Providing False Information to Insert on a Schedule K-1 Leads to Criminal Conviction reporting-fraud-sm.png09 / 26 / 2020
United States v. Delavan, 2020 U.S. App. LEXIS 28509 (4th Cir. 9/9/2020)
In this case, Delavan devised a tax promotion scheme by which he solicited a fee from individuals in exchange for his promise of large tax refunds. To generate the refunds, Delavan reported the investors/clients as partners or members in his companies, falsely reported business losses, and passed a share of those losses onto the partners as non-passive losses despite the fact that the investors had no role in the companies. Delavan provided Smith with each investor's specific income information and Smith adjusted the investors' partnership interests to offset that income and provide tax refunds to the clients. Delavan falsely represented to the investors that his businesses were legitimate and that the losses were properly reported on their income tax returns. Delavan knew that the information he provided for Smith to prepare the K-1 forms was false.
Because anyone who causes a false tax return to be filed or who provides information that leads to the filing of a false tax return can be guilty of violating the Federal tax laws. Delavan knew that the information on the K-1 forms would be used to prepare tax returns and that he acted willfully. We therefore uphold Delavan's convictions on each of the counts of aiding, assisting, or otherwise causing the preparation and presentation of a false tax return in violation of Section 7602(2).