Examples of Abusive Tax Schemes - Fiscal Year 2013
The following examples of abusive tax schemes are written from public record documents on file in the court records in the judicial district in which the cases were prosecuted.
South Dakota Surgeon Sentenced for Tax Evasion
On May 7, 2013, in Sioux Fall, S.D., Edward J.S. Picardi, a surgeon who resides in Sturgis, S.D., was sentenced to 60 months in prison and one year of supervised release for tax evasion. On October 5, 2012 following a multi-week trial, Picardi was convicted by a federal jury of sending his earnings through a complicated offshore network. According to trial evidence, Picardi passed his earnings through a web of entities organized under the laws of Ireland, Hungary, Cyprus, Isle of Man, Jersey, and Guernsey. The money was ultimately deposited into various foreign accounts that Picardi controlled through a New Zealand trust, in the name of a corporation set up for him in Nevis, a Caribbean island. Through these offshore transactions, Picardi attempted to hide his income and evade over $1 million in taxes.
Former Bank Broker Sentenced for Promoting Illegal Tax Shelters that Generated Billions of Dollars in Fraudulent Tax Losses
On March 22, 2013, in New York, N.Y., David Parse was sentenced to 42 months in prison, three years of supervised release and ordered to pay $115,700,000 in restitution and to forfeit $1 million. According to court documents and statements made in court, Parse was a broker and investment representative at a bank between 1997 and 2003. During that period, he worked with attorneys at a law firm and accountants at an accounting firm, as well as other bank brokers, on the design, marketing and implementation of high-fee tax strategies for individual clients. Those strategies, or “tax shelters,” were designed to allow high-net-worth clients to eliminate, reduce, or defer taxes on significant income or gains. Among the fraudulent tax shelters designed, marketed, and implemented by Parse and his co-conspirators were “Short Sales,” “Short Options Strategy” (SOS), and “Swaps." The Short Sale tax shelter was marketed and sold from 1994 through 1999 to at least 290 wealthy individuals and generated at least $2.6 billion in false and fraudulent tax losses. The SOS tax shelter was marketed and sold from 1998 through 2000 to at least 550 wealthy individuals, and generated at least $3.9 billion in false and fraudulent tax losses. The Swaps tax shelter was marketed and sold in 2001 and 2002 to at least 55 wealthy individuals, and generated more than $420 million in false and fraudulent tax losses. In addition, Parse steered his own bank clients to the fraudulent shelters, and was given a free tax shelter opinion letter by the attorneys, which he used to evade hundreds of thousands of dollars of his own income taxes. Parse was paid over $3 million in commissions by the bank attributable to the fraudulent tax shelters. Parse also took part in the illegal back-dating of certain tax shelter transactions. The attorneys worked with Parse to create documents and effectuate securities transactions at the bank after the close of the tax year and back-dated them using “as of” dates, which treated the documents as if they had been signed prior to the close of the tax year, in violation of tax accounting rules.
Former Attorney Sentenced for Promoting Illegal Tax Shelters
On March 1, 2013, in New York, N.Y., Donna Guerin, of Scottsdale, Ariz., was sentenced to 96 months in prison, three years of supervised release and ordered to pay $190 million in restitution. Guerin pleaded guilty in September 2012 to conspiracy and tax evasion charges. According to the Indictment and court statements, between 1996 and 2004, Guerin and other attorneys at a major law firm worked on the design, marketing and implementation of high-fee tax strategies for individual clients. Those strategies, or “tax shelters,” were designed to allow high-net-worth clients to eliminate, reduce, or defer taxes on significant income or gains. Guerin and other attorneys worked together with brokers from a financial institution, partners and employees of an accounting firm and other entities, in marketing and implementing the tax shelters. In return for receiving a fee from tax shelter clients based on a percentage of their purported tax losses, Guerin and others assisted clients in implementing all of the stages of the fraudulent tax shelters, including setting up bank accounts and entities such as corporations and partnerships. Guerin and others also provided the tax shelter clients a “more likely than not” legal opinion from the law firm. In addition to her involvement in the marketing and implementation of the fraudulent tax shelters, Guerin also took part in the illegal back-dating of certain tax shelter transactions when attorneys at the law firm realized, after the close of certain tax years, that certain steps of the tax shelter transaction had been done improperly. Guerin and others helped create documents after the close of the tax year and back-dated them using “as of” dates – effectively treating the documents as if they had been signed prior to the close of the tax year, in violation of tax accounting rules. Guerin was paid in excess of $17 million from 1998 to 2002 as a result of her involvement in the tax shelter conspiracy.
Texas Businessman Sentenced on Tax Charges
On February 14, 2013, in Houston, Texas, Robert Edward Cone was sentenced to 12 months and a day in prison, one year of supervised release and ordered to pay a $50,000 fine. Cone has already made full restitution of the unpaid taxes plus penalties and interest altogether totaling $939,917. According to court documents, Cone used a foreign account in the Channel Islands to corruptly obstruct and impede the IRS in the collection of $282,871 in federal income taxes. Cone was employed as president of a manufacturing company in Houston, during 2001. Under his employment agreement, Cone was entitled to receive a severance payment equal to four times his annual salary of $250,000. In anticipation of receiving the $1 million severance payment, Cone set up a foreign account to conceal the payment and avoid paying the taxes owed.
Virginia Anesthesiologist Sentenced for Filing False Tax Returns
On December 5, 2012 in Richmond, Va., George Anderson was sentenced to 33 months in prison, one year of supervised release and ordered to pay $471,919 in restitution for tax fraud. According to court documents, Anderson pleaded guilty to two counts of filing false tax returns. Anderson was the sole owner of Farmville Anesthesia Associates Inc. Beginning in 2001, Anderson attempted to reduce his business’s tax liability to zero by diverting income to sham and nominee entities. Anderson paid hundreds of thousands of dollars’ worth of bogus expenses out of Farmville Anesthesia’s bank accounts to other accounts and limited liability companies he controlled. He then falsely reported these payments on Farmville Anesthesia’s corporate income tax returns as legitimate business expenses and failed to report that income on his personal taxes.
Owner of Law Offices Sentenced for Tax Fraud
On December 3, 2012, in Los Angeles, Calif., Robert M.L. Baker III, owner of Robert M.L. Baker III Law Offices of Santa Monica, Calif., was sentenced to 36 months in prison, three years of supervised release and ordered to pay $2,056,879 in restitution. On January 25, 2012, Baker pleaded guilty to willfully subscribing and filing false tax returns. According to court documents, Baker devised a scheme to misappropriate client fees and settlements in order to evade payment of his tax obligations. Baker utilized shell entities and trusts to hide over $900,000 in client fees and assets from the IRS, including a house located in Westwood. Baker also submitted a false offer in compromise form by mail and filed false tax returns with the IRS in attempts to evade over $1 million in tax.
Ohio Attorney Sentenced on Tax Fraud Charges
On November 2, 2012, in Columbus, Ohio, Aristotle R. Matsa, aka Rick Matsa, of Worthington, Ohio, was sentenced to 85 months in prison and ordered to pay a $265,000 criminal fine, $388,000 in restitution to the IRS and $24,069 in restitution to a client. Matsa was convicted by a jury in April 2012 on one count of a corrupt endeavor to obstruct and impede the IRS, 15 counts of aiding and assisting in the preparation of false and fraudulent tax returns, that related to five different trusts; one count of willfully failing to file a Report of Foreign Bank and Financial Accounts (FBAR); one count of conspiracy to obstruct justice, commit perjury and make false statements; two counts of witness tampering; one count of submitting a false statement; and one count of obstruction of justice. Matsa’s mother and co-defendant, Loula Z. Matsa, was sentenced to three years of probation and ordered to pay a $150,000 criminal fine for her role in the conspiracy with her son to obstruct justice, commit perjury and make false statements. According to court documents and trial evidence, Matsa created and operated several nominee entities in order to disguise and conceal his income and assets from the IRS. The false trust return charges relate to filings for at least five separate trust entities during the tax years 2003 to 2005. In fact, the evidence at trial showed that he had been filing similarly false returns for the trusts dating back to 1990. Each of the trusts reported receiving significant amounts of interest income each year, yet no income tax was ever reported as due because the trust tax returns fraudulently claimed deductions for distributions purportedly paid annually to a foreign beneficiary. The evidence at trial established, however, that Rick Matsa used funds from these trusts to purchase a 150-acre farm in Hocking County as well as a home in Worthington, Ohio. In addition, the trusts’ purported foreign beneficiary was located in the Netherlands and testified that she was not the beneficiary of the trusts. The evidence at trial also showed that during calendar year 2003 Rick Matsa violated the foreign bank account reporting requirements, by failing to disclose his ownership and control over a foreign bank account held in The Netherlands. This account had in excess of $300,000 from at least August 2003 to November 2003.