Carmel attorney pleads guilty in federal court to tax evasion and failure to pay over payroll taxes

 

Date: December 18, 2019

Contact: newsroom@ci.irs.gov

Jonathan D. Larsen, the Special Agent-in-Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”) and Geoffrey S. Berman, the United States Attorney for the Southern District of New York, announced today that Francis J. O’Reilly, a Carmel attorney, pled guilty to failure to pay over payroll taxes and tax evasion for the calendar year 2015. O’Reilly pled guilty before U.S. Magistrate Judge Lisa Margaret Smith.

IRS-CI Special Agent-in-Charge Jonathan D. Larsen said: “Francis O’Reilly spent over two decades trying to evade his personal and business tax obligations using a multitude of schemes. Not only did Mr. O’Reilly evade his own personal tax obligations, but he also stole payroll taxes collected from his own employees. It is ironic that Mr. O’Reilly specialized in criminal defense, as his actions in this case are wholly criminal. As we enter the beginning of the tax filing season, it’s important to remember the consequences associated with tax fraud and tax evasion. Today’s guilty plea demonstrates to Mr. O’Reilly and all other criminals that these types of offenses will not be tolerated. IRS-CI appreciates the assistance of the United States Attorney for the Southern District of New York in helping to bring Mr. O’Reilly to justice.”

U.S. Attorney Geoffrey S. Berman said: “Francis O’Reilly is an attorney who has been in practice for three decades. He certainly ought to know his obligations under the law at least as well as any non-lawyer. And yet, today he admitted that he failed to pay over payroll taxes for years, and failed to report personal income and pay taxes due on that for years as well. Now O’Reilly awaits sentencing for his crimes.”

According to the allegations contained in the Information to which O’Reilly pled guilty and statements made in court: In or about 1989, O’Reilly was admitted to practice law in New York State. At all relevant times, O’Reilly was a self-employed attorney who maintained a law practice in Putnam County, New York (the “O’Reilly Law Practice”). The O’Reilly Law Practice specialized in, among other things, bankruptcy, foreclosure defense, and criminal defense.

O’Reilly operated the O’Reilly Law Practice as a sole proprietorship. In the calendar year 2015, O’Reilly had between approximately three and eight paid employees. As the owner and operator of the O’Reilly Law Practice, O’Reilly exercised control over the O’Reilly Law Practice’s financial affairs and was a responsible person under federal law for collecting, truthfully accounting for, and paying over payroll taxes to the Internal Revenue Service (“IRS”).

During the calendar year 2015, O’Reilly withheld payroll taxes from the salaries of some employees of the O’Reilly Law Practice and filed Forms 941, Employer’s Quarterly Federal Tax Returns, reporting substantial amounts of payroll taxes due and owing to the IRS. However, O’Reilly failed to pay over the payroll taxes for employees of the O’Reilly Law Practice to the IRS as required by law. Instead, O’Reilly spent the withheld payroll taxes, which O’Reilly was required to hold in trust for the United States Government, on personal and business expenses.

O’Reilly’s failure to pay over payroll taxes for 2015 was part of a long-running course of conduct. Between 1997 and 2018, O’Reilly failed to pay over a total of approximately $155,771 in payroll taxes, resulting in a liability of approximately $232,283 after interest and penalties. In addition to failing to pay over payroll taxes to the IRS, O’Reilly also committed personal tax
evasion. During the calendar year 2015, O’Reilly withdrew approximately $119,427 from his attorney trust account at KeyBank (the “Attorney Trust Account”) for personal use. O’Reilly did not report the income he realized from the Attorney Trust Account on his 2015 Form 1040, United States Individual Income Tax Return, which O’Reilly prepared and filed with the IRS in or about
April 2016. Instead, O’Reilly’s 2015 Form 1040 declared only approximately $58,223 in business income and a corresponding tax liability in the approximate amount of $14,403, which O’Reilly did not pay.

O’Reilly’s conduct with respect to his personal income taxes in 2015 was also part of a long-running tax evasion scheme. During the calendar years 2013 through 2017, O’Reilly withdrew a total of approximately $481,673 from his Attorney Trust Account for personal use. O’Reilly did not pay taxes on this income and did not report it on his federal individual tax returns. In addition, O’Reilly failed to pay most of the taxes that O’Reilly reported on his tax returns for the calendar years 2007 through 2015 and 2018. In total, in the calendar years 2007 through 2018, O’Reilly evaded the payment of approximately $566,027 in personal federal income taxes, including interest and penalties.

In or about late 2016, in an effort to settle his outstanding tax liabilities, including his personal tax liabilities for the calendar years 2002 through 2015 and payroll tax liabilities for the period 2006 through 2015, O’Reilly submitted an offer in compromise to the IRS proposing to settle at least approximately $691,561 in outstanding tax liabilities for merely $12,400. In the 2016 offer in compromise, which O’Reilly signed under penalty of perjury, O’Reilly made several material misstatements and omissions regarding his income and assets. Among other things, O’Reilly’s offer in compromise: (a) failed to disclose the existence of O’Reilly’s Attorney Trust Account, from which, as described above, O’Reilly drew substantial income; (b) failed to disclose real
property and land that O’Reilly owned in Socorro County, New Mexico; and (c) failed to disclose a 2010 Lincoln vehicle that O’Reilly had recently purchased for approximately $16,000.

O’Reilly, 61, of Danbury, Connecticut, pled guilty to one count of failing to pay over payroll taxes and one count of tax evasion for the calendar year 2015, each of which carries a maximum sentence of five years in prison. As part of the plea agreement, O’Reilly has agreed to pay restitution to the IRS in the amount of at least $801,969. Sentencing is scheduled for April 22, 2020, at 2 p.m., before U.S. District Judge Kenneth M. Karas.

The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Berman praised the outstanding work of IRS Criminal Investigation in this case.

This case is being prosecuted by the Office’s White Plains Division. Assistant U.S. Attorney Olga I. Zverovich is in charge of the prosecution.