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.
According to the government’s Trial Brief, “Defendant DeMeester was an Account Executive with Wachovia Securities and numerous predecessor firms. Through brokerage accounts under his supervision, DeMeester participated and assisted in the schemes by moving money between the accounts of the various companies used in the tax evasion schemes. DeMeester also assisted in moving fictitious shares of stock into clients’ Individual Retirement Accounts (I.R.A.s), thereby making I.R.A. funds available to clients without payment of taxes or penalties as described more fully below.” Various Wachovia employees were prepared to testify for the government, according to the government’s filings.
The statutes charged in the case include the following:
A. CONSPIRACY
Title 18, United States Code, Section 371 provides, in pertinent part:
“If two or more persons conspire . . . to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each [shall be guilty of an offense against the United States].”
B. ATTEMPTED TAX EVASION
Title 26, United States Code, Section 7201 provides, in pertinent part:
“Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall [be guilty of an offense against the United States].”
C. AID AND ASSIST IN THE FILING OF FALSE TAX RETURN
Title 26, United States Code, Section 7206(2) provides in pertinent part:
“Any person who willfully aids or assists in or procures, counsels or advises the preparation…under, or in connection with any matter arising under, the internal revenue laws, of a return, affidavit,
claim, or other document, which is fraudulent or false as to any material matter [is guilty of an offense against the United States].”
We congratulate the IRS and Tax Division of DOJ for uncovering this $20 million tax scam and obtaining these convictions.