As we usher in the new year of 2024, it's the perfect moment to wrap up our IRS: CI Top Ten Tax Fraud list. To round off the year, we'll delve into the number one tax fraud from the IRS: CI's compilation of the most notable tax frauds in 2022.
And the number one spot on this esteemed list of tax criminals goes to…an attorney.
In and out of the headlines for years, Michael Avenatti earned the top spot on the IRS: CI list for his guilty pleas to one count of obstructing the Internal Revenue Code and four counts of wire fraud. Mr. Avenatti first popped into the national consciousness as the attorney for adult entertainer Stormy Daniels. While Mr. Avenatti has a colorful background, it is his theft of money from clients and failure to collect and pay over employment taxes that made his downfall memorable.
As an attorney, Mr. Avenatti represented clients in a variety of cases. Several of his clients gained significant monetary resolutions to their cases. While an attorney may make arrangements with a client to represent them for a usual percentage of any money award the attorney may bring about—an attorney is not afforded the legal right to pilfer and steal settlement monies due to his clients.
In one case, Mr. Avenatti earned a $4 million settlement for a client who suffered an injury that resulted in paraplegia. Mr. Avenatti deposited the sum into his law firm trust account and promptly spent the settlement. Over time, Mr. Avenatti told his client he continued to work on his behalf and gave him occasional advances of $1,900 while also paying the rent on his assisted living facility.
In another matter, a client resolved a disagreement for $3 million. Mr. Avenatti siphoned $2.5 million from the settlement to buy a jet and paid the client over time a total of $227,500, after which he stopped paying the man altogether.
He took another client for $1.6 million of a $1.9 million settlement. He gave the client a “bonus” and told him he would pay him in two months. During that time Mr. Avenatti spent the money on his own legal expenses and his coffee business—for which he eventually owed the IRS $3.2 million in uncollected employment taxes. Then there was the failure to file personal or corporate tax returns, making false statements to the IRS, and on it went.
Of Mr. Avenatti, the United States Attorney said, “Michael Avenatti was a corrupt lawyer who claimed he was fighting for the little guy. In fact, he only cared about his own selfish interests.”
Abraham Lincoln once said, “The man who represents himself has a fool for a client.” Unfortunately, Mr. Avenatti did not avail himself of good legal advice until it was far too late to avoid his fate.
With Mr. Avenatti and his once-bright legal career chilling in prison for another decade or so, we close out the list of top tax frauds of 2022. But tax crime does not sleep, and soon we will take a look at the IRS: CI Top Ten List of 2023…
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