John P. Karoly, Jr., a successful and flamboyant Pennsylvania lawyer, may well have said goodbye to his career this week. As previously blogged, Karoly Jr. was indicted on a number of charges including one count of mail fraud, three counts of failing to report taxable income on his federal income tax returns, one count of conspiracy to commit wire fraud, two counts of wire fraud, and six counts of money laundering charitable proceeds through a church.
This week, Karoly Jr. pleaded guilty to three counts of willfully filing false tax returns for failing to report more than $5 million in income during 2002, 2004 and 2005. Karoly Jr. reportedly hid income from the IRS by depositing money into his attorney trust account and making direct withdrawals for personal expenses such as a swimming pool, Lincoln Navigator, and investments out of that account. Commingling personal and client funds inside a trust account is prohibited by the rules of ethics; reportedly the commingling was discovered by the PA Disciplinary Board as part of an investigation.
As part of the federal plea, prosecutors will drop charges relating to falsifying false wills though he must give up any interest in his brother’s estate in exchange.
The guilty plea does not come without a price. Karoly Jr. must pay back taxes of nearly $2 million as well as a $750,000 fine. He also faces prison time: up to nine years in federal prison.
And it may not stop there. Karoly Jr. will appear in front of a judge in September to answer to charges of money laundering and wire fraud related to attempts to take improper charitable deductions. If found guilty on those charges, Karoly Jr. could see an additional year tacked onto any prison time.
Under state law, Karoly Jr. cannot appeal the plea.
Remarkably, according to the Pennsylvania Disciplinary Board, at this time, Karoly Jr. remains an active attorney with no disciplinary charges pending. He is also still listed on the firm’s web site. I would expect both of those things to change shortly.
Interesting website, I rarely see anyone use the term “Attorney” as a title – as in, “Attorney Karoly” weird.
Obviously, it’s silly to suggest that charities could be guilty of tax fraud since they don’t pay taxes. They could be guilty of money laundering or receiving stolen goods, but privity prevents them from being guilty of tax fraud.
They could be aiders and abettors of tax fraud by attorneys or trustees who are using them to establish IRS deductions, however, that operate as tax fraud when they are done in anticipation of tax evasions, or in more particular circumstances, tax avoidance situations.