Carmel Attorney Sentenced to Prison in Tax Fraud Scheme

A Carmel attorney was sentenced last week to 18 months in prison for tax evasion and failing to pay over payroll taxes as part of a scheme that cost the Internal Revenue Service more than $800,000.

Francis J. O’Reilly, 62, who resides in Danbury, Connecticut, previously pled guilty to the crimes and received his sentence in White Plains federal court by U.S District Judge Kenneth M. Karas.

“Francis O’Reilly, an attorney for three decades, knew his obligations under the law to pay over payroll taxes and to report and pay income tax when due,” stated Audrey Strauss, Acting United States Attorney for the Southern District of New York. “Having admitted his crimes, O’Reilly will now pay the consequences in jail time.”

O’Reilly worked as a self-employed attorney who maintained a law practice in Carmel that specialized in, among other things, bankruptcy, foreclosure defense, and criminal defense. According to the allegations and court filings, O’Reilly engaged in a decades-long scheme to defraud the IRS of the payroll taxes that were due and owing for his law practice. Between 1997 and 2018, O’Reilly failed to pay 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, O’Reilly also engaged in substantial personal tax evasion. Between 2013 and 2017, he withdrew a total of approximately $481,673 in untaxed funds from his attorney trust account for personal use, none of which he reported on his tax returns for those years. In addition to substantially underreporting his income and tax liabilities, O’Reilly failed to pay even those taxes that he did report, accruing large unpaid liabilities. In total, during the tax years 2007 through 2018, O’Reilly evaded approximately $566,027 in personal federal income taxes, including interest and penalties.

In or about late 2016, in an effort to settle with the IRS, 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 failed to disclose the existence of his attorney trust account, from which he drew substantial income; failed to disclose real property and land that he owned in Socorro County, New Mexico; and failed to disclose a 2010 Lincoln vehicle that he had purchased for approximately $16,000.

In addition to the prison term, Judge Karas ordered O’Reilly to serve two years of supervised release, and to pay restitution to the IRS $801,969, which represents his unpaid tax liabilities, as well as certain penalties and interest, relating to his personal income taxes for the calendar years 2007 through 2018, payroll taxes for the calendar years 1997 through 2018, and Federal Unemployment Tax Act (FUTA) taxes for the calendar years 1998 through 2017.