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TheStreet Open House

Tax Scams and How the IRS Caught Scofflaws

BOSTON ( TheStreet) -- Nobody likes paying taxes, but evading what the government considers your duty as an American can be even more painful.

Lest you think you might be able to get away with it, the Internal Revenue Service's criminal-investigation unit has more than 4,100 employees worldwide who might suggest otherwise.

More than 1.4 million Americans were audited last year, the most in more than a decade. And with an additional $8.2 billion budgeted for tax-enforcement efforts, a 10% increase, the odds of getting away with something sneaky are going to get even slimmer.

There were 2,229 prison sentences handed down for tax-related offenses last year. The following are some of the scams, and how delinquents were caught.

Auto Sales

Scams and fraud in the automotive sales industry -- ranging from tax evasion, employment tax fraud and money laundering -- are an ongoing focus for IRS investigators. Many of the cases investigated involve loan fraud, eBay scams, money laundering and drug financing.

In 2009, the IRS initiated 87 automotive-sales-related investigations, leading to 46 convictions. The incarceration rate was 74%, and the average jail sentence was 40 months.

In August, for example, Shirland Fitzgerald of Danville, Va., was sentenced to 140 months in prison and ordered to forfeit $1 million, the approximate amount laundered for three large-scale drug-trafficking organizations over a six-year period. According to the IRS, Fitzgerald used his dealership to allow drug dealers to purchase cars, disguising the identity of the purchasers and creating false paperwork to help them avoid seizure and forfeiture of by law enforcement.

Construction

The IRS investigated 338 cases of suspected fraud in the construction industry in fiscal 2009, 149 of which led to incarceration and an average jail time of 29 months.

Among the recent cases was a Las Vegas business owner who was sentenced to 15 years in prison for tax fraud.

According to the IRS, Robert Kahre owned and operated six construction-related businesses in Las Vegas and, between 1997 and 2003, paid employees more than $100 million in cash. Kahre also provided a payroll service to about 35 other construction contractors who employed thousands of workers.

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