Houston Tax Fraud Lawyers

Texas doesn’t have a state income tax. Most people know that. What they don’t realize is that this makes you more exposed to federal tax prosecution, not less. In states with income taxes, the state revenue department and the IRS divide their attention. Resources get spread across multiple agencies. But in Texas, when it comes to income tax crimes, the federal government has no competition. They get all the focus. All the resources. And in the Southern District of Texas, they have over 200 prosecutors processing more federal criminal cases than almost any other jurisdiction in the country.

The “no income tax” creates a dangerous false confidence. People move to Houston partly for the tax advantages. They get comfortable. They get aggressive with deductions on their federal returns because there’s no state tax authority scrutinizing their numbers. And then the IRS shows up – in a jurisdiction with one of the most active federal prosecutor’s offices in the nation. The absence of state income tax enforcement doesn’t protect you. It concentrates all the enforcement attention on the federal side.

Houston is also home to the largest tax evasion case in United States history. Robert Brockman, a Houston billionaire, was charged with allegedly evading $2 billion in taxes over two decades. Thirty-nine counts. Wire fraud. Money laundering. Tax evasion. The case that defined the scale of what federal prosecutors in the Southern District will pursue happened right here.

The “No Income Tax” Trap

Heres the paradox nobody talks about. Texas collected zero dollars in state income tax from you last year. But the Texas Comptroller’s office collects 60 different taxes, fees, and assessments. Sales tax. Franchise tax. Mixed beverage tax. Motor fuel tax. Hotel occupancy tax. And more.

The “no income tax” marketing obscures a critical reality: Texas still prosecutes tax crimes aggressively. The Comptroller has its own Criminal Investigation Division. They investigate sales tax evasion, franchise tax fraud, and various other state tax crimes. And the penalties arent trivial.

If you intentionaly fail to remit sales taxes collected and the amount equals or exceeds $200,000, your facing a first-degree felony. Think about what that means. In Texas, first-degree felonies include murder and aggravated robbery. Sales tax fraud over $200,000 sits in the same category. The sentencing range is 5 to 99 years in prison.

Even smaller amounts trigger felony charges:

• Amounts between $30,000 and $200,000 constitute a second-degree felony.
• Amounts between $2,500 and $30,000 are third-degree felonies.
• Only amounts below $1,500 are classified as misdemeanors.

And those thresholds can be aggregated – meaning multiple smaller violations get combined into one larger charge.

So when people say “Texas has no income tax,” they’re telling a partial truth that creates dangerous overconfidence. You might not owe state income tax, but you absolutly can face state criminal prosecution for other tax crimes. And you definitely face federal prosecution for income tax crimes – with more resources devoted to catching you then you might expect.

The Southern District’s 200 Prosecutors

The United States Attorney’s Office for the Southern District of Texas is among the busiest in the nation. Over 200 attorneys. Nine million people served across 43 counties stretching from Houston to the Mexican border. Staffed offices in Houston, Galveston, Corpus Christi, Laredo, McAllen, and Brownsville.

This district typicaly prosecutes more federal criminal cases then most other districts in the country. That volume includes tax fraud cases. Lots of them.

Heres what that means for you. In a smaller district with fewer resources, some tax cases might not get prosecuted. The amounts might be too small to justify the effort. The U.S. Attorneys office might have other priorities. But in the Southern District of Texas, the prosecutorial capacity exists to pursue cases that other districts might decline.

The IRS Criminal Investigation division works closely with these prosecutors. When IRS-CI opens a case in the Houston area, they’re handing it off to one of the largest, most active federal prosecutors offices in the country. The 90%+ conviction rate that IRS-CI maintains nationally? That rate exists here too. By the time charges get filed, the investigation is complete. The evidence is gathered. The case is built to win.

Jonathan Van Pelt owned a staffing company called Stat Source, Inc. He willfully failed to pay over employment taxes to the IRS. The amount: approximately $20 million. Federal prosecutors in the Southern District convicted him. Judge Alfred Bennett sentenced him to 30 months in federal prison plus three years of supervised release. And he was ordered to pay back the entire $20 million in restitution.

Krystal Wright was a tax preparer. Between 2017 and 2020, she prepared and filed approximately 83 federal income tax returns containing false and fraudulent items. Solar credits that didnt exist. Fake business expenses. Fabricated charitable donations. The total tax harm: $525,404. She got 24 months in federal prison.

The Largest Tax Evasion Case In US History Started Here

Robert Brockman was a Houston billionaire with an estimated net worth exceeding $1 billion. He was the CEO of Reynolds and Reynolds, a software company. And according to federal prosecutors, he orchestrated the largest tax evasion scheme in United States history.

The 39-count indictment alleged that Brockman evaded approximately $2 billion in taxes over a 20-year period. Money laundering. Wire fraud. Evidence tampering. Tax evasion. The scheme allegedly involved shell companies in the British Virgin Islands, undisclosed foreign bank accounts, and an elaborate structure designed to hide income from the IRS.

Think about what that case represents. The largest individual tax evasion prosecution ever brought by the federal government happened in Houston. In the state with no income tax. The “tax-friendly” environment didnt protect him. The absence of state income tax enforcement didnt create safety. Federal prosecutors in the Southern District pursued a case measured in billions.

Thats the reality of tax fraud exposure in Houston. The scale of what prosecutors will pursue has no meaningful upper limit. If the evidence exists, if the scheme can be documented, if the IRS Criminal Investigation division builds a case – it will be prosecuted. The resources exist. The prosecutors exist. The precedent exists.

Sales Tax Crimes Are Still Crimes

Even though Texas has no income tax, it absolutly has sales tax. And sales tax fraud is prosecuted criminaly.

The Texas Comptroller maintains a Criminal Investigation Division that reviews audit cases for criminal intent. If auditors examining your sales tax returns discover patterns suggesting fraud – unreported cash sales, manipulated records, hidden revenue streams – they can refer your case for criminal prosecution.

And heres the trap within the trap: the statute of limitations for sales tax assessment is generaly four years. But that limitation dosent apply to fraud. If the Comptroller determines you committed fraud, there is no time limit. They can go back as far as the evidence takes them.

Winfred Fields operated tax preparation businesses in Houston under names like Fields Enterprises, Your Tax Professionals, and The Tax Boss. He told oil and gas workers they were exempt from U.S. taxes under treaties with the United Kingdom, Spain, and New Zealand. They werent. The treaty provisions he cited didnt apply to American citizens working in the Gulf of Mexico.

Fields fraudulently obtained $3,097,974.19 in tax refunds from the IRS and kept approximately $1,302,271.75 for himself. The jury convicted him on 15 counts. Judge Ewing Werlein sentenced him to 109 months in federal prison – over nine years. His clients werent protected by the bad advice he gave them. They still faced their own tax problems.

Oil & Gas Creates Unique Exposure

Houston is the energy capital of America. Oil and gas companies, service providers, contractors, and workers concentrate here in numbers that exist nowhere else. And the industry creates unique tax fraud exposure.

Complex royalty structures. International operations. Depletion allowances. Intangible drilling costs. The tax code provisions that apply to energy production are complicated enough that legitimate tax planning can shade into aggressive positions that shade into fraud.

Yousef Abuteir conspired to evade more then $3.3 million in federal fuel excise taxes. The scheme involved acquiring over 13 million gallons of kerosene without paying federal excise taxes by falsely claiming the fuel was for export. He spent eight years as a fugitive before being captured. The judge sentenced him to 60 months in federal prison plus $3,328,459 in restitution.

Sameer Sethi created oil and gas joint ventures and marketed them to investors. Over several years, he raised millions of dollars from people who thought they were investing in energy production. Instead, the money went to personal and business expenses. The jury convicted him of wire fraud and money laundering. Judge Sean Jordan sentenced him to 151 months – over twelve and a half years.

The pattern is consistent. Energy industry complexity creates opportunities for fraud schemes. Federal prosecutors in the Southern District have seen these schemes before. They know what to look for. They have experience building these cases. And the sentences are severe.

When Texas Does Come After You

Texas may not have an income tax, but it has a franchise tax. And if you run a business in Texas, the franchise tax consequences for non-compliance can be devastating.

The franchise tax applies to every taxable entity formed or organized in Texas or doing business in Texas. Failure to file or pay can result in the forfeiture of your corporate privileges. Your business loses its good standing. It loses its authority to transact business in the state.

But heres the consequence most people dont anticipate: you can also lose your liability protection.

If your corporation or LLC is not in good standing because of franchise tax failures, the entity’s legal status becomes questionable. Creditors can argue that the entity wasn’t properly maintained. Personal liability that the corporate form was supposed to prevent might suddenly attach to you individually.

Beyond forfeiture, the Comptroller has aggressive collection tools. State law requires that all past-due taxes, fines, interest, and penalties be secured by a lien. That lien attaches to your property. It affects your credit rating. It can block real estate transactions. And in extreme cases, the Comptroller can seize and sell your non-exempt assets.

The state of Texas will pursue collection. The Criminal Investigation Division will refer cases for prosecution when fraud is involved. The “no income tax” state still has teeth when it comes to the taxes it does impose.

The Federal Machinery In Houston

The IRS Criminal Investigation process works the same way in Houston as elsewhere – but the volume and resources are concentrated here.

IRS-CI special agents investigate tax crimes. They gather evidence. They interview witnesses. They execute search warrants and subpoenas. When they build enough evidence for prosecution, they refer cases to the U.S. Attorneys Office.

In the Southern District of Texas, that handoff goes to one of the largest prosecutors offices in the country. Cases that might languish in smaller districts get resourced here. Prosecutions that other jurisdictions might decline get filed here. The machinery is built for volume.

And the outcomes are consistent with national patterns. More then 90% of IRS criminal tax prosecutions result in conviction. The average sentence nationally is around two years, but complex schemes and large amounts drive sentences much higher. Fields got nine years. Van Pelt got two and a half plus $20 million in restitution. Sethi got twelve and a half years.

The Penalty Math That Destroys People

Heres what the federal penalty structure actualy looks like when you break it down:

• Tax evasion under 26 USC 7201 carries up to 5 years in federal prison per count. Thats per count – meaning multiple years of evasion can stack into multiple counts running consecutively rather then concurrently.
• Filing a false return under 26 USC 7206 carries up to 3 years per count.
• Failure to file carries up to 1 year per unfiled return.

These charges combine. A single defendant can face evasion counts, false return counts, and failure to file counts all in the same indictment.

Then theres the financial side. Fines up to $250,000 per count or twice the gross gain or loss – whichever is greater. Restitution of all taxes owed plus interest. Civil fraud penalties of 75% of the underpaid amount running on a seperate track from the criminal case. The numbers compound rapidley.

Van Pelt’s $20 million restitution order shows how these calculations work in practice. The employment taxes he didnt pay represented the core amount. Interest accumulated over years. And the court ordered full repayment on top of his prison sentence.

And dont forget the collateral consequences. A federal felony conviction affects voting rights in some circumstances. It affects firearm ownership. It affects professional licenses – CPAs, attorneys, and other professionals face disciplinary proceedings after tax fraud convictions. It affects future employment, housing applications, and credit.

In Houston, wheather your a small business owner who got behind on payroll taxes or a high earner who got creative with deductions, the exposure follows the same federal framework. The Southern District dosent distinguish between sympathetic cases and unsympathetic ones. They prosecute the evidence.

Why Houston Specifically Attracts Enforcement Attention

Houston’s economy creates exactly the kind of tax fraud opportunities that prosecutors prioritize. Energy sector revenues totaling billions of dollars. International business operations with complex tax implications. Real estate development generating capital gains and complicated basis calculations. Medical industry revenues from the massive Texas Medical Center.

The concentration of high-net-worth individuals in Houston makes this market attractive for enforcement. More wealth means more potential tax revenue at stake. More potential revenue means more incentive for the IRS to investigate. More investigation means more referrals to a prosecuters office that has capacity to handle them.

And the demographic diversity creates opportunities for certain types of fraud that prosecutors see repeatedly. Immigration-based tax schemes where people are told they dont owe US taxes becuase of their citizenship status. Treaty-based schemes like what Fields sold to oil workers. Earned income tax credit fraud targeting low-income communities.

Heres something else most people dont realize: Houston’s proximity to the Mexican border makes it a priority district for financial crimes enforcement generaly. The same prosecutors who handle drug money laundering handle tax evasion. The same investigators who track cartel finances track unreported income. The infrastructure exists. The expertise exists.

The Southern District isnt just busy becuase of its population. Its busy becuase of its economy, its geography, and its concentration of enforcement targets. If your operating in this market with tax exposure, your operating in one of the highest-risk environments in the country.

Defense Strategy In A No-Income-Tax State

OK so what do you actualy do if your in Houston with federal tax fraud exposure? The strategy considerations are different then in states with income taxes. Your not managing multiple government relationships – state and federal. Your managing one relationship, but its with a federal system that has massive local resources.

The first question is wheather an investigation has already begun. IRS-CI dosent announce investigations until they’re ready to make contact. Your bank might receive a subpoena before you know anything is happening. Your accountant might get a visit. The investigation runs quietly untill investigators decide theyre ready.

If no investigation has started, voluntary disclosure options exist. Coming forward before the IRS finds you creates opportunities to resolve tax issues civily rather then criminaly. You’ll pay penalties. You’ll pay interest. But you might avoid prison.

If an investigation has already begun, the calculation changes. You need to understand what they know and what they’re trying to prove. You need to protect yourself from self-incrimination while the case develops. You need counsel who understands both the federal system and the local prosecutorial environment.

The absence of state income tax dosent create safety. It creates concentrated federal exposure in a jurisdiction with resources to pursue you. If theres fraud in your tax situation, the time to address it is before the 200+ prosecutors of the Southern District get involved.

Every day you wait is another day the investigation might be running without your knowledge. The window for voluntary resolution closes the moment someone starts looking. In Houston, that moment can come from a district with more capacity to pursue cases then almost anywhere else in the country.

The “no income tax” marketing that brought people to Texas dosent protect anyone from federal prosecution. It concentrates federal attention instead of dividing it. The 200+ prosecutors in the Southern District have the resources to pursue cases that other districts might decline. The IRS Criminal Investigation division maintains its 90%+ conviction rate here just like everywhere else.

If theres exposure in your federal tax situation – unreported income, questionable deductions, unfiled returns, payroll tax problems – the time to address it is before the federal machinery starts moving. Becuase once it moves, its coming with the full weight of one of the busiest and most well-resourced prosecutors offices in America. And at that point, the only question is how much damage you can limit, not wheather damage will occur.