wife's business. And we submitted all the medical documentation and CI was like, "Yeah, no, we're out of here."

So it wasn't that I can show that he's insane, but there was some mental impairment. I assume you find the same. We don't need people who are actually insane to have a mental impairment.

Sharon:

No. Absolutely. That's right. The key is, as you just said, during the time period at issue with the conduct that's under investigation. You have to be able to show that the mental impairment was active at that time. Right?

So if somebody failed to file their tax returns and then later on develops a drug habit, the drug habit is not going to help you. It may help you at sentencing because you can argue this person needs drug treatment and shouldn't go to jail, but it's not going to help you on the willfulness aspect.

So the insanity defense, all of these things have to do with what was the condition, the defendant's mental condition at the time of the offenses that are at issue.

Eric:

And by the way, if you're listening, the same with penalty abatement. Well, people come in who want to seek penalty abatement and they'll tell us about something, and when you start looking at it, it didn't line up with when the issue happened, the timing doesn't work.

"My daughter, who was a teenager, got brain cancer." Oh my, so sorry, whatever. "In '16." The problem is they have failure to file for '14, '15, '16, and '17. Well, what happened in '14 and '15? Right?

Sharon:

Right.

Eric:

And she was treated in '16 and recovered, so what happened in '17? In other words, I understand what you're saying and I feel bad about that, but it doesn't line up, it doesn't explain, at least timing-wise, the issue that came up.

You mentioned the non-filer syndrome, all right. I remember when you discussed this at the New England Rep Conference. And Anastasia King, one of our assistant U.S. Attorneys here in Connecticut was like, "Yeah, I'm not buying that."

Sharon:

Yeah. Anastasia doesn't like when this is brought up. She's a pooh-pooher.

Eric:

Well, I will tell you this, who used to work with Anastasia is Lisa Perkins, my law partner. I don't know if you've heard this story. There's a great story about Robert Mueller when he was the U.S. Attorney in LA, and then he went into private practice. He didn't last in private practice very long. He went back to being a U.S. Attorney.

And the story in private practice was he got sat down with this firm, one of their big clients, and he goes through everything with the client, [inaudible 00:24:10] Robert Mueller was like, "Well, you committed a crime. You should go to jail." That's not what the client wanted to hear. And so he clearly was not going to be able to make that transition over to the other side of the table.

When Lisa joined us, I had one of those instances. Well, we're in this meeting and she is just ripping apart this client, just shredding him.

Sharon:

Absolutely.

Eric:

We took a break, we got out, and I finally said to her, I'm like, "Who's fucking side are you on?" And she was like, "What? Well, he clearly did it." I'm like, "Lisa, yeah, he probably did this, but... And by the way, all good for uncovering things, but there's a way to go about doing it."

Sharon:

Right. My partner, Caroline Rule, used a great term when I started at Kostelanetz, I came from 12 years at the Southern District U.S. Attorney's Office, and she called it a badge-ectomy, and she said that mine was not complete yet.

So I use that term as well. I ask people who've left the government whether their badge-ectomy is complete.

Eric:

Yeah.

Sharon:

It takes some time.

Eric:

Yeah. But now it's done a 180. So now five years later, we had a case where the client dealing in cash, putting it in investment accounts, try claiming he didn't know, he thought his accountant knew about it. I smelled the bullshit sitting in the room, come on.

But afterward, as we went on, and the government had him dead to rights. They had the cash. They knew everything. She would say, "I don't understand the government. They're overreaching."

Sharon:

They're so unreasonable.

Eric:

Yeah. And I was like, I'm like, "I'm on the government's side." I mean, look, my job is to try to minimize the damage our client did. I didn't advise them to do it, they did this. But I just think it's funny now how Lisa has become the reverse almost a little too much.

Sharon:

Right. That's a key issue, right? You have to believe what you're arguing, on either side. If you're the government attorney, you can't argue for conviction if you don't think the person did what they were charged with.

I certainly had to have in one case when somebody was on trial and the victim failed to identify him in the courtroom, I immediately called my supervisors and we nulled the case because we just lost it, and there was no reason to pursue that. Right?

So you have to do things, you have to act in good faith, no matter what you're doing. And it can be that when you're on, it's called drinking the Kool-Aid sometimes, particularly when you're on trial, your client is fighting for their life, they've just made a decision that they're not going to plead guilty and you have to do your best to put the government to their proof.

But you still have to act in good faith and ask credible, reasonable questions to witnesses and not suggest lunacy when you know that there's no basis in fact. So it's a fine line, but you do have to really believe in what you're advocating.

Eric:

We'd all be so much better off if some politicians did that too.

Sharon:

Mm-hmm (affirmative).

Eric:

Yeah. Anyway, so non-filer syndrome, let's talk about that a little bit. Don't laugh. From the New England Rep Conference-

Sharon:

Oh, no, I believe in it actually.

Eric:

Well, look, I got to tell you, for a period of time, Jeff and I opened our doors with a part-time admin, Amanda, seven years ago. We're 23 people in three offices in two states. I will tell anyone listening. By the way, you don't want to do that. The first five years was insanity, chaotic insanity. And who suffers when the insanity is going on? You.

I wasn't doing my own bookkeeping and my record-keeping at home. I wasn't reconciling my bank. So I got further and further behind, to a point where I actually was literally calling accountants saying, "Do you have a bookkeeper? I don't care. I'll pay them whatever."

And I ended up spending about a month with QuickBooks online now, having to input my stuff. Because I would do the bare minimum to get my charitable donations in the backup, so my returns were at least accurate given what we do for a living. If I got audited and I had played games, nobody would ever have sympathy for me, given what we do for a living.

No, I understand this. Depending on what the person is doing, I understand that it can get pushed to the side and actually, at some point, become so overwhelming that they simply can't do it. It's almost like it's now become a mountain and they can't face the mountain.

Sharon:

That's absolutely right.

Eric:

So they continue. And I've had a little... It never got to the point where I didn't, but I've had a taste of that. And there's actually, I think you talked about it, there's actually research that backs this up.

Sharon:

Well, there's research about it. There's a law review article by a person named Ryan Cochran. It's called Failure to File Syndrome; Lawyers, Accountants, and Specific Intent. And it's published in 2000 in the Cumberland Law Review. I'm happy to send that to you and you can send it to anyone who would like to have a copy.

But basically what the research that was done for this paper shows is that there's a group of non-filers that share certain common characteristics and they include financial sophistication, they know that their failure to file will ultimately be discovered. They understand that they will suffer financial and professional penalties if and when it is discovered that they're not filing.

They acknowledge that they're likely to suffer the penalties. And in the past, they've filed returns. They are worried, just as you were worried Eric, about falling behind in your books. They're worried about the non-filing. But they often have a history of procrastination in other matters related to their personal life.

So you can even go back to their college or law school days or professional school days and see that they were handing in their papers late or getting special compensation for not showing up for their exam on time or something.

But they're also usually, and this goes to your point, workaholics. So their focus is on something other than their personal matters. And then the final thing is that they frequently have other psychopathologies such as depression, self-destructive personality disorder, right? "I'm going to do things for everybody else but not for me. I'm not important enough."

They have a passive-aggressive personality disorder or like the client I've talked about before, they have obsessive-compulsive disorder. So it's kind of complicated. It's not as simple as maybe a prosecutor would want to say, "Look, I really don't believe anything you're saying here because your client is Fortune 500 executive, they're highly successful, and so they should know better. And they had resources to have their returns taken care of, their tax matters taken care of."

But a lot of people listening to this podcast I'm sure have represented really successful people who are non-filers, and each person has a reason for it, but it comes down to what I just said, they're focused on other matters outside of their personal life.

I mean, I've even represented somebody who was a partner at a major accounting firm who paid his quarterly taxes but just could not get his returns out the door. And you can't really explain that, other than to say, once you don't file, once you stop filing, it's almost like your muscles get atrophied.

And people can't figure out how to get back to the filing. It's too overwhelming, they have too many other responsibilities, they have too much going on in their lives, and they just push it to the side.

So it is a thing. Anastasia to the side, but you really have to consider that. But it's really important if you come across something like this that you do get person examined by an expert, and I know we're going to talk about that.

Eric:

Well, I was going to say, that was the very next question. So if you have someone who you think does fit the syndrome or that fact pattern, how do you go about establishing that?

Sharon:

It's a multi-pronged approach. The first is the fact-gathering, so that you're going to be able to say, "Look, here's what else is going on in this person's life." You may have to interview the spouse, the kids, the business partners, other people, people who maybe are being hurt by this conduct in other aspects of the person's life.

It may be that they don't [inaudible 00:33:55] their driver's license and they get arrested because they don't have their driver's license any longer because they forgot to or it just wasn't important. Things like that can happen. I've had clients whose electricity is turned off because they don't pay their bills, but they're, again, going to their big office in Midtown and running a company.

So hiring an expert is important in these circumstances to add an objective element to the proof that you're going to be gathering to present to the prosecutor. And so there needs to be a thorough examination of the client by an expert in psychology. And sometimes this takes weeks to conduct this sort of examination properly, many sessions. And the psychiatrist or psychologist also needs to get some of that additional facts that you've gathered.

And what you're going to be asking the expert is: can you determine whether during the period of the non-compliance, whether the defendant suffered from a mental disease, defect, or condition that affected their ability to understand their legal duties to comply with their obligations under the tax laws?

And does this condition increase the defendant's susceptibility to outside influences as well? Does it mean that they may not have been able to overcome the will of a partner who maybe was overpowering and convinced them that, "No, no, you don't have to tell the accountant everything?" Or did they have a reason not to be able to focus on their own personal tax matters?

You also, as we talked about before, you want to talk about the effects of prescription medication or non-prescription medication during a period charge at issue. And did that cause the person to not comply with their obligations?

And you can offer, if you end up at trial, you can offer this expert testimony under Federal Rule of Evidence 702, and with the limitation in 704(b) that the expert must not state an opinion about the ultimate fact.

So in a criminal case, an expert cannot say, "I conducted an analysis and my opinion is that the defendant did not have the mental state to violate the tax laws." Right? That would go to the ultimate conclusion that's for the judge or the jury.

So what you do is you have to just get the evidence that experts report, cannot state the ultimate fact either or ultimate conclusion, the expert cannot say it, but you can argue that to the jury or the judge as counsel for the defendant. So that's sort of how it goes, but I don't see how you would be able to really get this over the finish line either in negotiations with the prosecutor or in arguments to the finder of fact without an expert.

Eric:

Right. Right. So I think the lesson is, basically, (1) for tax crimes, you do need to have the specific intent, right? The mens rea as we call it, to commit the crime. And if you have someone who does have mental or physical limitations issues, to document that and bring that forth to the government.

And as we've seen, the government, once they begin to realize this may not be what they thought it was, as I tell people, it doesn't have to be... You don't have to hit a home run, I just have to get on base. I have to show the government that this is not going to be clear-cut.
And usually, I'll find them lose interest, especially by the way, if we're up against a statute. Like the guy with the back surgeries, if they didn't return it to civil and get it assessed, they were going to lose, and it was a lot of money.

And I think that kind of worked its way in where it was a muddy case because of the back surgeries and the opioids and the effect on his mind, combined with if they go for criminal and can't convince DOJ or a jury if it gets to trial, almost a million dollars is going to go down the tubes. And so they quickly sent-

Sharon:

Exactly right.

Eric:

They sent it back and it returned it to civil who the next day whacked us for the assessments and 75% civil fraud penalty and everything else.

Sharon:

Yeah. The tax is still going to be due, right?

Eric:

Right.

Sharon:

There's not going to be much you can do about the tax.

Eric:

But that can be compromised. If it's civil, we can always get a payment plan or something.

Sharon:

Right. I just want to point out one thing about, while it's difficult to convince the government about a mental impairment or defect, as I said, they are always looking at other aspects of the client's life that they were successful at, and it's an uphill battle, but the Internal Revenue Manual at Section 38.31.5 requires that the government take into account the taxpayer's health, age, and mental condition at the time of the alleged offense and at the time of the referral for prosecution.

Eric:

Yep.

Sharon:

And that they must analyze and discuss these factors to the extent that they affect willfulness and the probability of conviction. And that's got to be in the memo that goes to the supervisors if it's the agent or goes to the prosecutor or to DOJ Tax.

So these are issues that are relevant at every aspect. So if you're representing somebody and you just got a special agent looking at it, bring it to the agent's attention. If you're representing a spouse and they have an abusive relationship and their husband said, "Just sign it or I'm going to hit you in the face," you've got to tell the special agent that because those are facts that have to go into their memo and will be considered. They may not, as you said, get you over the finish line, but they'll get you on base.

Eric:

Right. Right. So listen Sharon, thank you for doing this. For the folks who are listening who want to get a hold of you, they have a case, they want to consult with you, work with you, how can people get a hold of you?

Sharon:

The easiest way to get a hold of me is by email, SMcCarthy@kflaw.com., and my cellphone number is (347) 613-0829, and I'm always happy to talk.

Eric:

All right. And I will put all your contact stuff in the description. So listen, thank you for doing this. It took a long time for us to get our schedules to work, but I'm glad we finally pulled this off. And thanks for taking the time. And I will also... You've already sent it to me, the issue of the non-filer syndrome.

And I will actually post that also where folks can get at it in the description and download that if they think that they have someone, or just frankly want to look at. When you mentioned it, I was like, "Huh?" And after I read the article I was like, "You know, that's interesting."

Sharon:

Yep. [crosstalk 00:41:19]

Eric:

And I think that I, unlike Anastasia, I believe there's something to it. There really is.

Sharon:

Good. Well, thank you so much Eric. It's always a pleasure to chat with you anytime. Thank you.

Eric:

All right. Thank you.