Opening a company in a tax-haven county for commodity trading - Jerome Schneider, Ralph Hoffman, Scott Brown Nick Masee -

I am thinking of opening a brokerage account to trade commodities on the US market, however I am considering establishing a company or trust in a "tax-haven" country such as the British Virgin Islands to open the trading account.  I remember hearing Mr. Ingram on the radio a few years ago and he gave some cautionary advice on this subject.  So my question is as follows.  What are the benefits, negatives, and risks associated with opening a company in a tax-haven country and what are the legal implications as far as Canadian tax is concerned.  Any other related comments would be most welcomed.  Thank you very much.

david ingram replies:
This question was asked by a Canadian resident but i am going to answer it for a US or Australian or New Zealand or Great Britain and another 150 countries as well.

When you are a resident of a country with an income tax act, you are taxable on your world income.

A lot of Canadians living in Mexico are not reporting their offshore accounts and are clearly risking their freedom and liberty by evading Mexican Income Taxes.

Costa Rica, Panama, the Bahamas, Grand Caymans, Dubai, etc. do not care about your offshore income.


If you live in Canada or the US or Mexico, are taxable on any income earned anywhere in the world.

Therefore, a BVI account is perfectly legal as long as you report your capital gains, interest and dividends from the accounts.  In addition, if the accounts total over $10,000 US, you have to file US forms TDF 90-22.1 and maybe 3520 to report these accounts and the internal earnings.  Failure to file the US form and check off 'yes' to question 7a on schedule B of your 1040 can result in a fine from $10,000 to $500,000 PLUS five years for US residents or US Citizens no matter where they live.

Canadians have to file form T1135 if the total investments out of Canada are over $100,000.  the minimum penalty is $100 for failure to file and the maximum is $2,500 (plus interest) when the form is 100days late at $25.00 a day.

The worst part about Offshore investing is that people get mixed up with sharks and the shark disappears with their money OR the shark gets arrested and turns his or her clients over tot he IRS or the CRA to get out of jail sooner as happened with Vancouver's own Jerome Schneider.

Vancouver's Jerome Schneider turned over 1000 of his clients over to the IRS for penalty when he plea bargained himself from a 99 year to an 8 month jail sentence plus a $100,000 fine.
Over the years i have likely run into over 100 people who have set up accounts in the BVI, Jamaica, Montserrat, Grand Caymans, Vanuatu, etc and never seen their money again.  The sharks - guys like Scott Brown or Hoffman and maybe Nike Masee just ran off with their money because they had set up the secret accounts.


I am regularly asked - How do i pick a tax preparer?  The IRS has some helpful hints below.

Beware of all of those claims some make.  Better safe than sorry. 

News release

Creative accounting sends tax preparer to jail for fraud

Vancouver, British Columbia, December 13, 2007…Stanley Nisbet was sentenced today in Robson Square Provincial Court after pleading guilty to 17 counts of income tax and goods and services tax (GST) fraud, and 6 counts of theft and 4 counts of fraud under the Criminal Code. Nisbet was sentenced to 4 years in jail on the tax related and fraud counts, and 18-months in jail, to be served concurrently, on the 6 theft counts. In addition he was fined $254,910. The fine represents 100% of the federal tax evaded and GST he fraudulently obtained. In addition to the fine, Nisbet still has to pay the full amount of tax owing, plus interest, and any other penalties the Canada Revenue Agency (CRA) assesses.

This is Nisbet’s second conviction for tax-related fraud. He pleaded guilty on August 5, 2004, and was fined $7,500 for filing a false tax return on behalf of a client.

A CRA investigation revealed that Nisbet used a variety of schemes to defraud the CRA and his clients, including:

  • claiming GST refunds that his clients were not entitled to;
  • creating fictitious business or rental losses to offset employment income to generate a refund;
  • claiming T4 income, including tax deductions from that income, to generate refunds for clients who did not owe tax;
  • advising clients that they owed CRA money but should pay him directly- Nesbit would then keep the money and claim a refund from the CRA on behalf of his client;
  • simply stealing refunds that clients were genuinely entitled to.

What each of Nisbet’s schemes had in common was that he asked the CRA to deposit all of his clients’ refunds directly into his own bank account.

>From 1995 to 2004, Nisbet operated a tax preparation business in Delta, B.C., called Acura Financial Management and claimed to have multiple offices and a bachelor’s degree in accounting.  In fact his “degree” was a certificate that he had purchased from the Virgin Islands and Delta was his only office. Soon after his first conviction, he closed his business and moved to Powell River.

CRA conducted a search of Nisbet’s Powell River residence as part of the investigation of his income tax and GST fraud. Nisbet then moved to the United Kingdom, but was extradited back to Canada on August 3, 2007. He has remained in custody since his extradition.

“CRA pursues tax evaders to maintain public confidence in the integrity of the tax system,” said William V. Baker, Commissioner of the Canada Revenue Agency. “Canadians have to trust that our self-assessment system is working and that it is fair.”

When individuals or corporations are convicted of tax evasion and GST fraud, they have to pay the full amount of tax owing, GST fraudulently obtained, plus interest, and any penalties the CRA assesses.

The information in this news release was obtained from court records.

Further information on convictions can also be found in the Media room on the CRA Web site at

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That was just one of the many convicted in Canada.

The following is a year old IRS bulletin dealing  with US tax preparers - .


Tax Return Preparer Fraud


FS-2007-12, January 2007

Return preparer fraud generally involves the preparation and filing of false income tax returns by preparers who claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions on returns prepared for their clients. This includes inflated requests for the special one-time refund of the long-distance telephone tax. Preparers may also manipulate income figures to obtain tax credits, such as the Earned Income Tax Credit, fraudulently.

In some situations, the client (taxpayer) may not have knowledge of the false expenses, deductions, exemptions and/or credits shown on their tax returns. However, when the IRS detects the false return, the taxpayer — not the return preparer — must pay the additional taxes and interest and may be subject to penalties.

The IRS Return Preparer Program focuses on enhancing compliance in the return-preparer community by investigating and referring criminal activity by return preparers to the Department of Justice for prosecution and/or asserting appropriate civil penalties against unscrupulous return preparers.

While most preparers provide excellent service to their clients, the IRS urges taxpayers to be very careful when choosing a tax preparer. Taxpayers should be as careful as they would be in choosing a doctor or a lawyer. It is important to know that even if someone else prepares a tax return, the taxpayer is ultimately responsible for all the information on the tax return.

Helpful Hints When Choosing a Return Preparer

  • Be careful with tax preparers who claim they can obtain larger refunds than other preparers.

  • Avoid preparers who base their fee on a percentage of the amount of the refund.

  • Stay away from preparers who claim that many, if not most, phone customers can get hundreds of dollars or more back under the telephone tax refund program.

  • Use a reputable tax professional who signs your tax return and provides you with a copy for your records.

  • Consider whether the individual or firm will be around to answer questions about the preparation of your tax return months, or even years, after the return has been filed.

  • Review your return before you sign it and ask questions on entries you don't understand.

  • No matter who prepares your tax return, you (the taxpayer) are ultimately responsible for all of the information on your tax return. Therefore, never sign a blank tax form.

  • Find out the person’s credentials. Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in all matters including audits, collection and appeals. Other return preparers may only represent taxpayers for audits of returns they actually prepared.

  • Find out if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics.

  • Ask questions. Do you know anyone who has used the tax professional? Were they satisfied with the service they received?

Reputable preparers will ask to see your receipts and will ask you multiple questions to determine your qualifications for expenses, deductions and other items. By doing so, they are trying to help you avoid penalties, interest or additional taxes that could result from an IRS examination.

Further, tax evasion is a risky crime, a felony, punishable by five years imprisonment and a $250,000 fine.

Criminal Investigation Statistical Information on Return Preparer Fraud

FY 2006

FY 2005

FY 2004

Investigations Initiated




Prosecution Recommendations















Avg. Months to Serve




*Incarceration may include prison time, home confinement, electronic monitoring or a combination.

Criminal and Civil Legal Actions

Some return preparers have been convicted of, or have pleaded guilty to, felony charges.

Additionally, the courts have issued 175 permanent injunctions against abusive tax scheme promoters and abusive return preparers since 2003. The following case summaries are excerpts from public record documents on file in the court records in the judicial district in which the legal actions were filed.

California Tax Preparers Sentenced to Prison Terms for Operating Tax Fraud Schemes

On Oct. 6, 2006, in San Diego, Calif., Susan E. O’Brien, a professional tax preparer who operated “The O'Brien Group,” was sentenced to ten years and five months in prison and ordered to pay $113,179 in restitution. She was convicted on May 2, 2006, for tax evasion, defrauding the United States and aiding and assisting in the filing of fraudulent tax returns. Co-defendants Robert Richard Evans and William Dean Cook were also sentenced to prison terms of 78 and 24 months, respectively. In July 2003, O'Brien, Evans, Cook and five others were charged in a 78 count indictment with various tax crimes related to tax years 1996-2002. According to the indictment and trial evidence, O'Brien prepared numerous income tax returns that claimed false business deductions and Evans promoted, sold and managed domestic trusts used by clients to hide their income and assets from the IRS. O'Brien also was convicted of evading the payment of tax on her own income. The tax evasion scheme resulted in a tax loss to the United States  of more than $1 million.

Two Sentenced for Preparing False Tax Returns

On Sept. 20, 2006, in Monroe, La., Eddie Ferrand and William Kennedy were sentenced for aiding and assisting in the preparation of false income tax returns and conspiracy. Ferrand was sentenced to 60 months in prison to be followed by three years supervised release. Ferrand was also ordered to pay $255,890 in restitution to the IRS and a $900 assessment. Kennedy was sentenced to 27 months in prison to be followed by three years supervised release. Kennedy was also ordered to pay $39,020 in restitution to the IRS and an $800 assessment. According to the indictment, Ferrand, as the owner and operator of Mr. Ed’s Tax Service, hired, trained and supervised tax preparers employed at Mr. Ed’s, including co-defendant Kennedy. Ferrand, Kennedy and other co-defendants prepared income tax returns and amended prior year returns by inflating Schedule A deductions and creating false Schedule C businesses in order to increase taxpayer’s refund. The defendants prepared more than three thousand returns expanding over 26 states and generating refunds in excess of $6 million.

Minnesota Tax Preparer Sentenced for Filing False Tax Returns

On March 23, 2006, in Minneapolis, Minn., Richard Reiss was sentenced to 41 months in prison for aiding and assisting in the preparation of 84 false tax returns. Reiss was also ordered to pay a $7,500 criminal fine and $198,958 in back taxes. Reiss prepared tax returns for more than 30 clients and claimed fraudulent and false deductions such as unreimbursed employee business expenses, mileage expenses, meals and entertainment, charitable contributions, medical expenses and tax preparation fees, and business losses resulting from business expenses that were fabricated or inflated. In total, he overstated expenses and deductions for numerous clients by more than $1 million, which resulted in tax losses of about $198,000.

Tax Preparer Who Used Bogus Business Losses to Wipe Out Clients’ Income Taxes Sentenced to 11 Years in Prison

On Feb. 21, 2006, in Los Angeles, Calif., James Earl Wynn was sentenced to 11 years in federal prison following his April 22, 2005 conviction of 24 counts of aiding and advising in the preparation of false income tax returns. Evidence presented in court showed that Wynn solicited his clients by telling them that he operated a number of businesses in which they could invest. Wynn told his clients that if the businesses turned a loss, the clients could claim the loss on their tax return. As part of this arrangement, Wynn offered to prepare the clients’ tax returns charging his clients a percentage of their tax refunds in addition to a return preparation fee. Wynn did not tell his clients that many of the businesses listed on their tax returns did not exist at all. None of the businesses listed on their tax returns as part of the tax fraud scheme ever existed as a partnership, ever filed a partnership tax return or ever sustained the losses claimed on the taxpayers’ returns. Wynn caused more than 2,000 tax returns to be filed with the IRS claiming more than $75 million in false partnership losses. The tax loss to the government exceeded $10 million. On July 18, 2005, Linda M. Hall, who once worked for Wynn, was sentenced to 70 months imprisonment and was ordered to pay restitution of $6,339,023.

Rockford Tax Preparer Sentenced to 56 Months in Federal Prison for Preparing False Tax Returns

On Feb. 13, 2006, in Rockford, Ill., John H. Bell was sentenced to 56 months in prison, followed by one year supervised release, for preparing false federal income tax returns for others and for filing a false federal income tax return for himself. According to the indictment, Bell, the owner of Bell's Income Tax Service and of Real Estate Investors (REI) #2462, Inc., prepared false income tax returns for others. In order to support the returns, Bell attached W-2s to the returns that falsely stated the amounts of income the taxpayers received from REI and falsely stated the REI had withheld federal income tax from the taxpayers when, in fact, no such taxes had been withheld by Bell or his corporation. The indictment also charged that Bell filed an income tax return for himself that falsely stated that $8,360 in federal income tax had been withheld from him, when no federal income tax had been withheld by REI. As a result of his own false return, Bell wrongfully attempted to obtain a refund of $8,701.

Former City of Houston Employee Sentenced to Prison

On Jan. 27, 2006, in Houston, Tex., Jerome Harris was sentenced to 57 months in prison followed by one year supervised release. The judge further ordered that, effective immediately, Harris be prohibited from preparing tax returns or assisting tax payers in audits. Harris was convicted of 21 counts of willfully preparing fraudulent income tax returns for his clients in September 2005. Harris, a full time employee for the City of Houston, also owned and operated Jay’s Bookkeeping and Tax Service, located at his residence. It was found that Harris had prepared hundreds of false tax returns for the 1995 through 2000 tax years, resulting in claims for fraudulent tax refunds by his clients totaling almost $1.3 million.

Michigan Man Sentenced For Preparing Tax Returns in Violation of Court Order

On Feb. 16, 2006, in Grand Rapids, Mich., Robert L. Mosher, of Cedar Springs, Mich., was sentenced to 105 days in prison for contempt of court after violating injunctions that barred him from preparing tax returns for customers. Two injunctions were obtained after the Justice Department sued Mosher in 2003 for promoting a tax scheme involving sham trusts and preparing fraudulent returns understating customers’ tax liabilities. Mosher continued to prepare income tax returns after these orders were entered.

Federal Court Permanently Shuts Down Louisiana Tax Preparer

On April 18, 2006, Eddie Ferrand of Monroe, La., and two of his employees, Glenda Faye Elliott of Monroe, La., and William Nathaniel Kennedy of Rayville, La., were permanently barred from preparing tax returns. The court found that Ferrand, Elliott and Kennedy regularly understated customers’ tax liabilities, by claiming false dependents, reporting fictitious business expenses and deductions and inflating other deductions.

Federal Judge Stops Tax Refund Fraud by Two Florida Tax Return Preparers

On Aug. 8, 2006, a federal court permanently barred Jean-Marie Boucicaut and Marie Thelemarque of Orlando, Fla., and Boucicaut’s company, Tax Review Corporation, from preparing federal tax returns for others. The court found that the defendants filed amended income tax returns for persons without their authorization and directed the IRS to send the requested refund checks to them.

Federal Court Bars Louisiana Tax Preparers from Claiming Inflated Deductions on Income Tax Returns

On Oct. 5, 2006, in New Orleans, La., Rodney G. Bourg and Cynthia M. Bourg of Houma, La., were permanently barred from preparing federal income tax returns claiming inflated deductions or asserting unrealistic positions. The court found the Bourgs prepared federal income tax returns with improper per diem expense deductions for customers who worked as mariners, fishermen, merchant seamen and ferry workers.

Where Do You Report Suspected Tax Fraud Activity?

If you suspect tax fraud or know of an abusive return preparer, report this activity using IRS Form 3949-A, Information Referral. You can download Form 3949-A from this Web site or call 1-800-829-3676 to order by mail. Send the completed form, or a letter detailing the alleged fraudulent activity, to Internal Revenue Service, Fresno, CA 93888. Please include specific information about who you are reporting, the activity you are reporting and how you became aware of it, when the alleged violation took place, the amount of money involved and any other information that might be helpful to an investigation. Although you are not required to identify yourself, it is helpful to do so. Your identity can be kept confidential. You may also be entitled to a reward.

Related Items:

Jerome Schneider's story can be seen here
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 beliving 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 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 Advisors and ends way down there with brief mentions of Canadians Hofman, 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 Hofman 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 endeavour. 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 - 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:,,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,,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: 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 in


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