The Kabbalah Centre, a Los-Angeles based, not-for-profit spiritual organization that studies Jewish mysticism, is under investigation for federal tax evasion by the Criminal Investigation Division (CID) of the Internal Revenue Service. The IRS' investigation comes on the heels of a couple lawsuits accusing the Kabbalah Centre of committing financial fraud.
The Kabbalah Centre, well-known for its A-list celebrity adherents and supporters, including Madonna, has been led by the Berg family for the past 40 years. A story in the Los Angeles Times noted that, while applying for the Kabbalah Centre's tax-exempt status in 1993, the Bergs claimed that they did not receive salaries for their work for the Kabbalah Centre. Instead, the Bergs asserted that they and other staff members "derive their subsistence from the meals and lodging and care provided to them by the organizations' facilities."
However, this claim is under scrutiny as the IRS looks into the finances of the Kabbalah Centre and two of its main charities: Spirituality for Kids (SFK) and the Madonna-led Raising Malawi.
The Los Angeles Times reported the IRS is seeking to determine whether the Bergs misused or improperly used funds for the "personal enrichment of the Berg family" in an unlawful practice known as private inurement (benefit). The IRS claims that the Bergs have acquired and channeled private wealth through the non-profit Kabbalah Center so they can avoid paying taxes on the accumulated funds. Essentially, this means that the Bergs may be collecting salaries but not paying income taxes on those salaries.
In addition to the IRS investigation in Los Angeles, the Kabbalah Centre also is facing a grand jury investigation in New York. The Kabbalah Centre has large branch and real estate holdings in New York, according to the Los Angeles Times.
If the IRS finds the Kabbalah Centre and its charities engaged in financial improprieties, such as private inurement, their non-profit tax status can be revoked. Even worse, officers of the Kabbalah Centre may face criminal charges.
The Kabbalah Centre released a statement expressing its intention to "work closely with the IRS and the government." And, the former Chief Financial Officer of the Kabbalah Centre, Nicholas Vakkur, may be working with the IRS as well. Vakkur may not be much help to the Kabbalah Centre, though, as he claims he was fired for uncovering tax fraud at the Kabbalah Centre, specifically naming Karen Berg, the Kabbalah Centre's Chief Executive Officer.
Criminal Tax Evasion Cases
Criminal tax evasion can refer to several acts, including:
- Not reporting income
- Underestimating tax payments
- Failure to file a tax return
- Filing a false tax return
- Aiding another in filing a false tax return
The IRS can file multiple charges against the target of a tax-evasion investigation. For instance, charges of providing false information or statements may be brought in addition to tax-evasion charges.
Investigations by the CID of the IRS are usually quite deliberate and very detailed. Their tax-evasion investigations are often conducted by agents with backgrounds in accounting and finance; frequently these agents are Certified Public Accounts. Typical steps of a tax-evasion investigation may include:
- Thorough review of finances and records, looking for indications of fraud or unexplained or hidden assets or wealth
- Interviews of investigation targets and their relatives, friends and business associates
Tax-evasion investigations are complex and can take months or even years to complete. On occasion, an investigation is long underway before the target knows or is made aware that he or she is being investigated. Sometimes, people only learn of investigations when they are subpoenaed or asked to be interviewed by IRS agents.
Once an investigation is complete, it is reviewed and a recommendation to criminally prosecute the case may be made to the U.S. Justice Department. If the Justice Department declines to prosecute the matter, though, the IRS may still move forward with an audit.
The CID and the IRS have vast resources at their finger tips when conducting investigations. But, that does not mean they are always right or unbeatable. Even though the IRS' power can seem overwhelming, a knowledgeable defense attorney can fight back against the IRS and protect the rights of people accused of tax evasion.
As soon as you learn that you are under investigation by the IRS, or even if you suspect that you may be under investigation, contact an experienced tax defense attorney to discuss your situation.