The following examples of Abusive Tax Scheme investigations are excerpts from public record documents on file in the court records in the judicial district in which the cases were prosecuted.

Two Sentenced for Hiding Millions of Dollars in Swiss Bank Accounts

On September 17, 2010, in Manhattan, N.Y., Federico Hernandez, a Manhattan-based financial adviser, was sentenced to 12 months in prison and agreed to pay a civil FBAR penalty of $4.4 million. As a requirement of his plea agreement, Hernandez has filed amended tax returns that show he failed to report a total of $1.4 million in income from 2004 through 2008, resulting in over $510,000 in unpaid taxes.  Hernandez pleaded guilty on April 15, 2010, to five counts of subscribing to false federal income tax returns.  According to court documents, Hernandez opened UBS accounts in the names of sham British Virgin Islands and Panama corporations to hide his ownership of the accounts from the Internal Revenue Service (IRS).  To further conceal his ownership, Hernandez instructed UBS to retain all mail relating to the accounts at UBS in Switzerland.  Court documents show that Hernandez signed, under penalties of perjury, several tax-related forms stating that his sham corporations were the true owners of his accounts; however, Hernandez was the sole beneficial owner of the accounts.  Hernandez regularly exercised control over his UBS accounts by directing his UBS private bankers to execute trades and transfer funds to U.S. bank accounts.  Hernandez filed false tax returns from 2001 to 2008 that failed to report income earned in his UBS accounts. In 2007 and 2008, he affirmatively reported to the IRS on his tax returns that he did not have an overseas bank account, when he knew that he did.  As of December 31, 2006, Hernandez's two UBS accounts collectively held $8.8 million.  On September 21, 2010, Jules Robbins, owner and operator of companies that distributed watches,  was sentenced to one year probation and ordered to pay a civil FBAR penalty of over $20.8 million, an amount equal to 50 percent of the highest value of his UBS accounts as of December 31 for the years in which he failed to file FBARs.  According to court documents, Robbins used the services of a Swiss attorney to set up a sham Hong Kong corporation in which to conceal his income from the IRS.  As of December 31, 2007, Robbins’ UBS accounts collectively contained almost $42 million.

Three Individuals Sentenced for Promoting Sham Tax Elimination Scheme Sold Through Pinnacle Quest International

On September 16 and 17, 2010, in Pensacola, Fla., three individuals were sentenced for promoting a fraudulent tax-and-debt-elimination scheme sold through Pinnacle Quest International, also known as PQI and Quest International.  Eugene Casternovia was sentenced to 84 months in prison; Arthur Merino to 40 months in prison; and Mark Lyon, who cooperated with the government and testified at trial, was sentenced to 18 months in prison.  According to the evidence presented in court, PQI was an umbrella organization for numerous vendors of tax and credit card debt elimination scams.  Some of the PQI vendors, such as Southern Oregon Resource Center for Education (SORCE), sold bogus theories and strategies for tax evasion. Trial evidence showed that PQI purported to sell only CDs and tickets to offshore conferences.  However, PQI acted as a gateway to its fraudulent vendors.  PQI clients seeking the tax evasion and debt elimination vendors could only access the product if they joined PQI first at a cost of membership ranging from $1,350 to $18,750. 

Four Promoters of Illegal Tax Scheme Sentenced to Prison

On August 30, 2010, in Washington, D.C., Eddie Ray Kahn, formerly of Sorrento, Florida, was sentenced to 20 years in prison for conspiracy to defraud the United States and to commit mail fraud and one count of mail fraud. Stephen C. Hunter, formerly of Candler, Florida, and Danny True, of Deltona, Florida, were sentenced to 10 years in prison for conspiracy to defraud the United States and three counts of mail fraud.  Allan J. Tanguay, of Flagler Beach, Florida, was sentenced to 10 years in prison for conspiracy to defraud the United States and to commit mail fraud and one count of mail fraud.  All four defendants were promoters of a Florida-based business, Guiding Light of God Ministries/American Rights Litigators (ARL), which sold illegal tax schemes. They were convicted in May 2010 following a one-month jury trial.  The evidence at trial showed that Kahn founded and ran ARL from 1996 through 2004.  During that time, ARL enrolled more than 4,000 customers from all 50 states and the District of Columbia.  Hunter, True, and Tanguay worked at ARL with Kahn to develop and sell tax schemes based on deliberate misrepresentations of the legal foundation of the tax system. The evidence at trial showed that the purpose of the tax scheme was to thwart the IRS in its attempts to assess and collect taxes by various means.  These schemes included manufacturing and selling more than one thousand worthless “bills of exchange” supposedly drawn on the U.S. Treasury for customers to use in purported payment of their taxes, as well as producing false and harassing complaints against IRS employees that were sent to the Treasury Inspector General for Tax Administration (TIGTA).

Defendant Sentenced in Income Tax Conspiracy Case

On August 27, 2010, in Portland, Ore., Marcel Roy Bendshadler, of Milwaukie, Oregon, was sentenced to 15 months in prison to be followed by three years of supervised release. On November 23, 2009, Bendshadler, Joseph Oquendo Saladino, and Michael Sean Mungovan were convicted of conspiracy to defraud the United States by interfering with the Internal Revenue Service’s ability to accurately assess and collect income taxes. According to evidence introduced in court, the conspirators sold and implemented multiple abusive tax schemes to taxpayers in 43 states through two organizations: the Freedom and Privacy Committee and Compensation Consultants. The main abusive tax scheme, the Claim of Right Freedom Program, was based on the premise that compensation for personal income is not taxable. The defendants marketed the Claim of Right through the internet, live seminars throughout the country and other marketing materials. The defendants filed tax returns on behalf of customers that claimed a false deduction equal to the amount of wages or self employment income earned. The tax returns prepared using the Claim of Right usually resulted in no income tax being owed and a request for a refund. The jury heard evidence that the IRS and various state taxing authorities sent over 600 frivolous filing or disallowance letters to taxpayers informing them that the Claim of Right was not a valid deduction. The court found that the intended tax loss from the defendants’ marketing scheme was in excess of $7 million. The other defendants in this case were previously sentenced. Saladino was sentenced to 60 months in prison and Mungovan to 48 months. 

Missouri Surgeon, Brother Sentenced for $1.6 Million Tax Fraud

On August 4, 2010, in Springfield, Mo., Brian and Mark Ellefsen were sentenced for a tax fraud conspiracy where they attempted to avoid paying federal income taxes on nearly $1.6 million earned through a medical business. Brian, an orthopedic surgeon, owned and operated a practice called Southwest Missouri Bone and Joint, Inc. Brian was sentenced to 22 months in prison and ordered to pay approximately $1.2 million in restitution; Mark, his brother and office manager, was sentenced to 14 months in prison and ordered to pay $50,000 in restitution.  According to court documents, the Ellefsens established accounts at several financial institutions in the names of various trusts and offshore bank accounts. They used those accounts and entities to engage in a series of sham paper transactions having no economic substance or business purpose, which resulted in the concealment of funds from the Internal Revenue Service (IRS).  From July 1997 to August 2003, Brian and Mark Ellefsen diverted approximately $1,567,000 from Southwest to Brian Ellefsen to pay for personal expenses, payments on loans, construction on his family home, and charges made on an offshore credit card.  In addition, from 2001 to 2003, Brian Ellefsen filed false income tax returns by not claiming this diverted income.  The Ellefsens were also found guilty of three separate instances, from 2001 to 2003, in which Mark Ellefsen aided and assisted in the preparation of a false income tax return on behalf of Brian Ellefsen.

Founder and Principal Manager of Genesis Fund Sentenced To 70 Months in Prison on Tax Charges

On August 3, 2010, in Los Angeles, Calif., John S. Lipton, formerly of Mission Viejo and Laguna Hills, Calif., was sentenced to 70 months in prison and ordered to pay $2,915,427 in restitution the Internal Revenue Service (IRS). On April 8, 2010, Lipton pleaded guilty to conspiracy to defraud the United States and tax evasion. Lipton and several co-defendants were indicted on charges stemming from the operation of the Genesis Fund, a bogus foreign currency exchange investment fund that operated as a Ponzi scheme from May 1998 to June 2002 and received millions of dollars in investments. According to the indictment, the defendants falsely claimed that investors received monthly returns of four percent, when investments were actually used to make "profit" distributions to defendants and early investors. Lipton was one of the founding members of the Genesis Fund and its principal manager. The defendants promoted the Genesis Fund as having no reporting obligations to the IRS. Bank accounts in the names of trusts and offshore bank accounts were allegedly used to receive distributions that were not reported to the IRS. In his plea agreement, Lipton admitted that he used, and conspired with others to use, foreign trusts, corporations, and bank accounts, to receive distributions from the Genesis Fund and did not report these distributions to the IRS. Lipton acknowledged that he did not file federal individual income tax returns from 1989 through 2005.

Three Sentenced to Prison in Income Tax Conspiracy Case

On July 29, 2010, in Portland, Ore., Joseph Oquendo Saladino, of Boise, Idaho, was sentenced to 60 months in prison for his role as the leader and founder of the Freedom and Privacy Committee, which sold abusive tax schemes.  Michael Sean Mungovan, of Marion, Indiana, was sentenced to 48 months in prison. Mungovan was the national sales director for the Freedom and Privacy Committee.  On July 27, 2010, Richard Allen Fuselier, of Lafayette, Louisiana, was sentenced to 21 months in prison.  Fuselier, the founder of Compensation Consultants. According to court documents, Saladino, Mungovan, Fuselier, and Marcel Roy Bendshadler conspired to defraud the United States by interfering with the Internal Revenue Service’s ability to accurately assess and collect income taxes.  The conspirators sold and implemented multiple abusive tax schemes to taxpayers in 43 states through two organizations: the Freedom and Privacy Committee and Compensation Consultants. The main abusive tax scheme was the Claim of Right Freedom Program. It was based on the premise that compensation for personal income was not taxable. The defendants marketed the Claim of Right through the internet, live seminars throughout the country and other marketing materials. On behalf of customers who purchased the Claim of Right, the defendants filed tax returns that claimed a false deduction equal to the amount of wages or self employment income earned. In practice, tax returns prepared using the Claim of Right usually resulted in zero income tax being owed and a request for a refund. The IRS and various state taxing authorities sent over 600 frivolous filing or disallowance letters to taxpayers informing them that the Claim of Right was not a valid deduction and courts eventually civilly enjoined defendants’ conduct. During the sentencing hearings, the court found that the intended tax loss from the defendants’ filing of false income tax returns using the Claim of Right was in excess of $9.5 million.

Four Promoters of Sham Tax Elimination Scheme Sentenced to Terms Ranging from 5 to 12 Years in Prison

On July 29, 2010, in Pensacola, Fla., four promoters of a fraudulent tax and debt elimination scheme were sentenced for their roles on various federal charges including tax fraud, wire fraud and money laundering.  Arnold Ray Manansala of Renton, Wash., was sentenced to 144 months in prison; Dover Eugene Perry, also of Renton, was sentenced to 120 months in prison; Michael Guy Leonard of Troy, N.Y., was sentenced to 109 months in prison; and Mark Daniel Leitner of Fairport, N.Y., was sentenced to 60 months in prison.  On March 31, 2010, the four defendants were convicted by a trial jury, along with four other individuals, for their involvement in the promotion of fraudulent tax schemes through Pinnacle Quest International (PQI), also known as Quest International.  According to the evidence presented during trial, PQI was an umbrella organization for numerous vendors of tax and credit card debt elimination scams.  Some of the PQI vendors, such as Southern Oregon Resource Center for Education (SORCE), sold bogus theories and strategies for tax evasion.  For fees starting at $10,000, SORCE assisted its customers in the creation of a series of sham business entities in the United States and Panama.  Other tax-related PQI vendors denied the legitimacy of the income tax system on various theories and provided customers with a “reliance defense” that consisted of a paper trail of frivolous correspondence which a client could allegedly use as evidence of good faith if the client were prosecuted.  Another PQI vendor, MYICIS, operated as a sophisticated, computerized “warehouse bank.”  MYICIS was a single bank account in which customers pooled their money.  MYICIS was promoted to PQI’s clients as a method to hide their assets from the IRS as a result of the pooled nature of the account.  MYICIS had 3,000 clients and approximately $100 million in deposits over a three year period.  Trial evidence also showed that PQI clients seeking the tax evasion and debt elimination vendors could only access the product if they joined PQI first. The cost of membership ranged from $1,350 to $18,750, depending on the level of access.

Promoter of Aegis Abusive Trust Arrangements Sentenced to 15 Years

On June 29, 2010, in Springfield, Ill., Brain Wasson was sentenced to 180 months in prison, followed by three years of supervised release and ordered to pay $600,148 in restitution.  According to court documents, Wasson and a co-defendant established a business in 1997 known as Midwest Alternative Planning, located in Danville, Illinois. Midwest Alternative Planning was used to promote the fraudulent tax scheme of the Aegis Company.  Beginning in 1994, Aegis and its representatives devised, organized, promoted and sold various financial instruments, known as domestic and foreign “trusts,” to taxpayers in exchange for substantial fees. These trusts were fraudulent in nature as there was no change in the taxpayers’ control over their assets and income which were placed under these trusts.  The purpose of the trusts was to assist the taxpayers in concealing the taxpayers’ assets and income from the IRS, resulting in the reduction of the income tax paid to the IRS.

Philadelphia Attorney Sentenced to 10 Years for Tax Fraud

On June 16, 2010, in Philadelphia, Pa., Bernard Bagdis, a licensed attorney, was sentenced to 120 months in prison, followed by three years of supervised release, and ordered to pay $2.4 million in restitution to the Internal Revenue Service (IRS) and a $84,000 fine.  Bagdis and co-defendants Richard Frase and Dr. Bertram R. Russell were convicted at trial in April 2009 for their roles in a scheme to defraud the IRS of $4.9 million in income taxes; nine other defendants in this case have pleaded guilty.  In October 2009, Frase was sentenced to 56 months in prison; Russell was sentenced to 66 months in prison on May 6, 2010. According to court documents, between 1996 and April 2008, Bagdis orchestrated the scheme of several conspiracies with the purpose of assisting his clients in hiding their income and assets from the U.S. Government.  He also obstructed justice by creating false documents and lying to the IRS when a client was confronted.  Bagdis would create shell corporations so his clients could arrange to have their wages made payable to the nominee corporation, and would then pay personal expenses from those accounts.  Another scheme involved using a fictitious Irish bank to assist clients with making "investments" that further concealed their assets from the IRS or other creditors.

Florida Man Sentenced to Five Years for Promoting Tax Fraud Scheme

On June 15, 2010, in Tampa, Fla., Jack Lee Malone, of Pinellas County, was sentenced to 60 months in prison.  A jury found Malone guilty on March 10, 2010, on conspiring to impair and impede the Internal Revenue Service (IRS) by promoting an unlawful tax avoidance scheme.  According to court documents and testimony at trial, Malone and co-conspirator Joseph Sweet, promoted and sold a scheme by which they claimed that purchasers could legally avoid the payment of federal income taxes by, among other things, placing income and assets in 'sham' trusts called Unincorporated Business Trust Organizations (UBTOs). They sold these trusts and other materials through two of their own UBTOs, "The JoY Foundation" and "EDM Enterprises."  Furthermore, Malone and Sweet instructed their clients that income generally is not taxable and that filing a federal income tax return is a strictly voluntary act and they instructed clients to submit obstructive paperwork or otherwise deceive the IRS and to illegally conceal their income and assets.  At the sentencing hearing, the court determined that Malone was responsible for a tax loss of more than $2.8 million.  Also sentenced was a client of The JoY Foundation's tax avoidance scheme, Terry Moore.  Moore received five years of probation, with a condition that he serve eight months in home detention.

Tax Shelter Promoters Sentenced in Michigan for Conspiracy and Tax Fraud

On May 28, 2010, in Grand Rapids, Mich., three promoters of fraudulent tax shelters were sentenced to prison for conspiring to defraud the United States.  Peter Peggs was sentenced to 108 months in prison; Robert Larsen was sentenced to 72 months in prison; and Craig Stone was sentenced to 60 months in prison.  According to court documents, the three men conspired with John A. Campbell and Anthony Merlo to defraud the United States by promoting, marketing, selling and administering sham “Loss of Income” insurance policies through an insurance company in the U.S. Virgin Islands known as Security Trust Insurance Company.   The men sold these insurance policies to wealthy U.S. taxpayers as a tax deductible product, with the understanding that the purchasers would have most of their premiums returned to them in a non-taxable manner.  The clients then improperly took tax deductions for the purchase of this sham product and improperly reduced their income taxes.  The co-conspirators collected more than $20 million in premiums. Campbell and Merlo were previously sentenced: Campbell was sentenced to 60 months in prison and Merlo was sentenced to 51 months. 

Final Defendant Sentenced in Scheme to Defraud IRS

On May 27, 2010 in Minneapolis, Minn., Mark Maxwell was sentenced to 57 months in prison on one count of conspiracy to defraud the IRS and two counts of assisting in the preparation of false tax returns; he was the last of six defendants to be sentenced in this scheme.  According to court documents, from June 2001 through October 2004, the defendants conspiring to defraud the U.S. through two false return schemes and a third scheme to involving false non-profit organizations. In the false return schemes, the defendants prepared tax returns for themselves and others in which, despite earning income, the defendants and their clients attempted to pay no taxes and, instead, claimed fraudulent refunds by declaring all or nearly all of their earnings tax deductible. Some of their returns were accompanied by declarations in which the defendants and others stated their wages were not taxable income. As part of the use of false non-profits, the defendants structured their own businesses and the businesses of their clients as limited liability corporations, purportedly owned by non-profit organizations. The corporations then distributed their profits among bank accounts held by those organizations, which did not file tax returns or pay taxes. In reality, however, the bank accounts were controlled by the defendants or the defendants’ clients, and those clients then used that untaxed money to pay for personal expenses. The defendants charged their clients fees to participate in the various schemes. The defendants also charged and previously sentenced are Douglas Leiter sentenced to 121 months in prison; Brian Scott received 78 months in prison; Timothy McCarthy received 52 months in prison; Christopher Robinson was sentenced to 20 months in prison; and Laurie Brausen was sentenced to 6 months in prison.

Renaissance Founder Sentenced to 20 Years in $75 Million Tax Fraud Scheme

On April 20, 2010, in Kansas City, Kan., Michael Cooper, founder and president of a Topeka based tax service company, was sentenced to 240 months in prison and ordered to pay $10 million in restitution and to forfeit $75 million.  According to court documents, from 1997 to 2002, Cooper and others conspired to defraud the United States and their clients by marketing a program to sell individuals tax deductions through false or misleading representations. This scheme was marketed under the names Renaissance-The Tax People, and Advantage International Marketing (AIM).  Renaissance falsely claimed that its clients could deduct personal expenses, including children’s allowances, commuting miles, educational expenses, and vacations as tax deductible business expenses. Three co-defendants have been sentenced in this tax fraud case.  Daniel Gleason, the owner and operator of a tax preparation service titled My Tax Man, was sentenced to 78 months in prison.  Jesse Cota, a former Internal Revenue Service District Director, was sentenced to 24 months in prison.  Todd Strand was sentenced to 51 months in prison.

Tax Shelter Promoter Sentenced for Conspiring to Defraud the United States

On April 19, 2010, in Detroit, Mich., Anthony G. Merlo, a resident of Portsmouth, N.H., was sentenced to 51 months in prison for conspiring to defraud the United States.  Merlo pleaded guilty on May 22, 2009, to one count of conspiring to defraud the United States.  According to court documents, Merlo admitted that in 1995 he became involved with promoting offshore tax shelters through an insurance company in the U.S. Virgin Islands known originally as Caduceus Life Insurance Company and later known as Security Trust Insurance Company.  Merlo admitted that in 1999, he joined a conspiracy with Peter Peggs and Robert Larsen, as well as co-defendants John A. Campbell and Craig Stone, to conceal information and documents from the Internal Revenue Service (IRS) in connection with the marketing of Security Trust’s tax shelter products.  The tax shelters included purported insurance policies sold to U.S. taxpayer clients as a tax deductible product, with the understanding that the purchasers would have most of their premiums returned to them in a non-taxable manner. The clients would improperly take tax deductions for the purchase of this sham product, and improperly and fictitiously reduce their income taxes.

Former Promoter of Tax Shelters Sentenced to 15 Months in Prison

On April 13, 2010, in Manhattan, N.Y., Charles Bolton, a Memphis-based financial services provider, was sentenced to 15 months in prison and ordered to pay a $3 million fine. Bolton pleaded guilty to a charge of conspiracy to defraud the Internal Revenue Service (IRS) in connection with tax shelters marketed by the accounting firm Ernst & Young (E&Y).  According to court documents, Bolton owned a group of companies involved in implementing two E&Y tax shelters during the period 1999 through 2002.  In brief, the shelters purported to allow wealthy individuals to pay a percentage of their income in fees to E&Y, the Bolton companies, and other participants in the transactions, rather than paying taxes to the IRS. The two shelters the Bolton companies implemented, known as Contingent Deferred Swap (CDS) and CDS Add-On, involved financial trades that were implemented and overseen by the Bolton companies and other entities. CDS, marketed from 1999 to 2001, was described as a means to convert a client's ordinary income into capital gains (thereby reducing the applicable tax rate from approximately 40 percent to approximately 20 percent), and to then defer for one year the tax on the capital gains. CDS Add-On was marketed briefly in mid-2000 as a means to defer indefinitely the income tax liability on capital gains, including capital gains purportedly generated in the second year of the CDS strategy. E&Y and the Bolton companies implemented dozens of CDS and CDS Add-On transactions involving in total billions of dollars in taxable income and gains. Bolton himself made millions of dollars from his involvement in the shelter transactions and ownership of the Bolton companies.  He also implemented CDS transactions for approximately $15 million of his own personal income in 2000 and $25 million of his own income in 2001.  At the time of his guilty plea, Bolton acknowledged that he agreed with others to deliberately mislead the IRS about the CDS and CDS Add-On shelters with respect to facts that he understood could be relevant to the IRS's evaluation of the transactions. Bolton also admitted to giving misleading testimony during a sworn IRS deposition and to submitting a sworn statement to the IRS regarding his own CDS transaction in which he falsely stated that his decision to participate in the transaction was "primarily profit driven," and that "tax avoidance" was not a "significant purpose."

Chicago Businessman Sentenced to Five Years in Prison for Cheating on Federal Taxes Over Ten Years

On March 4, 2010, in Chicago, Ill, Jon Darmstadter was sentenced to 60 months in prison and ordered to pay nearly $2.3 million in restitution for tax evasion.  According to court documents, in the late 1990s and early 2000s Darmstadter was an executive of the Children’s Beverage Group, Inc. (CBG), a publicly-traded company in Northbrook, Ill. He admitted using brokerage accounts in Canada to hold stocks and execute trades and then hiding the income from those stock sales in off-shore bank accounts in the Turks and Caicos Islands. He also admitted failing to report income from the sale of stock and capital gains from stock sales involving both CBG and another company he operated, Zkid Network Company, a media content company that developed and marketed software to protect children using the internet.  Darmstadter also admitted that he made false statements on multiple occasions in U.S. Securities and Exchange Commission filings relating to Zkid, where he illegally generated more than $427,000 in over-the-counter sales of Zkid stock in 2003.  Darmstadter filed false tax returns for all six years from 1998 through 2003, and that he failed to file tax returns for the years 2004 through 2007.

Former KPMG Partner Sentenced to 57 Months in Prison in Scheme to Defraud IRS, Saipan Taxing Authorities, and Saipan Company

On March 3, 2010, in Manhattan, N.Y. Robert Pfaff, a former KPMG partner, was sentenced to 57 months in prison and ordered to pay $1,052,000 in restitution to the Internal Revenue Service (IRS). Pfaff pleaded guilty in September 2009 to concealing millions of dollars of fee income received from tax shelter transactions from the IRS and the Saipan taxing authorities.  He also admitted to conspiring to defraud a company located in Saipan by sharing tax shelter fee income with officers of that company who in turn failed to disclose those secret payments to the Saipan company's Board of Directors. According to the court documents and statements made in court, between 1993 and 2002, Pfaff and his co-conspirators arranged for various entities and individuals -- including co-conspirators in the Philippines and Norway, and senior officers of the Saipan company, known as the United Micronesia Development Association (UMDA) -- to participate with the United States and Saipan taxpayers in tax shelter transactions. The tax shelter transactions generated millions of dollars of fee income, which was divided between Pfaff and the other designers, marketers, and implementers of the tax shelter transactions. Between 1993 and 2000, Pfaff received more than $3,750,000 in fee income and used the fee income for various personal purposes. To conceal the tax shelter fee income, Pfaff and his co-conspirators sent millions of dollars from bank accounts in the United States and Saipan to bank accounts in Manila, Philippines.  These accounts were nominally controlled by a Philippines co-conspirator and others. Pfaff and his co-conspirators controlled the accounts and paid the Philippines co-conspirator to disburse the tax shelter fee income from the Philippines bank accounts in accordance with their instructions. Pfaff and his co-conspirators also created false and fictitious documentation to make it appear that the fee income received from the Philippines co-conspirator was part of a series of loans. Pfaff also provided false testimony to the IRS regarding his receipt of fee income stemming from the tax shelter transactions. Further, Pfaff and his co-conspirators caused the payment of the tax shelter fees to be concealed from KPMG, in violation of KPMG's partnership bylaws and/or rules and procedures, and caused the payment of the tax shelter fees to the Saipan co-conspirators to be concealed from UMDA.

Virginia Minister Sentenced in Conspiracy to Obstruct a Criminal Investigation

On March 1, 2010, in Roanoke, Va., Kerry Rex Smith was sentenced to 20 months in prison, to be followed by three years of supervised release, and ordered to pay a $100 assessment. Smith pleaded guilty in May 2009 to charges of conspiracy to obstruct a criminal proceeding.  According to court documents, Smith was the Senior Minister of the Church of Healing Arts and Sciences (CHAS). Smith had allegedly promoted the CHAS as having unique asset protection capabilities. As a member of the CHAS, Roy Dickerson transferred rental property valued at $1 million located in Corona, California, to CHAS.  At this time, Dickerson had been enjoined by the U.S. District Court preventing him from transferring assets without the knowledge or permission of the Court.  On or about December 28, 2005, the rental property was sold and $428,875 in proceeds was transferred to a bank account controlled by Smith.  The next day, Smith transferred money to Red Book Management, an entity controlled by Dick Jenkins.  Jenkins then issued checks totaling $57,352 to various entities in order to pay Dickerson's personal expenses.  When asked by a Grand Jury about the transactions associated with Dickerson's membership in CHAS and the sale of the Corona property, Smith, Jenkins and others gave false and misleading testimony.

Kansas Attorney Sentenced for Tax Fraud; Assisted Clients in Evading More Than $3.5 Million in Taxes

On February 24, 2010, in Kansas City, Kan., Scott Ruther was sentenced to 48 months in prison for preparing false tax returns.  According to court documents, Ruther admitted he devised a scheme using Roth IRAs that he claimed would allow his customers to reduce their individual federal tax liability. Ruther directed clients to invest in “self directed” Roth IRA accounts, which in turn purchased 98 percent of the stock of Nevada shell corporations. Ruther owned the remaining 2 percent of each shell corporation. This made the clients’ Roth IRA the majority owner of one or more shell corporations which had no employees, produced no product and whose only purpose was to illegally reduce the clients’ taxes. Ruther’s client's income-producing entities paid the shell corporations false fees for consulting, business management, or investment services, creating an illegal tax deduction for their income generating business. Ruther created more than 70 Nevada shell corporations to divert excess income from his customers’ businesses. Ruther prepared hundreds of tax returns as part of this scheme claiming false expenses and allowing more than 30 clients to evade taxes totaling more than $3.5 million.

Missouri Man Sentenced to Prison for Tax Evasion

On February 10, 2010, in Jefferson City, Mo., Leroy Miller was sentenced to12 months and a day in prison, three years of supervised release, 100 hours of community service and ordered to pay nearly $600,000 in restitution to the Internal Revenue Service (IRS). According to court documents, Miller was the principal organizer of a construction framing business, Allied Framing, LLC.  From 2000 to 2005, income received by Miller through Allied was concealed from the IRS, through the use of a system of foreign and domestic trusts.  Income earned by Allied was transferred through the series of trusts into an off-shore bank account in Grenada.  The funds were available to Miller through the use of debit cards, phony gifts or loans.  Miller failed to report the transfer of money to the IRS, or pay the taxes.  Miller also paid some Allied employees through a fraudulent employee leasing firm, American Contracting Services, evading employment taxes for those employees.

Roofer Sentenced To Prison for Employment Tax Evasion

On February 3, 2010 in Portland, Ore., Philip G. Brill, of Lake Oswego, was sentenced to 12 months and a day in prison, to be followed by three years of supervised release and ordered to pay $314,128 in restitution to the Internal Revenue Service (IRS).  Brill pleaded guilty in July 2009 to a one-count Information charging him with tax evasion. According to court documents, Brill cheated on his employment taxes for his Oregon and SW Washington roofing businesses and lied to the IRS for more than 16 years. Brill used numerous ways to evade the IRS and payment of taxes, including using multiple nominee trust entities through which he hid business income and assets. He also failed to file federal income tax returns for those nominee entities, and extensively used cash in his business operations so there were no bank records tracking his business dealings. In February 2005, IRS special agents executed a search warrant on the offices of trust promoter David Carroll Stephenson in Western Washington, and seized a variety of material pertaining to Brill and his businesses. Files seized during the search warrant showed that Brill joined an abusive trust scheme in 2000, for which he paid nearly $20,000 in start-up fees and consultation fees in order to attempt to evade the payment of his taxes. Stephenson is currently serving a 96-month sentence. After joining the trust scheme, Brill also began disregarding payroll procedures and began paying his employees and himself in cash. Brill conducted all of his other business dealings in cash as well.

Arkansas Couple Sentenced in $1.4 Million Tax Evasion Case

On January 27, 2010, in Little Rock, Ark., Craig A. Hagerty was sentenced to 46 months in prison to be followed by three years of supervised release. His wife, Angela L. Hagerty was sentenced to three years probation with a special condition of six months home detention. In addition, both Hagertys were ordered to pay $1,441,057 in restitution. Craig Hagerty pleaded guilty on September 25, 2009, to two separate tax fraud charges of conspiring to defraud the United States in determination of the lawful tax he owed and to evading the payment of the taxes. Angela pleaded guilty a few days later to one count of misprision of a felony. According to court documents, Craig Hagerty utilized the Aegis "abusive trust" scheme from 1999 until the end of 2002. The Aegis Company (Aegis) instructed individuals on how to establish trust entities outside the United States in order to conceal and hide income, conduct financial transactions, and claim expenses and deductions that were improper. When Hagerty became aware of an IRS investigation, he changed the name of his company and simply continued the tax fraud. Hagerty continued to change the company name and the entities through which he did business through at least 2006. During his plea hearing in September, it was revealed that Hagerty and his wife filed returns for tax years 1999 through 2004 that understated their tax due and owing by approximately $1.4 million. These returns understated the Hagertys’ true income and overstated their legitimate business expense deductions.

Four Former Ernst & Young Partners Sentenced for Their Roles in Tax Shelters

On January 21, 2010, in Manhattan, N.Y. Robert Coplan and Martin Nissenbaum, former partners of the accounting firm Ernst & Young (E&Y), were sentenced for their roles in an effort to design and market tax shelter transactions.  Coplan, former National Director of E&Y's Center for Wealth Planning, was sentenced to 36 months in prison, three years of supervised release, and ordered to pay a $75,000 fine. Nissenbaum, former National Director of E&Y's Personal Income Tax and Retirement Planning practice, was sentenced to 30 months in prison, three years of supervised release, and ordered to pay a $100,000 fine. On January 22, 2010, in Manhattan, N.Y. Richard Shapiro, a lawyer, was sentenced to 28 months in prison, two years of supervised release, and ordered to pay a $100,000 fine.  Brian Vaughn, a Certified Public Accountant, was sentenced to 20 months in prison and two years of supervised release. Coplan, Nissenbaum, Shapiro, and Vaughn were found guilty by a trial jury in May 2009 on conspiracy, tax evasion and other federal charges.  According to the evidence at trial, the defendants, as members of E&Y's national individual tax shelter group, led an effort to design and market tax shelter transactions used by wealthy individuals to eliminate, reduce, or defer tax liabilities on annual income that generally exceeded $10 or $20 million. Between 1999 and 2002, tax shelter transactions implemented by the defendants and their co-conspirators generated billions of dollars in non-economic or paper tax losses that were used to offset actual income or gain recognized by the firm's clients. The defendants and their co-conspirators worked to design, implement and defend the tax shelter transactions in ways intended to conceal the true facts and circumstances of the transactions from the IRS. Coplan, Nissenbaum, Shapiro, and Vaughn were each found guilty of one count of conspiracy relating to four tax shelters and two counts of tax evasion relating to clients who used a tax shelter transaction known as "CDS Add-On." In addition, Coplan was found guilty of one count of obstructing the IRS and one count of making false statements to the IRS; Nissenbaum was found guilty of one count of obstructing the IRS; and Vaughn was found guilty of one count of making false statements to the IRS.

California Certified Public Accountant Sentenced to 24 Months in Prison

On November 16, 2009, in Los Angeles, Calif., Ronald Irving Anson was sentenced to 24 months imprisonment, followed by three years of supervised release, and ordered to pay $1,853,282 in restitution.  According to the Information, Anson, a licensed Certified Public Accountant (CPA), conspired with others to defraud the United States by impeding the Internal Revenue Service (IRS) in the ascertainment, assessment and collection of taxes.  From December 1998 to at least December 2002, Anson sold partnership interests in hotels to clients with large amounts of active income by promising a tax loss equal to five times the amount of money they made payable to the partnership.  Anson knew that he and his accounting firm would prepare the clients' federal income tax returns falsely claiming that the clients were material participants in the partnership. At the time he sold the hotel partnership interests to his clients, Anson knew they did not qualify as material participants. Anson’s actions resulted in a tax loss of approximately $9 million.

Three UBS Clients Sentenced for Their Failure to Disclose Offshore Accounts

On October 28, 2009, in Miami, Fla., Steven Michael Rubinstein was sentenced to three years probation of which 12 months will be served in home detention.  Rubinstein was ordered to pay a $40,000 fine and to cooperate with the Internal Revenue Service (IRS) in determining and paying any tax liabilities, as well as interest and penalties. In June 2009 Rubinstein pleaded guilty to filing a false tax return.  According to court documents, Rubinstein admitted that he failed to file required Reports of Foreign Bank and Financial Accounts (FBARs) disclosing his UBS bank account for years 2001 through 2007.  On October 30, 2009, in Ft. Lauderdale, Fla., Jeffrey Chernick was sentenced to three months in prison and one year of supervised release with six months in home detention.  Chernick was ordered to cooperate with the IRS in determining and paying any tax liabilities, as well as interest and penalties. In July 2009, Chernick pleaded guilty to filing a false tax return and accepted responsibility for concealing more than $8 million in Swiss bank accounts. According to court document, Chernick owns a corporation which represents toy manufacturers in China and Hong Kong. He opened offshore bank accounts in order to conceal from the IRS the commissions he was paid for toy sales. On November 6, 2009, in Ft. Lauderdale, Fla., Robert Moran was sentenced to two months in prison and one year of supervised release with five months in home confinement. Moran paid approximately $1.9 million in FBAR penalties, taxes, and interest.  In April 2009, Moran pleaded guilty to filing a false tax return and accepted responsibility for concealing more than $3 million in assets in a secret bank account at UBS.

Renaissance Founder’s ‘Right Hand Man’ Sentenced to Prison for Tax Fraud

On October 16, 2009, in Kansas City, Kan., Todd Eugene Strand, of Topeka, Kan., was sentenced to 51 months in prison for tax fraud.  Strand, who pleaded guilty to one count of conspiracy to defraud the Internal Revenue Service (IRS) and one count of mail fraud, also was ordered to pay more than $10.6 million in restitution.  In his plea, Strand admitted that in November 1995 he began working as a marketing associate with Renaissance, the Tax People, Inc. The company, which was based in Topeka, Kan., offered its members services including tax advice, tax return preparation, and so-called “audit protection.” Over time, Strand became a right-hand man to the company’s founder, Michael Craig Cooper, and rose eventually to serve as vice president and national marketing director. Renaissance offered its members the so-called “Tax Advantage System,” which was based on fraudulent claims that business owners could legally reduce the taxes they owed by converting personal expenses to business deductions. Strand and other defendants falsely assured Renaissance clients the tax reduction methods were legal. In fact, tax returns filed using Renaissance’s methods were based on providing false and fraudulent information to the IRS.  From 1995 through April 2002, the conspiracy in which Strand was a participant fraudulently generated approximately $75 million in income from Renaissance members by means of false and misleading claims made in marketing materials and during conference calls, rallies, and promotional meetings.

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