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Can Tax and Bank Professionals Who Aid in Setting Up Tax Shelters be Prosecuted?

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    Each year, the IRS conducts thousands of audits of individuals and businesses. While most of these audits end with no findings of criminal wrongdoing but additional tax assessments interest and civil fines being assessed, are common, some can lead to criminal referrals. Furthermore, if serious criminal misconduct is found, Tax and Bank Professionals who aided the taxpayer in their tax preparation and filing can face criminal tax investigation and prosecution as well. One recent case illustrates just how long the federal government’s memory is about tax professionals who try to cheat the system and get away with it.

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    Government Prosecution of Persons Who Aid in Setting Up Tax Shelters

    Starting around 2005, the IRS and the government took a major interest in targeting large law firms, accounting firms, and financial firms that had been involved with individuals accused of tax crimes. In particular, there was a serious focus on companies thought to be helping clients set up illegal tax shelters. These investigations eventually turned into prosecutions, and convictions were achieved against employees of major firms countrywide. Further, settlements were reached where the firms themselves admitted corporate wrongdoing and paid out large sums, including a $456 million dollar fine for accounting giant KPMG LLC.

    Today’s IRS remains committed to prosecuting tax professionals who assist in setting up tax shelters, especially those involved in large, fraudulent schemes. If you are a Tax Lawyer, EA, CPA or financial professional and you think your conduct may have exposed you to criminal liability, you should contact an experienced tax law attorney like those at the Tax Law Offices of David W. Klasing as soon as possible, so we can get to work right away on mitigating any potential damage.

    The Example of the Coplan Case

    In 2012, a major decision was released by the Second Circuit in a case called United States v. Coplan et. al. In the 2007 indictment, four former partners at Ernst & Young, one of the “Big 4” accounting firms in the U.S., had been charged with helping wealthy clients create illegal tax shelters by manufacturing billions of dollars in paper losses that were used to offset their taxes. Other employees were also charged with various tax crimes related to the scheme, including a lawyer by the name of David Smith.

    The scheme essentially went as follows: a small group with Ernst and Young known as the Strategic Individual Solutions Group (“SISG”) developed, marketed, and implemented four tax shelter products called COBRA, CDS, CDS Add-On, and PICO. The group provided these products to nearly 200 clients to defer, reduce, or eliminate a combined $2 billion in tax liabilities. Further, they prepared tax returns falsely claiming deductions based on losses from these tax shelters. They also worked to cover up the scheme and defend clients dealing with IRS audits related to the tax shelters.

    The 2nd Circuit, in a lengthy, technicality-heavy opinion, upheld the tax fraud convictions of two of the Ernst & Young employees and reversed the convictions of two others. The vacated convictions mainly related to what the court saw as the government’s failure to prove intent in their cases. In addition, a plea agreement was reached out of court with David Smith, the lawyer who assisted in the scheme, where he agreed to plead guilty to a single count of tax evasion and serve time.

    David Smith Goes on the Run

    Before David Smith could be sentenced in accordance with his plea deal, however, he left the country, fleeing north to Vancouver, Canada. For 11 years, he fought extradition by the Canadian government, but recently, U.S. authorities finally succeeded in their quest to bring him home. At his sentencing hearing, Smith claimed that he had fled to Canada not to avoid criminal prosecution but because he wanted his daughters to grow up in a different environment “in the aftermath of 9/11.” He also claimed he thought prosecutors would go back on the promises of leniency they had made in exchange for his cooperation.

    U.S. District Judge Sidney Stein of Manhattan was not buying these excuses. “I do find his conduct was serious, long-running, and caused great harm,” Stein said. “He was really a leader, a developer of this tax fraud scheme.” As such, he sentenced Smith to 3 years in federal prison, the maximum allowed under the deal that had been previously negotiated.

    If You Are Taxpayer that Utilized an Illegal Tax Shelter or a Tax Professional Concerned about Criminal Tax Liability, Call Our Skilled Criminal Tax Defense Lawyers Today

    While running away to Canada, or elsewhere, is not likely to solve your legal problems, at least not forever, there are many valid defenses that can be made for tax professionals charged with criminal tax misconduct. This is made clear by the reversal of two of the convictions in the Coplan case due to a lack of proof of willingness or intent. The best thing you can do if you are a tax professional worried that you could be criminally charged is to contact a skilled tax lawyer like those at the Tax Law Offices of David W. Klasing. We will leave no stone unturned fighting to reach a satisfactory settlement or achieve a not guilty verdict at trial. To schedule a consultation, call our office today at 1 800 681-1295.

    We Are Here for You

    Regardless of your business or individual tax needs, the professionals at the Tax Law Offices of David W. Klasing are here for you. We are open for business and our team will help ensure that your business is too. Contact the Law Offices of David W. Klasing today to discuss your business with one of our professionals.

    In addition to our main office in Irvine,  the Tax Law Offices of David W. Klasing has unstaffed (conference room only) satellite offices in Los Angeles, San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland, Carlsbad and Sacramento. During the COVID-19 pandemic, our staff are working from home, but have full virtual meeting capability.

    Our office technology allows clients to meet virtually via GoToMeeting. With end-to-end encryption, strong passwords, and top-rated reliability, no one is messing with your meeting. To schedule a reduced-rate initial consultation via GoToMeeting follow this link.   Call our office and request a GoToMeeting if you are an existing client.

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