Houston Texas Tax Advisor Caught in an IRS Sting Operation

Home » Law Blog » Houston Texas Tax Advisor Caught in an IRS Sting Operation

Table of Contents

A prominent Houston tax law advisor has been in the news recently for all the wrong reasons. Carlos Kepke, a professional known for his work setting up tax avoidance vehicles in offshore havens for wealthy clients, including billionaire Robert F. Smith, is facing criminal tax prosecution in federal court.

Kepke advertised his services as using foreign entities to achieve tax savings and asset protection, but, according to allegations, the ways that he accomplished these goals constituted willful violations of U.S. tax code. Kepke’s case creates a useful example of a key tenet of tax law– always be careful about who you trust to handle (advise on) your taxes.

If you have concerns about your past or present filings or those responsible for preparing them or providing advice, it is critical that you speak with one of the knowledgeable dual licensed Criminal Tax Defense Lawyers & CPAs at the Tax Law Offices of David W. Klasing. Learn more today by calling (800) 681-1295 or scheduling online here to schedule a reduced rate initial consultation.

Houston Tax Pro Gets Caught in Federal Investigation

Carlos Kepke, a Houston lawyer and tax advisor for many of the country’s elite earners, faces criminal tax prosecution for a number of alleged tax evasion schemes that he facilitated on behalf of his clients.

Much of Kepke’s allegedly fraudulent behavior involves the placing of assets in overseas trusts. The Central American nation of Belize was specifically mentioned as a frequent vehicle for the schemes that Kepke generated on behalf of clients.

Kepke pled not guilty to charges including conspiracy and aiding in the preparation of false tax returns. His trial is set to begin this coming November

How the Scheme Worked

Kepke started his practice in 1992 with, according to his website, a singular focus: “the use of foreign structure for United States tax savings and/or asset protection.” According to the indictment, Kepke provided strategies to clients that involved stashing assets in foreign trusts, giving the impression that the client did not have control over the funds.

However, the indictment alleged that Kepke’s clients still remained very much in control over their assets held in trust. This was accomplished through the creation of a series of foreign business entities that shielded the identity of the owner, who was most often either the client or one of their close family members. As Kepke allegedly assured the undercover agent during the sting operation, “You never lose control. You’re just playing with bank accounts.”

Kepke’s Criminal Tax History

This wasn’t the first time the IRS went after Kepke. After an audit of his tax returns, IRS criminal investigators opened a case on him in 1999. An undercover agent recorded Kepke saying he had used a foreign trust and corporation for the past 27 years, and he explained how he set them up for clients. Kepke said he advised them to use a non-US citizen or elderly American to pose as their “creator.”

“What I basically try to do is take your wealth and make it a foreigner,” Kepke told the undercover agent in 1999. “Make it owned by a foreigner so that you, so that your wealth, your dollars, enjoy the tax benefits that you would enjoy if you were a foreigner.”

The agent determined that 20 of Kepke’s 102 clients, including Brockman, appeared to have created such offshore structures. But the IRS decided around 2002 against referring a criminal case to prosecutors. The 2018 affidavit doesn’t explain why.

Kepke’s Connection to Robert F. Smith

Perhaps what makes the federal charges against Kepke most intriguing is that they involve the work Kepke allegedly did for Robert F. Smith. Smith, who is known as the wealthiest Black American today, is the founder of Vista Equity Partners, which manages $96 billion in assets.

Smith is also integral to the indictment, which alleges that Smith paid Kepke roughly $1 million for his services. Smith admitted in 2020 that he used Kepke to evade taxes on more than $200 million in assets held overseas. As part of an agreement with prosecutors, Smith avoided prosecution by agreeing to pay $139 million in back taxes and penalties and to cooperate with prosecutors. This could ultimately mean seeing Smith testify against Kepke if the case were to go to trial.

Taxpayers Should Be Wary of Overly Aggressive Tax Advisors

If there is one key takeaway from the prosecution of Kepke and others associated with his various alleged schemes, it is that tax advisors who overpromise in the area of avoidance are probably using noncompliant measures. If a tax advisor makes you a pitch that sounds too good to be true, chances are that it probably is.

In the area of tax law, arguing that you didn’t know what your tax advisor or preparer was up to will not be a valid defense to most charges. Remember, no matter who prepares your tax returns, your signature goes on the bottom of all of your filings. This signature is under the penalty of perjury, meaning that submitting a return or other filing that is fraudulent or misleading is a federal crime and subject to punishments that may include fines or jail time.

Even if you are able to reduce or defeat the charges against you for the actions of your tax advisor or preparer, the damage caused by the indictment or investigation alone can be costly. In any case, you will likely owe a substantial amount in fines plus interest, and that is not even considering the impact on your personal and professional reputation, as well as your ability to secure credit or loans.

If you have already engaged with a questionable source for your tax preparation and filing needs, you may still have options, such as voluntary disclosure, that can limit the damage done by your tax advisor’s noncompliance. However, if you want to preserve your ability to rectify these wrongs, you must act quickly and contact a seasoned Criminal Tax Defense Attorney as soon as possible.

Get the Help You Need from Our Experienced Dual Licensed Domestic and International Criminal Tax Defense Lawyers & CPAS

When you reach out to the Tax Law Offices of David W. Klasing at (800) 681-1295 or schedule online here to book a reduced rate initial consultation, we can get started immediately on reviewing your situation and preparing your defenses, starting with a reduced-rate initial case assessment.

See our 2011 OVDI Q and A Library

See our FBAR Compliance and Disclosure Q and A Library

See our Foreign Audit Q and A Library

Concerned About Criminal Tax Charges? Call the Tax Law Offices of David W. Klasing

If you are dealing with serious tax matters, you deserve tax assistance that you can rely on. Schedule your first reduced-rate case evaluation with our Criminal Tax Defense Lawyers by calling (800) 681-1295 today or schedule online here.

If you have failed to file a tax return for one or more years or have taken a position on a tax return that could not be supported upon an IRS or state tax authority audit, eggshell audit, reverse eggshell audit, or criminal tax investigation, it is in your best interest to contact an experienced tax defense attorney to determine your best route back into federal or state tax compliance without facing criminal prosecution.

Note:

As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed foreign information returns coupled with affirmative evasion of U.S. income tax on offshore income) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosure before the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply.

It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.

Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.

As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, Kovel CPAs and EAs, our firm provides a one stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!