Our whistleblower lawyer blog has followed closely investigations of hedge funds and other offshore investors for tax fraud and other IRS violations. After investigating a tax fraud conspiracy involving offshore companies and offshore bank accounts, the Justice Department and the IRS have announced that an attorney and two certified public accountants have pleaded guilty to tax fraud and aiding the preparation of a false tax return.

Attorney Graham R. Taylor of Tiburon, Calif., pleaded guilty last week, shortly before a trial scheduled in Salt Lake City before U.S. District Court Judge Tena Campbell. Certified Public Accountants Stephen F. Petersen of Coalville, Utah, and Reed H. Barker of Littleton, Colo., pleaded guilty to the tax fraud a week earlier, and Petersen also entered a guilty plea to aiding in the preparation of a client’s false tax return.

The alleged $20 million fraud scheme included using phony documentation for fictitious currency transaction losses, false insurance expense deductions, and “bogus” capital losses for the purpose of fraudulently offsetting taxable income for clients, according to the government. The defendants used offshore companies, offshore bank accounts, the services of offshore nominees, and opinion letters that allegedly gave legal authority for the fraudulent transactions.

CPA Petersen of Coalville also admitted that he and an attorney who still faces charges would typically receive a fee of up to 30 percent of the tax evaded by the clients.

Attorney Taylor admitted that he devised, marketed and implemented a tax shelter known as “The Hybrid” to assist others in evading income taxes. Taylor also admitted that he prepared tax opinion letters with fraudulent misrepresentations; that he used persons in the Cayman Islands as nominees for his clients; and that he falsely disguised client funds through fraudulent transfers.

The three defendants who pleaded guilty, together with alleged co-conspirators attorney Dennis B. Evanson of Sandy, Utah, accountant Brent H. Metcalf of Cottonwood, Utah, and investment broker Wayne F. DeMeester of Sammamish, Wash., had been indicted in late 2005 for conspiracy to defraud the United States, conspiracy to commit mail fraud, and wire fraud. Five of these defendants also were charged with tax evasion and assisting in the filing of false tax returns.

The case was investigated by the IRS Criminal Investigation division. It is being prosecuted by the Department of Justice’s Tax Division and the U.S. Attorney’s Office for the District of Utah. Jury selection for the remaining defendants began yesterday.
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The new IRS Whistleblower Office’s Rewards Program that we have followed closely on this whistleblower lawyer blog made further progress this week. The IRS gave notice on January 9 that it intends to create a proposed new system of records–“Whistleblower Office Records.”

The purpose is to allow the new IRS Whistleblower Office to administer the IRS Whistleblower program more effectively, in contrast to the “old,” decentralized procedures that the IRS used before Congress authorized the new IRS Whistleblower Rewards in December 2006.

The new Whistleblower Office Records will contain records pertaining to whistleblower award applications that were filed before or after the new Whistleblower Office was created in early 2007. Based on my earliest discussions with IRS Whistleblower Office Director Stephen Whitlock, it is an essential step to bring all whistleblower submissions to the same place so that the Whistleblower Office can administer the program effectively.

We congratulate Mr. Whitlock and the Whistleblower Office on their continued efforts and progress to make the Whistleblower Program as effective as it can be.

The Notice is “Whistleblower Office Records — Treasury/IRS 42.005,” 73 F.R. 1667-1669. It is reprinted below:
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