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Two NYC Attorneys Arrested in Alleged New York Criminal Tax Fraud Scheme: Understanding Tax Fraud & Stolen Property Crimes in New York

Not paying taxes is bad enough, but getting caught by the New York State Department of Taxation and Finance and then getting prosecuted by the Queens County District Attorney’s Office is far worse. Having represented numerous individuals for New York theft and tax fraud crimes, including one individual for alleged tax fraud crimes after wrongfully incurring a tax liability of $5 million, I know full well how aggressive prosecutors can be in their pursuit of making the State “whole.” Fortunately for that client, prosecutors agreed to accept forfeiture or re-payment of less than $2 million along with no incarceration or prison. Each case however, especially in these tumultuous economic times, is unique and arguably more difficult to resolve in such a manner. In fact, two New York City attorneys find themselves in a serious predicament, albeit with significantly less alleged fraud, and likely face a battle ahead.

According to the New York Law Journal, two attorneys, David Schnall and Ralph Duthely, were arrested and arraigned in Queens Criminal Court on numerous criminal charges including New York Criminal Possession of Stolen Property and New York Criminal Tax Fraud for failure to pay taxes over many years. Unrelated criminal acts, it is alleged that Schnall had a tax liability of $53,629 while Dudthely had a relatively smaller tax liability of $17,209. Although I am not familiar with Duthely’s counsel, Schnall is in the capable hands of John Diaz, a skilled practitioner whom I personally know having served alongside him for years in the Manhattan District Attorney’s Office.

Pleasantries aside, both Schnall and Duthely find themselves in a serious predicament. Not that anyone else charged with felonies related to theft and fraud would be free from collateral consequences, these two attorneys have been granted the privilege to practice in their given profession of law. A felony conviction for a tax and larceny crime could derail that. Is there a legal defense as to why, if true, the tax was not paid or income not reported? Even if true, are these “easy” paper trail cases that prosecutors can follow right to a conviction or plea? If a legal or evidentiary defense is not viable, will the defense hang their proverbial hat on a mitigation approach?

Whatever the respective defenses may be for these men, the two most serious offenses in the prosecutors’ arsenal is likely the Criminal Possession of Stolen Property in the Second Degree (New York Penal Law 165.52) and Criminal Tax Fraud in the Third Degree (New York Tax Law 1804). These crimes are “C” and “D” felonies and punishable by up to fifteen and seven years in state prison respectively. Similarly, Duthely’s most serious offense is Criminal Possession of Stolen Property in the Third Degree (New York Penal Law 160.50) and Criminal Tax Fraud in the Fourth Degree (New York Tax Law 1803).

Briefly, you are guilty of Criminal Possession of Stolen Property, regardless of the value, if you knowingly possess stolen property and, as likely contended in these cases, you intended to benefit yourself. What enhances each crimes is the value of that property possessed (the tax money withheld). When the value is in excess of $50,000, but equal to or less than $1 million, then NY PL 165.52 will be charged. If the value of the property is greater than $3,000, but equal to or less than $50,000, then NY PL 165.50 will be the charged crime.

Not as straight forward, the Criminal Tax Fraud crimes in New York State occur when you commit a “tax fraud act.” This term is actually defined by statute and includes numerous possible acts such as failure to collect or remit taxes, failure to file a return, intentionally evading a tax and much more. What ratchets the crime upward to felony conduct is the value associated with the “tax fraud act.” Where Criminal Tax Fraud in the Third Degree (NY Tax Law 1804) is alleged, prosecutors must prove beyond a reasonable doubt that this amount during a one year period was greater than $10,000, but no more than $50,000. Fourth Degree Tax Fraud (NY Tax Law 1803) is more forgiving and involves values during a one year period ranging from more than $3,000, but not greater than $10,000.

In no way am I claiming or even asserting that these cases do not have prosecutorial merit. If in fact the thefts are true and prosecutors can prove the cases beyond a reasonable doubt, they certainly have an obligation to pursue these crimes. For District Attorney’s Offices it is arguably a great case to pursue. Not only does it show they are tough on white-collar crimes that often go unnoticed, but by going after an attorney it gives them more credibility as they are going after fellow lawyers in the community, a/k/a, one of “their own.” In other words, a message is sent that nobody, regardless of profession, is free from law enforcement’s ongoing gaze. I am confident this lesson is not lost on either of the accused.

To educate yourself about New York Criminal Tax Fraud, “tax fraud act[s],” Criminal Possession of Stolen Property or any other New York theft or larceny crimes, Saland Law PC’s NewYorkTheftAndLarcenyLawyers.Com website and accompanying blog or and the accompanying NewYorkCriminalLawyerBlog.Com all have significant, informative and readable information on these offenses. The links above as well as below provide instant access to these resources.

Founded by two New York criminal lawyers who previously served as Manhattan Assistant District Attorneys and prosecutors under Robert Morgenthau, Saland Law PC represents clients accused of or arrested for all white-collar crimes in New York City and beyond.

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