Danbury Man Goes To Prison For $800,000 Tax Fraud In New York

CARMEL, NY — Francis J. O'Reilly, a Danbury, Connecticut resident practicing law in Putnam County, was sentenced Thursday in White Plains federal court to 18 months in prison for tax evasion.

The long-running scheme — which included not paying payroll taxes for employees, under-reporting his income, not paying income tax on that underreported income and lying about his assets when offering to settle with the IRS — cost the U.S. Treasury over $800,000, including penalties and interests, Audrey Strauss, Acting United States Attorney for the Southern District of New York, said Thursday.

"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," she said. "Having admitted his crimes, O’Reilly will now pay the consequences in jail time."

Admitted to practice law in New York State in 1989, O'Reilly was a self-employed attorney who maintained a law practice in Putnam County that specialized in, among other things, bankruptcy, foreclosure defense, and criminal defense.

He operated his law practice as a sole proprietorship and exercised control over its financial affairs. In particular, he was responsible under federal law for collecting, truthfully accounting for, and paying over payroll taxes to the Internal Revenue Service for his employees.

Instead, he 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, he failed to pay about $155,771 in payroll taxes, resulting in a liability of roughly $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 $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, he 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 $566,027 in personal federal income taxes, including interest and penalties.

In or about late 2016, in an effort to settle with the IRS, he submitted an offer in compromise to the IRS proposing to settle at least $691,561 in outstanding tax liabilities for $12,400.

In that offer, which he signed under penalty of perjury, O'Reilly lied about his income and assets.

Among other things, his offer: (a) failed to disclose the existence of his attorney trust account, from which, as described above, he drew substantial income; (b) failed to disclose real property and land that he owned in Socorro County, New Mexico; and (c) failed to disclose a 2010 Lincoln vehicle that he had recently purchased for approximately $16,000.

In addition to the prison term, Judge Kenneth M. Karas ordered O'Reilly, 62, to serve two years of supervised release, and to pay restitution to the IRS in the amount of $801,969, which represents O’REILLY’s 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.