missed filing TD F 90-22.1 in 2006 - Jerome Schneider - and other scams - CPA and other professionals go to jail for tax fraud -

xxxx xxxxxxx wrote:

I am a Canadian living in the US for almost 3 years now.  In 2005 I correctly filed the appropriate TD F 90-22.1 forms to report my Canadian bank accounts and RRSP.  However, in 2006 it totally slipped my mind (I was just thinking about filing for bank accounts, and forgot about the RRSP), and I just now remembered that I was supposed to file one.  Am I correct in thinking that I should file one for 2006 now, even though I am long past the deadline for the 2006 filing?  My thought for doing that, is that if the IRS takes issue to us not having filed one timely in 2006, at least I will show my intent to rectify the situation by filing it at some point, if it wasn't timely.


david ingram replies:

During an international IRS/Dept of Justice Professional  Accreditation  Credit Teleconference  "class" in June 2007, the student attendees were told that  minimum $10,000 fines for failure to file the TDF forms were going to be the norm rather than the exception. We were told that they - the Department of the Treasury - want them filed back SIX years.
I would file if I were you.

The following is what I sent out at that time.

This is not the result of a question but is the result of an IRS Tele-conference on June 20, 2007. 

The subject was the reporting of foreign bank on form T D F 90-22.1.

In particular, the tele-conference made the point that  June 30th  "IS" the deadline and that fines are being increased and in particular, there are / will be severe penalties for non-compliance.

It would seem that there is NOW a $10,000 penalty for failure to file the form although that is in the regulations and not on the form.

I know from other sources that some 1,000 clients of former advisor Jerome Schneider are in the process of  being fined as I write this.

I also admit that I have not worried much about the June 30th filing date in the past.

However, the teleconference made the point that practitioners are subject to fine for not following up on these filings.

As I write this Terry or Phyllis ?? is making it very clear that RRSP accounts must be reported but that the Company Pension does not have to be reported.

So--- if you have not being reporting your foreign accounts - report now.

AND, they also made the point that everyone with foreign accounts MUST file schedule B, even if there is no earnings form the accounts.

AND, they also made the closing  remark that if they have NOT been filed in the past, taxpayers should file back SIX years.

david ingram


The practitioner mentioned above, Jerome Schneider also received a $100,000 fine and a jail sentence,

A lady client brought  me a Polar Bear Claw and tooth last week. 

The Following points out that the CRA and IRS do have teeth and claws that make my polar bear tooth and claw look like a jelly bean.

I have a question for you. 
If the US taxes your worldly income, how does the US know about it if you don't report it? 
Do Revenue Canada (insert other revenue agency name/country) and the IRS in the States freely share this information?  Do they actually match their tape registries of full names SIN's and SSN's?  I have a hard time believing that a US Citizen living as a permanent resident and working in France is claiming their income or that the US would possibly know about it.
How in the world would the IRS possibly know if one of their ex-pat's is earning income in another country?
This just seems pretty hard to believe as I know many ex-pats in Canada that have worked very high paying jobs/careers and never have looked back to the US let alone pay taxes or report income back to the US on their hard earned Canadian income!

david ingram replies:

I likely know of 100 x's more US citizens living in Canada without reporting than you do.  Up to this moment, i have never taken advantage of US form 211 which allows someone to report a US citizen and claim a reward of up to 30%  OF THE TAX COLLECTED.   However, take a look at the form.  I have an old acquaintance who makes his living turning in Americans that he meets on golf courses, at Board of Trade Luncheons and other places that wealthier Americans can be found.  (For instance, I ran into him at the Bill Clinton Speech at the Centre For The performing Arts in Vancouver on Nov 1, 2007.  If you were watching the National News that night, you may have seen Bill getting into his car with one of my US Canadian Friendship flags in his hand.  The black belly unrolling the flag was me.)

You can see the APPLICATION FOR REWARD FOR ORIGINAL INFORMATION form 211 at:  http://www.irs.gov/pub/irs-pdf/f211.pdf

You ask if the two governments exchange information.  the answer is a clear and resounding 'YES'! Canada and the US have had a pro-active mutual exchange agreement since Jan 1, 1996.

In other words, the IRS does provide the CRA with computer tapes of 1042S payments made to persons with Canadian addresses and the CRA provides the US with copies of information for US recipients of NR4 forms.

You mention France which I find delightful.  My very first 'big' case involved a fellow with the initials ML.  He was caught by the US embassy in PARIS, FRANCE.  Tax bill $218.000 and by the time he was finished, he had lost his house, wife and car (no particular order there but I think the Porsche hurt the most).

In my opinion there is 100 x's more chance being caught in France that in Canada because in France, An American in trouble has to go to the US Embassy for help with a lost passport, etc., and in Canada, 98% (or so) of Americans in Canada live within 150 miles of the US border and just go south to deal with a problem.  Also, there are over 500,000 Americans in Canada and any single individual gets lost in the masses.

However, an American with a $100,000 RRSP who does not file is automatically liable to:

1.    A minimum fine for failure to file form TDF 90-22.1 of $10,000 with a maximum of $500,000 plus up to five years in jail
       (the record in my office was a 105 year old lady with a $10,000 fine). (This form is filed with the Dept of the Treasury)

2.   A fine of 35% of the amount in the RRSP PLUS 5% per year for every year not reported for failure to file form 8891 with the IRS.
Form TDF 90-22.1 must be filed for each and every foreign account when the combined total of all foreign accounts exceeds $10,000 US.

Over 1,000 US citizens are in the process of being fined or censured on this item alone because of their dealings with a Vancouver Consultant named Jerome Schneider.  Jerome Schneider was arrested on holiday in San Francisco.  As part of his plea bargain for a $100,000 fine and six months in jail, he agreed to turn over his 1,072 clients to the IRS and Treasury.
The following contains names of OVER 100  tax advisors and attorneys AND THEIR CLIENTS who have been jailed and is one of my older answers with a link to more Jerome Schneider and offshore information.  It starts with American advisers and ends way down there with brief mentions of Canadians Hoffman, Masee, Brown and Schneider.  I also have to say that I have met 20 to 30 of these promoters over the years.  At one time I had offices in 30 states and attended many seminars on how to avoid tax.  I do not know of a single one of them that worked.  Jerome Schneider had a lot of my paperwork in the materials he handed out.  He even handed out exact copies with the same spelling or other identifying error, some of which are put in intentionally for copyright purposes.

Do NOT stop here.  You asked and I answered.  Read about just how efficient the CRA and IRS are.  The CRA extradited Hoffman from Australia and the IRS extradited a fellow from Madagascar.  It is very difficult to forever remain somewhere with no extradition.

david ingram

[Income Tax Help - CEN-TAPEDE] taxation, and secrecy - Jerome Schneider - Hoffman, Brown, Masee - a whole bunch of Americans and Canadians sentenced to jail for tax avoidance schemes. - international non-resident cross border income tax help assistance expert preparation & immigrant

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QUESTION: I am concerned about secrecy in regards to a very legitimate business being conducted on an international level. Mainly the safety of those employed in what would be a very profitable endeavor. By forming an offshore LLC, say in Nevis would this secrecy be maintained. Secondly as an American citizen I have no problems with the payment of taxes. But I remember working as a merchant marine officer, and almost fainting when looking at how I was Taxes for what I call blood money earnings. I put in a lot of time, hours, physical effort, and mental effort to be taxed such as I was. It left a bitter taste in my mouth regarding taxes. I called it legal robbery. As I said I don't really mind reasonable taxes, but I' afraid that the situation in our society dictates that my earnings will somehow be shanghaied. Can I find some relief of heavy American taxes through a foreign LLC. Thank you very much for your time, and consideration Looking forward to hearing from you as time permits ---------------------------------------------- david ingram replies: Taxes are all in the eyes of the beholder. I had a fellow from India yesterday. He was so happy to be here that he paid significantly more US taxes than he had to for the benefit of being a legal resident of Canada while working in the United States. It wasn't his expression but it reminded me of another client who told me that the best life was to have: *        an Indian Wife *        Chinese food *        A British Home and *        an American salary. I assure you that there is no way that you can go offshore legally as a US citizen and exempt all of your income as a ship's officer unless you marry someone in a tax free zone such as Panama or Costa Rica, father some children, and return to that home whenever you get a leave. i.e. you "really" do live there. Establishing a bone fide residence in another country would allow you to exempt up to $80,000 US from US tax and as long as you were genuinely living in that jurisdiction, you would only be taxable by the US on amounts over $80,000 US. See form 2555 as part of your US 1040 Income Tax Package - www.irs.gov forms will let you see it. Three years ago a fellow named Jerome Schneider set some 1,070 US citizens up with offshore corporations over a 12 year period. Jerome was charged and convicted and plea bargained a possible 20 years in jail down to less than a year by turning over the accountants and lawyers who had helped him and over 1070 clients to the IRS - you can read more from an old Q & A as follows: -------------------------------------- I attended a seminar a couple of nights ago which dealt with a Corporation Sole as a method of avoiding Income tax - Is this a good deal. Will it work? It was going to be set up in New Mexico because they have some old Spanish Law which makes it work in New Mexico. ====================== david ingram replies: Forget it - there is no such thing as a corporation sole making your tax liability go down unless you are a legitimate religion. You can read more specifically about Corporation Sole scams at the IRS site at: http://www.irs.gov/newsroom/article/0,,id=121566,00.html Stay away from any offshore schemes or set-ups. I guarantee that the IRS and CRA have covered just about everything and are prosecuting people from Miami to Alaska, from Los Angeles to St John's Newfoundland. The ones I have shown are all American but there have been an amazing number in Canada in the last two years as well. If you go to http://www.irs.gov/compliance/enforcement/article/0,,id You will get the following. You will notice that a lot of accountants and lawyers have gone to jail for the false advice and work they have done. Vancouver's own Jerome Schneider is mentioned twice. He pled guilty and is already out of jail but he is cooperating fully with the IRS in helping them track down and prosecute over 1,000 of his clients and the attorneys and accountants who assisted him. A lot of the paperwork he handed out at his seminars was taken from my stuff complete with the same printing errors. You can read more specifically about Schneider at: http://www.quatloos.com/schneider_witmeyer_guilty.htm FY2005 Examples of Abusive Tax Scheme Investigations The following examples of abusive tax schemes and fraud investigations are excerpts from public record documents on file in the courts in the judicial district in which the cases were prosecuted. Two Reno-Area Accountants Plead Guilty to Tax Crimes in Connection With Client’s Use of Abusive Offshore Scheme On September 29, 2005, in Las Vegas, NV, Roger Steele, owner of Steele Accountancy, Inc., pleaded guilty in connection with the advice and assistance he gave to a client, Dale Brown, regarding Brown’s 1998 individual income tax return and the 1998 income tax return of Brown’s domestic corporation. Kimberly Steele pleaded guilty in connection with her obstructive conduct while representing Brown during the course of the IRS’s 1999 civil audit. Brown, an author, previously pleaded guilty in April 2004 to filing a false 1998 corporate tax return on which he falsely claimed more than $450,000 in bogus business expenses as a result of his participation in the offshore scheme promoted by Roger Steele. According to documents filed with the court, in 1998 and 1999, Roger Steele assisted Brown in forming two offshore corporations. He advised Brown to transfer monies from his domestic corporation to the offshore corporations and to record bogus expenses on the domestic corporation’s records for services that were never performed or provided by the offshore corporations. Roger Steele also advised Brown that he could bring the monies transferred to the offshore corporations back into the country disguised as loans or by using a credit card issued by an offshore bank. Steele admitted that as part of the scheme, he knowingly prepared two false tax returns for Brown: a false 1998 income tax return for Brown’s domestic corporation that included fraudulent business deductions of more than $450,000, and a false 1998 individual income tax return for Brown that understated Brown’s income tax liability by approximately $223,000. Kimberly Steele admitted that during the IRS’s 1999 audit, she assisted Brown in presenting to the IRS auditor a false explanation about Brown’s use of an offshore credit card. To support the fictitious explanation, she knowingly signed and presented to the IRS auditor a false affidavit. $8 Million Foreign Investment Nets Prison Terms for Central Coast Father-and-Son Team On September 27, 2005, in Los Angeles, CA, James Carroll Sexton was sentenced yesterday to 88 months in federal prison. His son, James Carroll Sexton Jr. was sentenced yesterday to 21 months in prison. The Sextons each pleaded guilty on March 10, 2005, Sexton Jr. pleaded guilty to four counts of mail fraud and a conspiracy to launder money. The elder Sexton pleaded guilty to 11 counts of mail fraud, two counts of wire fraud, four counts of money laundering, and one count of conspiracy to money launder. The elder Sexton posed as an attorney and told victims he would establish a "bank within a bank," or a trust account, at banks in Liechtenstein, a country near Switzerland with strict bank secrecy laws. Victims testified that they were told their money would be safe, secure and held under their sole control. Bank records and witnesses showed that between May 1998 and February 1999 victims transferred more than $8 million to the accounts ostensibly established on their behalf by Sexton. In reality, Sexton was the sole owner and controller of the accounts. When foreign bankers began to question Sexton about the true owners of the funds, he misrepresented the source of funds and, with the assistance of Sexton Jr., withdrew the victims' funds and moved the money through various other foreign bank accounts under fictitious names and nominees in an effort to conceal and disguise ownership. Liechtenstein law enforcement authorities provided extensive and prompt assistance to United States authorities and returned more than $4 million of the fraud proceeds to the U.S. Two CPA’s Sentenced in $120 Million International Tax Shelter Case On September 16, 2005, in Seattle, WA, two Anderson’s Ark & Associates (AAA) accountants were sentenced for aiding and assisting in the preparation and filing of fraudulent income tax returns. Tara LaGrand, of Naples, FL, was sentenced to 24 months in prison, to be followed by one year of supervised release. Lynden Bridges, of Wheat Ridge, CO, was sentenced to 18 months in prison, to be followed by one year of supervised release. LeGrand and Bridges, each a Certified Public Accountant, were part of AAA, an organization through which fraudulent tax shelters and investment scams were promoted and sold. From 1996 through 2001, AAA had approximately 1,500 clients, nearly 300 of whom reported over $120 million in fraudulent income tax deductions. In their plea agreements, they admitted that they each assisted AAA clients by preparing and filing the partnership agreements, promissory notes, and income tax returns required to implement the “Look Back” program—one of two fraudulent schemes promoted by the AAA organization. Indictments also have been returned against 15 AAA clients nationwide, several of whom have pleaded guilty. Most recently, on September 13, 2005, a jury in Milwaukee, Wisconsin, convicted one AAA client, Glen J. Murphy, of seven counts of filing false tax returns and three counts of willfully failing to file income tax returns. Five Defendants Convicted of Tax Crimes in Connection With Promotion of Abusive Trust Scheme On September 8, 2005, in Phoenix, AZ, five persons associated with Innovative Financial Consultants (IFC) were convicted of tax crimes in connection with the promotion of a tax evasion scheme utilizing abusive trusts called “pure trust organizations. IFC advanced its scheme through several avenues, including domestic and offshore seminars; a promotional website; and an interactive telephone conference line. As a result of the prosecution, the following individuals were convicted: 1.        Dennis Poseley, a former resident of Phoenix, Arizona and co-founder of IFC on charges of conspiracy to defraud the government and willful failure to file tax returns; 2.        Patricia Ensign, a former resident of Phoenix, Arizona and co-founder of IFC on charges of willful failure to file tax returns; 3.        David Trepas, a former resident of Scottsdale, Arizona and consultant for IFC on charges of conspiracy to defraud the government and willful failure to file tax returns; Rachel McElhinney, a resident of Scottsdale, Arizona and consultant for IFC on charges of willful failure to file tax returns; Keith Priest, a former resident of Tempe, Arizona and a “trustee” for IFC on charges of willful failure to file tax returns. According to evidence the government presented at trial, from 1996 through early 2003 the defendants received $4.7 million dollars in fees from their sale of 2,000 “pure trusts,” falsely claiming that their customers could lawfully avoid income taxes by placing their income and assets into either an “onshore” or “offshore” trust package. The evidence revealed that the defendants charged IFC customers approximately $10,500 for the offshore trust package and approximately $4,154 for the onshore trust package. Trial evidence showed that IFC was a prominent vendor with the Institute of Global Prosperity (IGP). At offshore seminars hosted by IGP, defendant Dennis Poseley promoted IFC’s trust schemes to thousands of people. Husband and Wife Sentenced for Tax Evasion Schemes On August 31, 2005, in Honolulu, HI, Royal Lamarr Hardy was sentenced to 156-months in prison, followed by 36 months supervised release, ordered to pay a fine in the amount of $59,267.88, costs of prosecution in the amount of $59,267.88, and $197,555 in restitution to Internal Revenue Service for selling tax evasion schemes and failing to file his own income tax returns. Hardy’s wife and co-defendant, Ursula Supent, was also sentenced to 60 months in prison, followed by 36 months of supervised release, and restitution of $197,555. Two other co-defendants, Michael L. Kailing, a self-styled tax accountant, and Fred M. Ortiz, a tax-return preparer, were each sentenced yesterday to 36 months confinement and three years of supervised release. On May 13, 2005, a federal jury convicted Hardy and his co-defendants of conspiring to defraud the United States by selling various tax-evasion schemes over several years for the purpose of impeding the functions of the Internal Revenue Service. Hardy and Supent were each convicted of a second conspiracy to defraud the United States with respect to their own income taxes. Hardy was also convicted of three counts of willfully failing to file his own income tax returns for 1995, 1996, and 2001. Hardy and his co-defendants were convicted of promoting what they called the Reliance Defense from 1985 to 2002, which consisted of books and binders filled with materials purporting to show a studied conclusion that the federal income tax laws were voluntary. By “voluntary,” the defendants meant that the laws imposed no legal obligation to file a return or pay a tax. The defendants marketed these materials throughout the United States under the business names The Research Foundation and—earlier—The Cornerstones of Freedom. In addition, Hardy’s organization promoted the use of trusts and bankruptcy proceedings to evade the collection of income taxes. Senior U.S. District Court Judge Edward Rafeedie found that these schemes cost the United States treasury more than $8,600,000. Attorney Sentenced for Using Aegis Offshore Trust Program to Evade Taxes On August 11, 2005, in Houston, TX, James S. Quay was sentenced to 15 months in prison to be followed by one year supervised release. Quay was also ordered to pay a fine of $4,000 and to cooperate with the IRS to determine the amount of taxes he evaded which, according to his plea agreement, is believed to be approximately $61,880. In his plea agreement, Quay admitted to diverting $221,000 in income from his personal tax return to an offshore company via intervening transfers to intermediary domestic and foreign trusts under a foreign abusive tax shelter program called Aegis. Tulsa Man Sentenced in Pennsylvania Tax Case On July 19, 2005, in Philadelphia, PA, Robert Singleton was sentenced to 60 months in prison and ordered to pay $2.78 million in restitution after pleading guilty to a one count Indictment charging him with conspiracy to defraud the United States. Singleton, through his company, The Worthington Group, established domestic and foreign trusts in order to transfer clients' money to off-shore accounts. Singleton conspired with William Perkins, a tax return preparer from St. George, Utah, to file false income tax returns on behalf of their clients in connection with the abusive, off-shore trust scheme. The IRS has calculated the total tax loss stemming from Singleton’s off-shore scheme at approximately $3.1 million. Tax Preparer Sentenced on Conspiracy in Trust Scheme On July 1, 2005, in Phoenix, AZ, James D. Sherriffs was sentenced to 12 months and a day, ordered to pay restitution in the amount of $482,252.68 and was given a four year restriction against preparing tax returns and doing bookkeeping services. According to the plea proceedings, Sherriffs agreed to participate through PROTEC Services Trust in the promotion and marketing to taxpayers a system of trusts and to prepare tax returns for these taxpayers for the intended purpose of defrauding the United States by impeding the IRS from collecting the proper amount of federal taxes. Sherriffs admitted to making false statements to a potential client related to his business background and admitted that he knew the PROTEC trust system was set up to evade the payment of federal taxes. Owner of Insurance Company Convicted of Using Abusive Trust Arrangements to Evade Taxes On July 1, 2005, in Urbana, IL, Denny R. Patridge, operator of Patridge Insurance Services, Inc., was convicted of tax evasion, wire fraud, and money laundering. The evidence presented at trial established that Patridge established "trusts" which he used to conceal his earnings, hide the origin of his income, deceive the IRS, and circumvent personal income taxes. Patridge placed funds in bank accounts which bore the names of his "trusts" and claimed on trust tax returns that the funds had been distributed to an offshore trust. At all times, however, Patridge retained full control over funds in the trust bank accounts and enjoyed the beneficial use of those funds, which made the income taxable to him personally. The trial evidence also established that Patridge did not report a substantial amount of his income on returns he filed for 1996 and 1997. In 2000, after the IRS notified Patridge that it had made a formal assessment of the 1996 and 1997 back taxes he owed, Patridge liquidated his investment accounts, set up an "offshore" account, and placed approximately $200,000 in the offshore account. Patridge also evaded approximately $19,523 in taxes for calendar year 1999 on taxable income of approximately $76,796. He evaded those taxes by, among other things, transferring money he earned as income to a foreign account, concealing that money from the IRS, using the money to pay personal expenses, and failing to file an individual income tax return. According to the evidence presented at trial, shortly after the IRS informed Patridge that a lien could be placed on his property if he failed to pay his 1996 and 1997 income taxes, Patridge set up a system to hide his assets from the IRS. He began to move his money offshore to an account that was under his control but not under his name. He established a new account at Edgar County Bank and Trust in Paris, Illinois, in his own name, through which funds could be directed offshore. In October, 2000, he wired approximately $200,000 in funds from the account at Edgar County Bank to an account at a bank in St. Kitts held in the name of Nevis American Trust Company, an entity which maintained the funds on behalf of Sultan Services, Ltd. Sultan was under Patridge's direction. After he transferred $200,000 to St. Kitts, Patridge then took steps to prevent the IRS from obtaining a first lien on his real estate. He caused the mortgage on his home in Strasburg to be recorded with the clerk of Shelby County, Illinois, with a $100,000 "loan" from a corporation controlled by Patridge. In October 2000, Patridge wired $100,000 from an offshore location to a corporation he controlled in the U.S. The purpose of the transfer was to provide the corporation with sufficient funds to "loan" Patridge $100,000, using his home in Strasburg as security for the loan. Then, after Patridge transferred $100,000 from offshore to the U.S. and established a false mortgage, he transferred the money back offshore and was able to use the money as he personally desired. The evidence also showed that Patridge had obtained the sham trusts that he used to conceal assets and evade taxes from an entity known as Aegis, located in Palos Hills, Illinois, and that Patridge assisted in the sale of at least one Aegis trust package. Patridge also utilized a business, known occasionally as Offshore Consulting Services (OCS) and Laughlin, Inc., run by Terry Neal out of Portland, Oregon to set up a nominee company in St. Kitts, and Nevis and one in Reno, Nevada. Business Owner Pleads Guilty to Submitting False Claim for Employment Tax On June 27, 2005, in Los Angeles, CA, George Henry Jesson, owner of No Time Delay Electronics, Inc., pleaded guilty to submitting a false claim to the Internal Revenue Service for the 1997 federal employment tax withholding for himself and his wife in the amount of $61,388. Jesson admitted that in May 2000 he signed and filed a false, fictitious, and fraudulent IRS Form 941c, Supporting Statement to Correct Information, and amended Forms W-2c, Corrected Wage and Tax Statements, for No Time Delay Electronics for 1997 which falsely reported that $0 in wages had been paid to employees of his company. In reality, No Time Delay Electronics, Inc. paid wages of $177,083.22 to Jesson and $273,236.20 to Jesson’s wife in 1997, which Jesson acknowledged to be taxable income. Based on the false statement that No Time Delay Electronics had paid $0 wages in 1997, Jesson falsely claimed that the total amount of all employment taxes paid by the company in 1997 should be refunded. In fact, the total refund requested for all employees of No Time Delay Electronics was $215,454, although only $61,388 was attributable to the employment tax withholding from the wages of Jesson and his wife. Jesson also admitted that prior to filing the false form 941c for 1997, he had attempted to obtain a refund of $61,388 by filing an IRS form 1040X (an amended federal income tax return) for himself and his wife, claiming a refund of the $61,388 based on an assertion that wages were not taxable income. Jesson also admitted that he had filed an IRS Form 843, Claim for Refund and Request for Abatement, requesting a refund of the $61,388. Jesson also admitted that the IRS did not refund any money to him based upon those claims, but rather issued him a bill for additional taxes, penalties and interest on the wages that defendant and his wife earned in 1997. As part of the plea agreement, Jesson has agreed to pay restitution to the IRS in the amount of $215,454, the amount originally refunded to Jesson, and to file true and accurate tax returns for 1997 through 2004 and pay over to the IRS all taxes, penalties, and interest assessed on such tax returns. Husband and Wife Sentenced for Using Abusive Trust Scheme to Evade Taxes On June 27, 2005, in Denver, CO, Charles William Ledford was sentenced to serve 24 months in prison for conspiracy to defraud the United States. Ledford was also ordered to pay restitution totaling $506,000 to the Internal Revenue Service. Ledford pleaded guilty on April 11, 2005. According to the plea agreement, Ledford and his wife were co-owners of Service Engineering, Ltd., a heating ventilation air conditioning (HVAC) service and sales business in Colorado Springs, Colorado. The business later operated as Service Engineering Trust. In June 1992 the defendants joined the Pilot Connection, a known organization that advocated that individuals could "untax" themselves by hiding income through the use of trusts. Thereafter, the Ledfords created and recorded a number of trusts within the State of Utah. The Ledfords then began moving various personal and business assets into these trusts to hide those assets and income from the Internal Revenue Service. >From 1992 through 1995, the Ledfords failed to file personal income taxes or under reported their income to the IRS. As part of the conspiracy the defendants took distributions from the various trusts for cash and personal expenses. These distributions were not reported to the IRS as income. Some of the distributions were used to build a new home, pay for their son's college tuition, and to pay Teller County property taxes. In 1998 the IRS notified Charles Ledford that he owed $531,268 in taxes for years 1993 through 1995. This amount was based on the money he and his wife personally received from their business. Owner of Apartment Complexes Sentenced to 100 Months for Conspiracy, Tax Evasion, and Bankruptcy Fraud On June 22, 2005, in Salt Lake City, UT, Stanley L. Wade was sentenced to 100 months in federal prison to be followed by three years of supervised release. In addition, Wade was ordered to file accurate tax returns within 18 months of his sentencing. Wade was convicted by jury in March 2005 on one count of conspiracy to defraud the United States, four counts of tax evasion, one count of bankruptcy fraud and one count of making a false statement in a bankruptcy proceeding. According to evidence introduced at trial, Wade owned eight residential apartment complexes which contained more than 400 rental units. Wade, along with his wife, conspired to hide ownership of the rental units so they could conceal the income from the rental units and avoid paying taxes. The Wades transferred ownership of the apartments to sham entities which they called Unincorporated Business Organizations (UBO) and opened more than 40 bank accounts with signature authority in their own names or nominees. The Wades advised their accountant that they had no income from the apartments because, having transferred the rentals to the UBO, they no longer owned the rentals. They then filed false tax returns, failing to report the income derived from the apartments, together with other sources of income. Evidence at trial also showed that Wade submitted documents as a part of a bankruptcy filing that fraudulently omitted bank and brokerage accounts he had maintained within two years immediately preceding the filing of a bankruptcy petition, real estate he owned, residences, vehicles, boats, and wages. During the years of the conspiracy, the Wades failed to pay more than $5 million in federal taxes. Promoters of "We the People" Tax Fraud Group Sentenced On June 7, 2005, in Los Angeles, CA, five individuals associated with a tax fraud group known as "We the People" were sentenced for promoting bogus tax shelters that falsely promised to limit exposure to federal income taxes. 1.        Lynne Meredith, the leader of the operation, was sentenced to 121 months in prison. 2.        Gayle Bybee was sentenced to 60 months in prison; 3.        Teresa Manharth Giodano was sentenced to 40 months in prison; 4.        Willie Watts was sentenced to 36 months in prison; and 5.        Gregory Paul Karl was sentenced to 20 months in prison. Two more defendants in this case, 6. & 7.        Nora Moore and Betty Erickson,are scheduled to be sentenced on June 20, 2005. On May 3, 2004, all seven individuals were convicted on various counts in the indictment including failure to file income tax returns, conspiracy, and mail fraud. During the 13-week trial, evidence showed that the defendants assisted taxpayers in forming phony “pure trusts” to conceal income and assets from the government. Also, the defendants falsely told their customers that paying taxes was “voluntary” and that they should file a W-4 or W-8 form with their employer claiming to be exempt from federal tax withholding and encouraged taxpayers to send protest correspondence to the IRS with the purpose of impeding and obstructing the IRS from collecting these taxpayer’s taxes. Trial evidence also illustrated that beginning in 1991 and continuing until April 2002, Meredith conducted seminars at which she sold books and bogus “pure trusts” to people with the purpose of leading them to believe they could legally shield income and assets from taxation. Meredith also wrote books including “How to Cook a Vulture” and “Vultures in Eagle’s Clothing,” in which she falsely claimed that individuals could lawfully stop paying income taxes, stop their employer from withholding income taxes, and refuse to produce financial books and records to the IRS. The books contained examples of frivolous tax returns and protest letters. Meredith earned more than $8.5 million as a result of the scheme and, as with the other defendants, did not file a Federal income tax return during these years. Veterinarian Convicted of Tax Fraud On June 3, 2005, in Erie, PA, Daniel Leveto, a veterinarian, was convicted by jury on one count of conspiring to defraud the United States for the purpose of impeding the IRS and on two counts of filing false individual federal income tax returns. According to the testimony presented at trial, Leveto failed to disclose on his 1994 and 1995 federal tax returns more than $2.5 million in gross receipts from his veterinary practice. He also failed to disclose on the tax returns that he controlled accounts in financial institutions in the Cayman Islands and the Turk and Caicos Islands. Leveto has been incarcerated since his arrest on March 24, 2004. Three CPAs Plead Guilty in Anderson's Ark and Associates International Tax Scheme On May 16, 2005, in Seattle, WA, Tara Lagrand of Naples, FL; Gary Kuzel of Downers Grove, IL; and Lynden Bridges of Wheat Ridge, CO, pleaded guilty to aiding and assisting in the filing of false income tax returns. The estimated tax loss as a result of the defendants filing false income tax returns was between $2.5 and $5 million for each defendant. These three accountants were part of Anderson's Ark and Associates (AAA), an organization through which fraudulent tax shelters and investment scams were promoted and sold. In their plea agreements, each defendant admitted that they assisted AAA clients, from their respective states, by preparing and filing the partnership agreements, promissory notes, and income tax returns required to implement the "Look Back" program -- one of the two fraudulent schemes promoted by the AAA organization. Grass Valley Woman Sentenced in Tax Fraud Scheme On May 9, 2005, in Sacramento, CA, Karen Louise Younce was sentenced to 37 months in prison followed by three years of supervised release and ordered to pay a special assessment of $100 for her role in a large-scale abusive trust scheme. Younce previously admitted, as a part of her plea, that during 1992 through August 2002, she participated in a conspiracy to impair, impede and obstruct the IRS in the computation, assessment and collection of more than $2 million in federal income tax liabilities. For a fee, Younce advised and assisted her clients in transferring assets and income-generating entities into domestic and foreign trusts, which she created and marketed for the purpose of evading federal income taxes. Younce also advised and assisted her clients in cycling their U.S. income through off-shore bank accounts she controlled and then returned the income to the clients. Tax Attorney Sentenced to Prison for 15 Years On May 5, 2005, in Little Rock, AR, Bobby Keith Moser, a former Little Rock tax lawyer, was sentenced to serve 15 years in prison. Moser was sentenced for violations of tax evasion, obstruction of justice, and money laundering. He was ordered to pay $2.25 million in restitution for sophisticated schemes carried out between 1996 and last year. Part of the restitution included $212,648 to the IRS. Moser was scheduled to enter a guilty plea in Detroit, Michigan, but instead, he drove to Montreal, boarded a plane to Paris, and then flew to Madagascar, where federal agents tracked him down in March 2004 — about the same time they discovered he had been bilking his clients’ trust funds. Moser admitted that he arranged for about $9 million in profits from the sale of a 1996 communications company to be hidden from the IRS. The $9 million was funneled into a trust represented as a tax qualified retirement plan which would, in theory, owe no taxes on the trust money until it was distributed. The trust funds were made to appear to be in the control of a third party, when in fact, they were controlled and accessible by the client. More than $1 million in Moser’s assets have been recovered by the government and forfeiture proceedings are pending. These funds will be used to repay some of his victims. Jury Convicts Two Colorado Tax Fraud Promoters - Scheme Used Offshore Bank Accounts, phony Loans and Debit Cards to Hide Income and Assets from IRS On April 27, 2005, in Denver, CO, Paul D. Harris and Lester R. Retherford were convicted on charges of conspiracy and willfully aiding and assisting in the preparation of fraudulent tax returns. The jury did not reach a unanimous verdict as to the third defendant, Robert N. Bedford. According to the indictment, Harris, Retherford, and Bedford set up shell corporations for small business owners that were used to conceal nearly $9 million in taxable income in secret accounts in the Turks and Caicos Islands and other foreign countries from 1992 through 1999. The indictment also alleged that although the defendants made it appear as though the offshore transfers were payments for consulting services, most members used debit cards and loans to spend the money they had concealed offshore. To make use of this service, many members allegedly paid an initiation fee of $50,000, according to the indictment. Two Colorado Defendants Sentenced in $120 Million Anderson’s Ark and Associates International Tax Shelter Case On April 26, 2005, in Seattle, WA, James and Pamela Moran, residents of Montrose, Colorado, were each sentenced to seven years imprisonment, to be followed by three years supervised release, ordered to pay restitution of $42,311,742, costs of prosecution totaling $66,488 and also ordered to forfeit $850,863 in proceeds they earned from Anderson's Ark and Associates (AAA), as well as their Colorado home and their Jeep Cherokee automobile. On December 27, 2004, the defendants were convicted in connection with one of the most wide-ranging tax schemes ever prosecuted. The defendants were convicted on a variety of charges, including conspiracy to defraud the IRS, mail and wire fraud, money laundering and aiding and assisting the filing of false tax returns. The evidence introduced at trial established that, from 1997 through early 2001, the Moran’s earned tens of millions of dollars in fees from the sale of several fraudulent tax shelter plans over the Internet. The Moran’s were the AAA Executive Education Officers. As such, they trained Information Officers, who were the primary sales force. In addition, the Morans promoted the fraudulent tax shelter plans domestically and internationally. The Morans cultivated their own AAA clients, with whom they worked closely to further the AAA schemes. Four Defendants Sentenced in $120 Million International Tax Shelter Case On April 22, 2005, in Seattle, WA, four Anderson’s Ark and Associates (AAA) defendants were sentenced to prison terms ranging from eight to 20 years. The defendants received the following sentences: • Keith Anderson was sentenced to 20 years of prison to be followed by three years supervised release and ordered to pay restitution of $63,525,860; • Wayne Anderson was sentenced to 15 years of prison to be followed by three years supervised release and ordered to pay restitution of $63,525,860 and a fine of $25,000; • Richard Marks was sentenced to 15 years of prison to be followed by three years supervised release and ordered to pay restitution of $42,311,742 and a fine of $25,000; • Karolyn Grosnickle was sentenced to eight years of prison to be followed by three years supervised release, and ordered to pay restitution of $42,311,742. Each of the defendants was also ordered to pay costs of prosecution of $66,288. Additionally, seven properties located in Costa Rica, the AAA Administrative Office, and $28 million in laundered funds were ordered forfeited. AAA spanned five countries and over 1,500 clients. Both Andersons, Marks and Grosnickle were convicted on charges of conspiracy to defraud the government, mail and wire fraud, money laundering and aiding and assisting the filing of false tax returns. From 1997 through early 2001, the defendants earned tens of millions of dollars in fees from the sale of several fraudulent tax shelter plans over the Internet. In addition to the sentencing on these four individuals, Richard Grossnickle, executive director of two AAA entities, pleaded guilty on April 13, 2005, to a charge of obstruction of justice and is currently awaiting sentencing. "Institute of Global Prosperity" Principal Pleads Guilty to Tax Charges On April 12, 2005, in Seattle, WA, Dwayne Robare pleaded guilty to a superseding information charging him with income tax evasion for the 2000 tax year. The information alleges that Robare became affiliated with the Institute of Global Prosperity (IGP) in 1997 and for several years thereafter operated and maintained its teleconferencing system located in Marlboro, MA. IGP members subscribed to the teleconferencing services by remitting fees to a nominee entity named Independent Diversity Entrepreneurs and Associates (IDEA). Robare was a partner of IDEA and shared in the profits generated from fees paid to IDEA. In a statement of facts provided to the court, Robare admitted to receiving income from his work with IGP from approximately 1997 through 2002. He further admitted that he used various means to conceal his income from the IRS. This included a false trust with a domestic bank account which he obtained from Innovative Financial Consultants in Arizona and an offshore trust and foreign bank account which he obtained from Prosper International League Limited in the Bahamas. Robare admitted that the resulting tax loss totaled between $120,000 and $200,000. Robare agreed to cooperate fully with the IRS in the ascertainment, computation, and payment of his correct federal and state income tax liabilities. Chiropractor was Client of Anderson's Ark & Associates On March 23, 2005, in Sacramento, CA, Dr. David R. Funk, a former chiropractor, was sentenced to a year in prison to be followed by one year of supervised release. Funk was also ordered to pay costs of $1,227 and an assessment of $200. Funk pleaded guilty to two counts of filing false income tax returns on November 3, 2004. Funk admitted in his plea agreement that he filed false tax returns reporting negative adjusted gross income which reflected his use of two tax evasion schemes that involved the creation of shell companies to hide taxable income and create paper losses. In one of the schemes, taxable income was diverted away from Funk on paper through a series of corporate entities that in fact had no economic substance. Although Funk earned and used income, he did not report it on his returns. The other scheme, Funk created a joint venture entity which reported bogus losses which he reported on his personal tax return. Funk admitted evading over $183,000 in federal income taxes for tax years 1997, 1998, and 1999. Funk was a client of Richard Marks, who was a leader of the Anderson's Ark and Associates organization. Marks was sentenced to 81 months in prison on November 14, 2002. San Diego County Inventor Sentenced for Failing to Pay Taxes on Sale of Company On January 31, 2005, in Los Angeles, CA, John Zentmyer was sentenced to 33 months in prison for failing to pay income taxes on money generated from the sale of his company. Zentmyer was found guilty of tax evasion, one count of loan fraud and three counts of structuring cash transactions to avoid federal reporting requirements. Zentmyer invented a wheel-locking device to be used on four-wheel-drive off-road vehicles. After forming a company to market his product, he sold the company for $1,008,000. Zentmyer failed to file a tax return that reported any of the funds generated by the sale, nor did he pay any taxes on the income. Instead, he placed the funds into offshore bank accounts, used bank accounts in the names of other persons and entities, and conducted financial transactions using large amounts of cash. Zentmyer owes $264,335 in back taxes. The loan fraud conviction was based on the submission of a false employment letter in connection with a loan application to purchase a house. Zentmyer, who represented himself at the beginning of the trial and later represented himself jointly with an advisory counsel, argued that he was not guilty of tax evasion because he believed in good faith that he did not have to pay income taxes after reviewing old Supreme Court cases. He also claimed that he structured his financial transactions only because the bank required his social security number to file its report with the government and his religious beliefs prevented him from divulging his social security number. Man Sentenced to Prison for Filing False Tax Return On January 4, 2005, in Cedar Rapids, IA, Troy Davis was sentenced to 21 months in prison, followed by one year supervised release and ordered to pay $318,000 in restitution to the IRS. Davis admitted that he filed his 1996 tax return knowing he falsely understated his income by excluding income he received from the sale of his business, Excel Medical. Davis attempted to hide his taxable gain through the use of off-shore trusts. For more information on these convictions, see U.S. Department of Justice press release. Offshore Tax Shelter Promoter Sentenced to Prison On December 6, 2004, in San Francisco, CA, Jerome Schneider was sentenced to six months in prison for his role in a conspiracy to defraud the IRS. Schneider was also ordered to pay a fine of $4,000 and a $100 special assessment. He had previously paid $100,000 in restitution. Schneider was indicted on December 19, 2002, on one count of conspiracy and 22 counts of mail and wire fraud in connection with the marketing and sale to taxpayers of offshore banks and corporations. He pleaded guilty on February 11, 2004, to the conspiracy charge. Schneider admitted marketing and selling offshore entities such as those licensed by the South Pacific Island of Nauru as international banks. According to Schneider's plea agreement, he would cooperate with the Government. His plea agreement also stated he would appear in national media outlets to explain his offshore arrangements were a sham and urge taxpayers who bought into his scheme or other offshore schemes to contact the IRS and reconcile their tax matters. Former Chiropractor, Nutrition Specialist and Syndicated Radio Talk Show Host sentenced On October 22, 2004, in West Palm Beach, FL, Bruce E. Hedendal was sentenced to a term of imprisonment of 36 months, supervised release term of 3 years and ordered to pay restitution of $717,899 to the IRS. In August 2000, a federal grand jury charged Hedendal with three counts of income tax evasion for the years 1993 through 1995. According to the indictment, Hedendal attempted to evade paying a total of about $180,000 in taxes on income of about $561,000; failed to file income tax returns; concealed his true income through the use of sham trusts and made false representations to the IRS. When summonsed to face tax evasion charges, Hedendal fled to Canada and ultimately to Australia, where he practiced under the names Erick Hedendal. In October 2003, the Defendant was located in Australia and was extradited back to the U.S. On July 2004 Hedendal pled guilty to one count of income tax evasion. FY2004 Archive Examples of Abusive Tax Schemes Investigations FY2004 Examples of Abusive Tax Scheme Investigations The following examples of abusive tax schemes fraud investigations are excerpts from public record documents on file in the courts in the judicial district in which the cases were prosecuted. Michigan Couple Sentenced for Tax Fraud On September 27, 2004, in Grand Rapids, MI, Andrew Stuart Ouwenga and Karen Ann Ouwenga were sentenced following a May 26, 2004, jury conviction on several tax-related felony offences. Andrew Ouwenga received 60 months imprisonment and Karen Ouwenga received 51 months imprisonment, which are each followed by two years' supervised release. They must also cooperate with the Internal Revenue Service, file back tax returns and make arrangements to pay all taxes due and owing, along with any interest and penalties. They must also pay court cost of $5,016. The Ouwengas were convicted of conspiracy to defraud the United States by impeding and obstructing the lawful functions of the Internal Revenue Service, evading their 1997 federal income tax, and two counts of willfully and unlawfully disobeying a grand jury subpoena. In addition, Andrew Ouwenga was also found guilty on three counts of tax evasion involving his 1998, 1999, and 2000 tax years. The Ouwengas' accountant prepared their 1994 federal income tax return, which claimed more than $75,000 in income, however, the defendants instead filed a frivolous tax return claiming they had no income and requested a tax refund of their 1994 withholdings of more than $10,000. Andrew Ouwenga informed his accountant that he would not file tax returns or pay income taxes because "the Sixteenth Amendment was never ratified." Despite gross deposits of over $6.3 million and gross business receipts of $1.7 million into their bank accounts, the Ouwengas failed to file their tax returns. From 1993 through 1999, the Ouwengas created at least nine sham trusts, which enabled them to conduct their personal and business affairs while evading their income tax obligation. Attorney Pleads Guilty for Role in Offshore Tax Evasion Schemes On September 17, 2004, in San Diego, CA, B. Roland Frasier, an attorney for a prominent San Diego ophthalmologist, Dr. Glenn Kawesch, pleaded guilty to tax evasion, filing false returns, and money laundering. Frasier admitted that he transferred $1.25 million of Dr. Kawesch’s profits from his medical practice to an offshore account at the Bank of Nevis to avoid paying incomes taxes. Frasier also admitted he underreported $3.3 million of his own income for the tax years 1997 through 2001, which resulted in a tax loss of $934,000. In addition, Frasier admitted he entered into a series of sham agreements involving a business he helped take public. He did not disclose to the company's president about his ownership of a corporation in Nevis that received $300,000 and 7 million shares. Frasier had telemarketers sell more than 1.3 million of the shares which netted more than $1 million. Consultant Used Abusive Trust Arrangements to Hide Income On September 16, 2004, in Grand Rapids, MI, John F. Napieralski was sentenced to 30 months in prison to be followed by 2 years supervised release and ordered to pay a fine of $5,000. Additionally, Napieralski was ordered to cooperate with the IRS in filing all back tax returns and paying all taxes due and owing, along with any interest and penalties. On June 17, 2004, Napieralski pleaded guilty to four counts of tax evasion for the tax years 1997 through 2000. He admitted that he created a sham trust called, “The Educational Systems Trust” (T.E.S.T.) and instructed payments, from his consulting services to Sto-Ex, Inc., to be made payable to T.E.S.T. During 1997 through 2003, more than $950,000 was deposited into T.E.S.T.’s bank account, with more than $600,000 in income coming from Sto-Ex., Inc. Napieralski admitted that he willfully attempted to evade and defeat a substantial portion of his income tax due and owing by failing to file tax returns reporting his business gross income received from Sto-Ex, Inc., coupled with affirmative acts of evasion. Former Owner of California Dietary Supplement Company Sentenced in Federal Fraud Conspiracy On September 13, 2004, in Los Angeles, CA, Almon Glenn Braswell was sentenced to 18 months in prison and ordered to pay $10,455,367 in back taxes, interest, and penalties. Braswell pleaded guilty on March 2, 2004, to conspiring to evade millions of dollars in corporate income taxes during a scheme that overstated the business expenses incurred by one of his companies, Gero Vita International, Inc. on its federal tax returns. Braswell acknowledged that his scheme caused Gero Vita to underpay its taxes by $4,468,460. Accountant Sentenced to 37-Month Prison Term for Mail Fraud and Tax Evasion On August 23, 2004, in Miami, FL, Thomas Sewell, a certified public accountant, was sentenced to 37 months in prison, followed by three years supervised release, and ordered to pay restitution in excess of $7 million to the victims. Sewell previously pleaded guilty to conspiracy to commit mail fraud and for filing false tax returns. Sewell was charged in connection with his participation in an investment fraud scheme, as a result of which investors lost over $7 million. Sewell associated himself with the scheme by recruiting investors from among his accounting practice clientele. Sewell falsely advised his clients that their investments would be safe and that he was personally monitoring the funds. Significantly, Sewell failed to advise his clients that he was receiving commissions on the investments that he brought in and failed to disclose on his 1997 and 1998 federal income tax returns that he had received additional income of more tha


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