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Press Release

Rutland Attorney John Canney III Sentenced For Filing False Tax Returns

For Immediate Release
U.S. Attorney's Office, District of Vermont

The Office of the United States Attorney for the District of Vermont announced that John R. Canney III, an attorney in Rutland, Vermont, was sentenced today in United States District Court in Burlington after convictions for filing false tax returns. Chief U.S. District Judge Christina Reiss sentenced Canney to seven months in prison, a $15,000 fine, and one year of supervised release. As part of his plea agreement with the government, Canney has agreed to cooperate with the Internal Revenue Service in the assessment of taxes due to the government.

On May 15, 2017, the United States filed a criminal information charging Canney with one count of filing a false individual income tax return for tax year 2011, and one count of filing a false corporate tax return for tax year 2011. Canney pled guilty to those charges on June 1, 2017.

Mr. Canney was the sole owner of John R. Canney III, P.C., a Rutland law firm. The firm had two principal bank accounts: an operating account and a client trust account, also known as an IOLTA account. Mr. Canney used the trust account to maintain client retainer fees and funds held in trust. Upon earning fees through legal services, rather than transferring his professional remuneration from the IOLTA account to the operating account where it would be subject to accounting oversight for tax purposes, Mr. Canney instead transferred this earned income from the client trust account to his personal bank account.

In preparation for filing both the corporation income tax return and his personal income tax return for tax year 2011, Mr. Canney provided his return preparer with documentation of transactions from the firm’s operating account, but not transactions from the client trust account. Because the return preparer used only operating account financial records to determine the firm’s net income, and because those records excluded the IOLTA diversions, the corporate tax return did not include the diverted funds as corporate gross receipts. Therefore, the gross receipts of the corporation for tax year 2011 were substantially higher than the gross receipts listed on the filed corporation income tax return. Likewise, the operating account financial records did not reflect the deposits from the IOLTA account into Mr. Canney’s personal bank account. Therefore, the personal tax returns that the preparer completed for Mr. Canney omitted the income derived from the IOLTA account. Consequently, the adjusted gross income for tax year 2011 was substantially higher than the adjusted gross income listed on the filed individual income tax return.

In addition to the above conduct related to his 2011 filings, Canney also failed to file accurate returns in 2010, 2012, and 2013 as a result of the diversion of income described above.

This case was investigated by the Internal Revenue Service. Canney is represented by Tristram J. Coffin of Downs Rachlin Martin PLLC in Burlington. The prosecutor is Assistant U.S. Attorney Kevin J. Doyle.

Updated October 2, 2017

Topic
Tax