Tax Fraud

US Taxpayers: Beware of these FATCA and Tax Scammers

February 3, 2015 | by Dennis N. Brager

tax preparer.jpg Tax scams have likely been around for as long as taxes have been collected. In light of the significant penalties, fines, prison sentences and other consequences that can be imposed for tax non-compliance issues, taxpayers have good reason to be apprehensive or nervous if they are contacted by someone claiming to represent the Internal Revenue Service (IRS). Thus, if you are contacted by an IRS agent, it is always prudent to verify their identity, the fact that they are employed by IRS, and request a callback number at the IRS where the agent can be reached. Furthermore, if you are contacted by an individual claiming to represent the IRS or the US government, an experienced tax professional can often more readily recognize the signs of a tax scam.

At the Brager Tax Law Group we recognize that well-meaning taxpayers can face serious consequences if they are taken in by a tax scam. This post will identify and discuss a number of the more common tax scams and their consequences as identified by the IRS.

Tax preparer fraud can result in new tax problems

Tax Evasion Conviction of Las Vegas Attorney Paul Wommer Upheld by 9th Circuit Court of Appeals

January 6, 2015 | by Dennis N. Brager

Las Vegas criminal defense attorney Paul Wommer, was convicted of tax evasion based on his failure to pay approximately $13,000 of interest and penalties imposed on the principal of his delinquent taxes. In a somewhat novel appeal to the 9th Circuit he argued he hadn’t committed “tax evasion” under Internal Revenue Code § 7201 because he had paid all of his tax debt, just not the penalties and interest. The court disagreed and instead took a more broad approach to the definition of taxes. Citing Internal Revenue Code § 6665(a)(2), which states that a tax shall also refer to the “additions to the tax, additional amounts, and penalties provided by this chapter,” the court found that the penalties would be considered taxes for tax evasion purposes. The Court also pointed to IRC Sections 6601(e) and 6671(a). IRC Section 6601(e) provides:

Interest prescribed under this section on any tax shall be paid notice and demand, and shall be assessed, collected, and paid in the same manner as taxes. Any reference to this title (except subchapter B of chapter 63, relating to deficiency procedures) to any tax imposed by this title shall be deemed also to refer to interest imposed by this section on such tax.

IRC Section 6671(a) provides:

Florida Doctor Sentenced in Criminal Tax Case for Concealing Assets and Filing False Individual Income Tax Returns

September 16, 2014 | by Dennis N. Brager

Individuals using offshore bank accounts to conceal assets and facilitate tax fraud continue to be prosecuted by the Department of Justice. Under the Bank Secrecy Act, citizens and lawful permanent residents (i.e. “Green Card” holders) that have an interest in or signature authority over a financial account in a foreign country with assets in excess of $10,000 at any time during the year are required to disclose the accounts on their individual income tax returns, both on Schedule B, and if the accounts are large enough on Form 8938. They must also file a FBAR (Report of Foreign Bank and Financial Accounts) on FINCen Form 114 disclosing any financial account in a foreign country with assets in excess of $10,000. Dr. Patricia Lynn Hough was recently convicted of conspiracy to defraud the IRS by keeping money in offshore bank accounts and filing false individual income tax returns that failed to report the income received by her on the foreign bank accounts. Hough was sentenced to 24 months in jail and ordered to pay over $15 million in restitution in addition to paying over $40,000 in prosecution costs.

Hough, a United States resident and the owner of 2 medical schools in the Caribbean, created nominee entities and used undeclared foreign bank accounts to conceal assets from the IRS. Upon selling the medical schools for over $35 million, the entire proceeds from the sale were deposited into undeclared accounts in the names of the nominee entities. The majority of the sale proceeds were not reported on her tax returns. The unpaid taxes totaled over $15 million. In addition to the proceeds received from the sale of the medical schools, Hough also failed to report a large amount of interest and investment income and failed to report that she had an interest in bank securities or other financial accounts located in foreign countries.

The money in the accounts, though, didn’t go untouched. Through evidence including e-mails, telephone calls and in-person meetings, the IRS was able to establish that Hough and her husband had asset managers that made investments and transferred funds from the offshore accounts in the names of the entities and medical schools to offshore accounts in their own names. The funds were later used to fund what the Justice Department referred to as “their lavish lifestyle.”

Business Owners Get Jail Time for Tax Evasion

September 3, 2014 | by Dennis N. Brager

Sometimes understating income is just carelessness. Sometimes its tax fraud or tax evasion. People don’t always realize that tax fraud or tax evasion can lead to time in jail.

Convincing judges to sentence defendants to prison for criminal tax evasion continues to be a priority for the Department of Justice where taxpayers have willfully underreported their income or made false statements to the IRS revenue agents regarding their tax liabilities, as shown by unrelated decisions handed down against Abdelhamid M. Horany and Robert C. Sathre.

Horany, a business owner, admitted to underreporting his income by approximately $175,000, which resulted in his underreporting his tax due and owing by over $60,000 in 2007 alone. In total, Horany underreported his tax due by more than $145,000; he was sentenced to 12 months in prison for his actions. Sometimes taxpayers try to convince themselves that the IRS won’t go after them because they are “minnows.” This case is a warning that it is not necessary to evade millions of dollars in taxes in order to be prosecuted for tax evasion.

Swisspartners Group Entered Into NPA to Avoid Criminal Tax Prosecution But Must Pay $4.4 Million in Forfeiture and Restitution for Assisting U.S. Tax Evasion

June 13, 2014 | by Dennis N. Brager

To avoid prosecution for tax evasion and other alleged crimes, the Swisspartners Investment Network AG, a Swiss-based asset management firm, and three of its wholly-owned subsidiaries (collectively, the Swisspartners Group) entered into a non-prosecution agreement (NPA) with the U.S. Attorney’s Office. Although many taxpayers have been entering the IRS Offshore Voluntary Disclosure Program (OVDP), for some taxpayers it is now too late as the Swisspartners Group has already disclosed to the U.S. Attorney’s Office the names of 110 U.S. taxpayers who may have failed to file Foreign Bank Account Reports (FBARs) and/or been engaged in tax fraud.

Although the Swisspartners Group avoided criminal prosecution for assisting U.S. taxpayers in opening and maintaining undeclared foreign bank accounts from about 2001 to 2011, it couldn’t avoid paying large sums of money for its wrongdoing. Swisspartners Group agreed to pay $4.4 million in forfeiture and restitution. Of the $4.4 million, $3.5 million represents fees that Swisspartners Group earned by assisting U.S. taxpayers in opening and maintaining undeclared accounts, and $900,000 represents the approximate amount of unpaid taxes arising from the Swisspartners Group involvement in tax evasion.

There are several factors that led to the NPA between the U.S. Attorney’s Office and Swisspartners Group: (1) beginning around May 2008, the Swisspartners Group voluntarily implemented remedial measures against offshore tax evasion; (2) without any pressure from the U.S. authorities or obligation under a criminal investigation or prosecution, the Swisspartners Group reported criminal conduct by its clients; (3) the Swisspartners Group produced 110 account files that identified U.S. taxpayers who evaded taxes; (4) the Swisspartners Group’s willingness and ongoing cooperation with the U.S. authorities to combat tax evasion; and (5) the Swisspartners Group, when investigated by outside counsel, made true representations of the misconduct that was under investigation.

The Swisspartners Group admitted, as part of the NPA, that it knew certain U.S. taxpayers maintained undeclared foreign bank accounts with the intent to evade U.S. taxes. Swisspartners Group also admitted that it helped certain U.S. taxpayers conceal beneficial ownership of undeclared assets from the IRS by, among other things: (1) creating sham foundations or other sham entities that operated as the nominal account holders; (2) using non-U.S. nationals on accounts or insurance policies; (3) facilitating the transportation of large amounts of cash into the U.S. for the benefit of U.S. taxpayers; and (4) arranging large cash deposits in Swiss financial institutions for the benefit of U.S. taxpayers.

Under the NPA, the Swisspartners Group must continue to cooperate with the U.S. tax authorities for at least three years from the date of the agreement; otherwise, the U.S. Attorney’s Office may prosecute the Swisspartners Group.

Grim Outlook for Congressman Michael Grimm after 20-Count Indictment Alleging Tax Fraud

May 22, 2014 | by Dennis N. Brager

Congressman Michael Grimm faces a 20-count indictment in federal court for allegedly committing tax fraud, and evading taxes by concealing more than $1million in sales and understating wages. He is charged with five counts of mail fraud, five counts of wire fraud, three counts of aiding and assisting in the preparation of false federal tax returns, one count of conspiring to defraud the United States, one count of impeding the IRS, one count of health care fraud, one count of engaging in a pattern or practice of hiring and continuing to employ unauthorized aliens, two counts of perjury, and one count of obstructing an official proceeding.

If convicted, Grimm faces up to 20 years for each mail and wire fraud charge and for the obstruction charge, up to 10 years of imprisonment for the health care fraud charge, and up to five years of imprisonment for the charge of conspiring to defraud the U.S. and for each perjury charge. Furthermore, he faces a term of imprisonment of up to three years for each charge of aiding and assisting in the preparation of false and fraudulent tax returns and for the charge of obstructing and impeding the due administration of the tax laws. Finally, he faces up to six months of imprisonment for engaging in a pattern or practice of hiring and continuing to employ unauthorized aliens, as well as forfeiture, restitution, and fines.

It is ironic that Congressman Grimm would be involved in such actions given that as a former FBI agent he was investigating fraud. The former Marine, FBI agent, accountant, attorney, and small business owner might now be able to add tax evasion and fraud to his otherwise impressive and distinguished resume.

IRS Criminal Tax Investigation Interesting Facts

April 18, 2014 | by Dennis N. Brager

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Criminal tax cases generally start out in the IRS’ Criminal Investigation (CI) division. It is therefore instructive to look at CI’s annual report that was issued earlier this year for the 2013 fiscal year. To some extent, there were no surprises. International tax evasion and the voluntary disclosure program were among Criminal Investigation’s top priorities. Also included on the list was the tax fraud referral program, and Bank Secrecy Act (BSA) and Suspicious Activity Report (SAR) review teams.

The criminal tax folks also touted an increase in prosecution recommendations of 17.9% over the previous fiscal year. The Criminal Investigation division also trumpeted a conviction rate of 93.1%! It is this high conviction rate which drives the strategy of most criminal tax lawyers which is generally to seek to avoid indictment in the first place. Of course, that’s easier said than done, but at a minimum it requires understanding all of the facts, good and bad, as early as possible.

Tax Fraud Investigation Leads to California Construction Company Owner’s Guilty Plea to Criminal Tax Charges

January 2, 2014 | by Dennis N. Brager

Civil tax problems were the least of Brian Kenny’s worries on Thanksgiving. The California construction company owner, age 40, of San Francisco, pled guilty in November to filing false tax returns for his company, SF Bay Construction, for the 2006 tax year.

According to the press release from the Department of Justice (“DOJ”) and the indictment, Kenny incorporated his business as an S Corporation in February of 2005, and was its sole shareholder through the end of 2007. Kenny’s business tax returns for the years at issue, ranged from reporting a loss of $15,000 to a gain of $1.3 million at various times. The indictment alleged that all of these returns vastly underreported Kenny’s business income. Originally, Kenny was charged with five criminal tax counts stemming from alleged under-inclusion of business income for the 2006 and 2007 tax years. The indictment also alleged that he filed a false Form 941, employment tax return. Ultimately, through a plea agreement, Kenny pled guilty to criminal tax charges only for the 2006 tax year. Kenny admitted that he failed to report more than $470,000 in gross receipts for 2006, and that he intentionally failed to supply accurate income information to his tax preparer.

Kenny’s sentencing is scheduled for February 11, 2014, at which time he faces a maximum penalty of three years in federal prison and a fine of up to $250,000. The three-year prison sentence and accompanying fine faced by Kenny is for the single count of aiding and assisting in the preparation and presentation of a false U.S. income tax return, in violation of Title 26, U.S.C. § 7206(2); had he been charged with tax evasion, or tax fraud, Kenny would have faced an even more severe penalty.

The Family That Commits Tax Evasion Together May Go to Prison Together

October 4, 2013 | by Dennis N. Brager

While offshore tax evasion can sometimes be a family affair as well. U.S. Attorney Preet Bharara recently announced a prosecution of an offshore tax evasion case involving multiple family members. This case illustrates the dangers involved when an older family member passes on without cleaning up his Report of Foreign Bank Account (FBAR). Henry Seggerman, of New York and Los Angeles, pled guilty this summer to one count of conspiracy to defraud the U.S., as well as two counts of filing false tax returns in connection with his family’s Swiss bank accounts. While the DOJ did not say that either Henry Seggerman or any of his siblings actively assisted the late Harry Seggerman with his offshore tax fraud during his lifetime, Henry Seggerman allegedly filed false tax returns after his father’s death that grossly underreported the value of his father’s estate. Furthermore, the tax return that Henry filed on behalf of his father’s estate failed to disclose the over $12 million hidden in Swiss bank accounts.

According to the DOJ, Henry Seggerman and his family continued this offshore tax fraud scheme for over a decade after their father’s death. Seggerman was accused of taking further steps to set up new Swiss bank accounts to conceal the funds inherited by himself and his siblings. Aside from controlling his own offshore bank account, Seggerman was accused of helping his brother repatriate funds from a Swiss bank account to the U.S. under the guise of loans from a foundation that he controlled.

Similar to many others who have been accused of committing offshore tax evasion, Seggerman is expected to fully cooperate with U.S. authorities in exchange for the possibility of a reduced sentence. Seggerman is expected to testify on behalf of the U.S. in the trial of Michael Little, an attorney who advised the Seggermans on financial issues. Little, who is accused of operating an 11-year offshore tax fraud conspiracy, has pleaded not guilty and is awaiting trial. Additionally, three of Seggerman’s siblings have already pled guilty to conspiracy to defraud the United States and filing fraudulent tax returns. All three siblings are currently awaiting sentencing.

While no sentencing date has been set for Seggerman, he faces a maximum penalty of 11 years in federal prison. Additionally, he has already agreed to make a $600,000 restitution payment at the time of his sentencing; if the case follows past patterns it would not be surprising if the total restitution payments are in the 6 million dollar range.
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78-year-old Illinois Businessman Sentenced to Prison for Multi-Year Offshore Tax Evasion Scheme

August 12, 2013 | by Dennis N. Brager

Tax fraud is not limited to the young. The IRS has once again demonstrated that its pursuit of American citizens who commit tax evasion through the use of offshore bank accounts does not diminish when taxpayers of advanced age are involved. Seventy eight- year-old Peter Troost, of Skokie, Illinois, recently pled guilty to tax fraud charges stemming from his use of a Swiss bank account to evade more than $1 million in taxes dating back to 1999. Earlier this year, the TaxProblemAttorneyBlog discussed the prosecution and ultimate acquittal of Hawaiian auto mogul James Pflueger for offshore tax evasion and other criminal tax charges, noting that despite his age of 87 years old, the Department of Justice vigorously prosecuted the case arising from his offshore bank accounts.

Now, Peter Troost, the owner of Troost Memorials, a seller of gravestones and other cemetery markers, has pled guilty to an offshore tax evasion scheme in which he diverted income from both his business and various rental properties into a Swiss Bank Account located at UBS. According to his plea agreement, Troost diverted taxable income into his UBS account for at least 10 years, beginning in 1999. Troost admitted to intentionally failing to report both interest income and income from his business throughout his offshore tax evasion scheme. The timing of the end of Troost’s offshore arrangement (and its discovery) is unsurprising, considering the IRS’ increased scrutiny of offshore banks accounts resulting from UBS’ deferred prosecution agreement to provide information about U.S. account holders that began in 2009.

According to the Department of Justice, Troost is the first taxpayer to be charged in Federal Court in Chicago arising out of the United States’ 2009 agreement with UBS and other Swiss banks for those banks to provide information about U.S. taxpayers holding offshore bank accounts. Given the Department of Justice’s vigorous prosecution of taxpayers who commit offshore tax fraud, Troost may not be the last Chicago-area businessperson to be investigated for use of an overseas bank account. Although Troost’s involvement with UBS lasted for at least 10 years, given the IRS’ increased enforcement efforts against individuals who own undeclared offshore bank accounts it is unlikely that many taxpayers will remain undetected for that long in the future.