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Showing posts with label Aegis. Show all posts
Showing posts with label Aegis. Show all posts

Monday, May 27, 2013

Two Brothers, An Offshore Trust And An Ignored CPA



Here is the cast of characters for today’s discussion:

Brian             orthopedic surgeon and idiot tax savant
Mark             Brian’s brother and idiot business manager
Michael         long-suffering CPA
Lynn              the “other” CPA

All right, maybe I am showing some bias.

Let us continue.

The two brothers attend a seminar about using domestic and offshore trusts to delay taxes until the monies were brought back into the United States. In the meanwhile, one could tap into the money by using a credit card.

Sure. Sounds legit.

The brothers return and are excited about this new tax technique. They ask Michael’s advice. Michael tells them that the seminar promoter was “a person to avoid” and to consult an independent tax attorney. 

Brian blew off Michael. Brian signed up for the offshore trust. He may have received a toaster with his new account.

Michael – who does the accounting - sees a $15,000 check to the promoter. He writes Brian:

I am writing to you because I am concerned for you and the risks you may inadvertently be taking.
It seems to me that the promoters are relying on an elaborate chain of complex entities to conceal taxable income. I am especially suspicious when I learned that they will provide you with a VISA card to access the money.
I am asking that you consider the worst case scenario in which the IRS takes the position that you are committing tax evasion. They have the power to assess huge penalties and interest, to prosecute you, to ruin your career, and seize your property. Is the risk worth it?”

Michael talks with Mark. He believes that the brothers have finally listened to his advice.

Meanwhile, the brothers did not listen to anything. They set up a series of interlocking companies and hired Lynn to prepare taxes for those companies. Lynn is associated with the promoters of this tax scheme.

  • In year one the brothers transfer $107,388 offshore and deduct it as management fees 
  • In year two they transfer and deduct $199,000 
  • In year three they transfer and deduct $175,000

The IRS swoops in on the trust promoters. They take Lynn’s computer. Lynn calls Mark, explains all that, and recommends that they see a tax attorney. Maybe they should amend the tax returns.  Mark, after his many minutes of tax education, training and experience, told Lynn that he was not amending anything.

It gets better.

The promoter contacts the brothers and says that they have a NEW AND IMPROVED program that will be bulletproof against the IRS. The brothers sign on immediately.

The brothers receive their sign soon thereafter. 


  • In year four they transfer and deduct $650,000

Michael is preparing this tax return. He calls Mark and asks about the “management fee.” Michael has Mark write him a letter that all was on the up-and-up.

  • In year five they transfer and deduct $460,000

Michael is not preparing this tax return. He has had enough, and he has a career to protect. He wants a letter from an attorney that the transactions are above board.

Mark fires Michael.

And, in another surprise, daytime was followed by darkness.

A year later, Michael (the hero of our story) sends the brothers a press release about the “dirty dozen tax scams.” Sure enough, theirs is on the list. There is still time to send back the sign.

  • In year six they transfer and deduct $180,000

In addition, Brian taps the offshore account for $270,000 for the purchase of a new home.

A couple of years later Michael receives a subpoena from the IRS for records pertaining to Brian and his company. This is when all that communication back-and-forth with Mark and Brian may have taken its toll, as Brian was virtually giving the IRS a roadmap.

The brothers, perhaps whiffing that they may have missed a key lecture in their vast tax education, decided to amend Brian's personal returns, adding most of the so-called management fees back to his income. Brian sends a big check to the government.

This case goes to Court. This is not a regular tax case. No sir, this is a fraud case. Someone is going to jail.

There was an eleven-day trial. The brothers were found guilty on all counts.

There was something interesting in here during interrogatories. The IRS never discussed the amended returns when they were presenting their fraud case. The brothers objected, but the Court sustained the government. The brothers introduced the amended returns when it was their turn.

The brothers had a point. The government was not out ALL the money, because Brian had paid a chunk of it with the amended returns. Why then did the Court sustain the government? Here is the Court:

As an initial matter, we note that the amended returns were submitted years after the false returns had been filed and months after[Michael] warned [the brothers] that their records had been subpoenaed. We have previously said that ‘there is no doubt that self-serving exculpatory acts performed substantially after a defendant’s wrongdoing is discovered are of minimal probative value as to his state of mind at the time of the alleged crime.”

Wow. There were no brownie points with this Court for doing the right thing.

By the way, Brian got 22 months at Club Fed and his brother got 14 .

But they got to keep the sign.


Wednesday, July 27, 2011

A Doctor, A Tax, An Offshore Account And A Moral

I was reading Kindred v Commissioner recently. There is not much there of technical interest, but the facts are interesting. Plus it has a moral.
Dr Kindred failed to file tax returns or make tax payments for 2001 and 2002. The IRS prepared substitutes for returns and assessed him $912,529 and $1,184,115 for 2001 and 2002 respectively. The doctor goes to court, but not to argue the amount of tax assessed.
NOTE:   Wow! This guy owes over $2 million to the IRS and is not even arguing the amount.
Dr Kindred had gotten himself involved with the Aegis Business Trust System (Aegis) out of Chicago. Aegis was a bushel of bad apples. They promoted the use of trusts – revocable, offshore - as a way to reduce taxes. The problem is that some trusts are useful and others are useless. Aegis promoted useless trusts. The IRS conducted an undercover investigation (code-named “Operation Trust Me”) which resulted in indictments and convictions for tax fraud conspiracy for the operators of Aegis.
Dr Kindred transferred money offshore to one of these Aegis trusts.
In 2003 the government indicted Aegis and froze their offshore accounts. The government seized all the accounts and kept the money, including Dr Kindred’s money.
Subsequently the doctor is contacted by the IRS, and they want $2-plus million.
The doctor’s money is gone. What is he to do?
He files a case in District Court and then Tax Court, that is what he does. His request is simple. He wants to receive “credit” for his share of the monies that were seized. After all, on the one hand he owes the government money. On the other hand the government took money that belonged to him. Seems reasonable, right?
 The district court dismisses his case. There are several issues, one of which is that the case in district court was a criminal case. No matter what, Dr Kindred was not coming out of district court with a verdict that the monies represented tax payments, mostly because the monies did not represent tax payments. Rather than make tax payments to the IRS he boxed them in an Aegis trust and shipped the monies overseas. Money yes, tax payments no.
He next goes to the Tax Court and makes the same plea. The Tax Court asked the obvious question: we are a court for taxes. We see that you owe taxes. We see that you did not pay taxes. Why are you here?
This is a worst case scenario. The doctor lost the money that he shipped offshore AND he still owes the taxes.
The moral? Wouldn’t it have been easier to just HAVE PAID THE TAXES?