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AREA NOT HIGH IN IRS HIT LIST
DATA FOR WESTERN NEW YORK SHOWS LOWER RATES OF PROSECUTION, LESS SEVERE PENALTIES FOR MANY

If you're rushing to complete your tax return today, you can take comfort in one fact: The Internal Revenue Service does not seem eager to lock up people in Western New York unless they have done something really, really wrong.

Of the 3.2 million residents of New York's 17 westernmost counties, only 46 were convicted in IRS-related investigations in the last five years, newly released statistics show.

In those same years, moreover, IRS investigators pursued criminal charges against comparatively few Western New York residents suspected of white-collar crimes.

Of those convicted of tax fraud and related crimes, federal judges in the region sent comparatively few to prison.

Those conclusions can be found in data released this week by the Transactional Records Access Clearinghouse at Syracuse University, which compiled the information from federal agencies.

The figures don't mean that local law enforcement goes easy on white-collar crime, local prosecutors and tax experts emphasized.

The figures, they said, are what might be expected in an area that isn't rife with the risk-taking entrepreneurs who are more likely to hatch schemes that draw the attention of the IRS.

"The people we see are not highfliers who get in trouble with complicated tax shelters," said Peter Aleksandrowicz, a Hamburg financial planner. "They're people who just got behind on their taxes."

People with minor tax problems are not the ones the IRS prosecutes, said Timothy Shanahan, spokesman for the IRS Criminal Investigation Division in Western New York.

"Willfulness is one of the key factors in a criminal prosecution," Shanahan said. "It's not like we're going after someone who just made a mistake."

The figures shows that, between 2000 and 2004, 53.1 percent of IRS-related criminal cases were prosecuted nationwide compared with 38.1 percent in the 17-county Western District of New York.

Those figures include not only tax fraud, but other crimes -- ranging from mail fraud to money laundering and conspiracy -- that IRS agents might end up investigating alone or in tandem with other federal agents.

Experts offer myriad explanations for less frequent prosecutions of IRS-related cases in Western New York than elsewhere.

Stiff civil penalties cited

Prosecutors might not act because they often don't have to, said Kathleen M. Mehltretter, first assistant U.S. attorney in the Western District of New York.

"The penalties on the civil side are pretty sharp, which is why you can rely on the civil charges," she said. "Some people would say the civil penalties are brutal. They very often serve the purpose of collecting the money and ensuring it doesn't happen again."

Mehltretter also noted staffing problems in the criminal investigations unit of the local IRS office in recent years. Those positions are being filled only now.

"Clearly, if you don't have the special agents, it's difficult to do the cases," she said.

Daniel C. Oliverio, a Buffalo attorney who works on tax cases, offered another explanation for the failure to pursue IRS-related cases.

"You don't have a high percentage of high net worth individuals and start-up businesses here," Oliverio said. "You don't get aggressive tax planning in an area without a lot of high net worth individuals."

Local accountant David Barrett, meanwhile, noted that Western New York has a fairly conservative population meaning many residents would be unlikely to take big chances on their tax returns.

That being the case, Oliverio said it would only make sense for the U.S. attorney's office in Buffalo to focus on cases of greater concern in a border region, such as terrorism and drug trafficking.

Shanahan, of the IRS, said the statistics about the number of prosecutions could be somewhat misleading. Since they include all cases that involve the IRS, not just tax matters, they cover cases in which the IRS played a relatively small role, he said.

Less wealth, lighter verdicts

The figures, which the Syracuse University clearinghouse obtained through Freedom of Information requests, show that the local conviction rate for IRS cases was comparable to the nationwide average.

But 63.5 percent of those convicted in IRS cases nationwide went to prison, while only 45.7 percent of those convicted in the Western District got locked up.

The nature of the area, experts said, probably played a role in limiting the number of white-collar convicts sent to prison. After all, federal sentencing guidelines set penalties according to the size of the violation the amount of money stolen, for example.

So in an area with relatively few multimillionaires, the size of the frauds that surface would be smaller, as would the penalties for those crimes.

Mehltretter noted one other factor that came into play in some cases. On occasion, she said, judges give white-collar convicts "downward departures" -- lower sentences than the guidelines suggest.

As an example, Mehltretter cited the case of Timothy J. Toohey, a politically connected Niagara County attorney who received probation from U.S. District Court Judge John T. Elfvin. Toohey could have been imprisoned for 15 to 21 months for underreporting $1 million in income.

But such cases shouldn't give anyone the idea that they can dodge taxes and avoid a prison sentence.

Mehltretter noted that the IRS is renewing its emphasis on tax enforcement this year -- meaning the number of prosecuted cases could increase.

e-mail: jzremski@buffnews.com

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