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.
Illinois Businessman Sentenced for Tax Evasion
On July 16, 2013, in Chicago, Ill., Peter Troost, of Skokie, Ill, was sentenced to 12 months and one day in prison and ordered to pay a $32,500 fine. Troost already paid $1,039,343 in back taxes to the IRS, as well as a civil penalty of approximately $3.75 million. Troost pleaded guilty in March 2013 to tax evasion. According to his plea agreement, from at least 1999 until 2009, Troost transferred hundreds of thousands of dollars from the United States to his individual offshore UBS account for the sole purpose of evading domestic income taxes. He maintained at least one offshore UBS account between 1981 and 2009, while maintaining at least one additional joint account. He managed both accounts with the assistance of a UBS personal banker based on the island of Jersey. In addition to failing to report interest income, Troost admitted that he intentionally failed to report all of his income from his monument business and his rental properties. In addition, Troost stated on his returns for each of those years that he did not have an interest in a financial account in a foreign country, when, in fact, he knew he maintained the offshore account.
Businessman Sentenced for Hiding Income in Undeclared Bank Accounts
On July 9, 2013, in Newark, N.J., Sameer Gupta, 33, of Edison, N.J., was sentenced to 19 months in prison, two years of supervised release and ordered to pay a $20,000 fine. As part of his plea agreement, Gupta has paid to the United States Treasury a one-time FBAR penalty of $259,045 and has cooperated with the IRS in the investigation of his outstanding taxes due and owed for 2006 through 2009. Gupta pleaded guilty on February 26, 2013, to one count of tax evasion in connection with his diverting funds from the wholesale merchandise business, J.S. Marketers Inc., to undisclosed foreign accounts at HSBC in India, among other places. According to court documents, from 2006 through 2009, Gupta diverted $822,916 of the business’ receipts into 17 different personal bank accounts held in the names of various individuals, including himself and family members. He directed more than $250,000 of those diverted funds into six different accounts held offshore at a branch of HSBC in India. From 2007 through 2009, Gupta caused 22 corporate checks to be made payable to himself and family members in amounts identical to invoices from the business’ suppliers. Gupta endorsed those checks, which totaled $375,138, and deposited them into bank accounts that he controlled. Gupta filed individual income tax returns for the years 2006 through 2009 that did not report his income from the diverted funds. As a result, Gupta evaded taxes on $1,198,054 in income for 2006 through 2009. He also failed to file Reports of Foreign Bank and Financial Accounts (FBARs) for 2006 through 2008.
Nebraska Man Sentenced for Conspiracy to Defraud the IRS
On June 17, 2013, in Omaha, Neb., Michael D. Haffke was sentenced to 12 months and one day in prison and two years of supervised release. Haffke pleaded guilty on February 27, 2013 to conspiracy to defraud the IRS. According to court documents, from January 1, 2000, through on or about December 31, 2007, Haffke participated in a conspiracy to hide or remove his name from income-producing assets in an attempt to evade personal tax liabilities. As part of the conspiracy, Haffke created in excess of 40 nominee entities purporting to claim ownership of assets that were actually owned and controlled by Haffke. A limited partnership called The Rock Place was created to lease equipment, real estate and improvements from the nominee entities for the purpose of artificially increasing costs to reduce income of the partnership that would have been attributed to Haffke for tax purposes. However, monies from these purported lease payments were deposited into nominee bank accounts in Colorado and then funds were ultimately distributed to Haffke for his own personal use. As part of this scheme, Haffke did not file personal tax returns from 2003 through 2008. The IRS determined the tax loss associated with this scheme was $422,350. In 2012, Haffke did file personal tax returns with the IRS for tax years 2003 through 2007 and did pay the taxes owed. As part of the plea agreement, Haffke has agreed to work with the IRS to determine what additional taxes might be due and owing and to satisfy those tax liabilities.
Idaho Businessman Sentenced for Tax Evasion
On May 13, 2013, in Coeur d’Alene, Idaho, Michael George Fitzpatrick, of Hope, Idaho, was sentenced to 42 months in prison, three years of supervised released and ordered to pay just under $1.4 million in restitution to the IRS. Fitzpatrick was convicted in January 2013 of two counts of tax evasion. A previous jury had convicted him in September 2012 on two counts of failure to file corporate income tax returns. According to the indictment and evidence introduced at both trials, Fitzpatrick operated a business selling products which purported to help individuals eliminate credit card debt. During 2003 and 2004, gross sales from the business, operating under the names Dynamic Solutions Inc. and North American Educational Services Inc., exceeded $9 million. Trial evidence proved that the corporations failed to report $3.7 million and Fitzpatrick himself failed to report over $500,000 in income, resulting in a total tax loss of $1,397,762. The evidence further established that Fitzpatrick last filed an individual income tax return in 1996. At trial, Fitzpatrick argued at length that the income tax laws did not apply to him. However, he put all of his property in the names of nominees. Fitzpatrick sent over $5 million offshore to a bank located in the Dominican Republic. Fitzpatrick accessed this money through the use of a debit card and through wire transfers. During a two-year period Fitzpatrick used over $1 million of his money hidden offshore to buy real estate and to gamble in Las Vegas. He also paid a contractor to build a schoolhouse for his kids in his backyard in Hope, Idaho.
Former Illinois Town Supervisor Sentenced for Tax Fraud
On May 8, 2013, in Urbana, Ill, Larry D. Gibbs, former Pembroke Town Supervisor, was sentenced to 18 months in prison and ordered to pay $66,282 in restitution to the IRS. Gibbs pleaded guilty on October 29, 2012 to filing a false income tax return. According to court documents, on or about April 15, 2006, Gibbs filed a 2005 Form 1041 with the IRS for the purported 'Larry Dean Gibbs/Trust.' Gibbs falsely claimed on Line 9 of the 2005 Form 1041 that the trust had total income of $200,854, when in fact, the trust had earned no income. Gibbs falsely claimed on Line 12 of the 2005 Form 1041 fiduciary fees of $200,854, when in fact, the trust had paid no fiduciary fees. As a result of false and fraudulent statements on the 2005 Form 1041 that he filed for the ‘Larry Dean Gibbs/Trust,’ Gibbs was issued a $66,282 refund to which he was not entitled to receive.
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.