Tax Fraud

Tax Lawyer-CPA Gets 15 Years for Fraud

If it sounds too good to be true, it is.

It’s very, very easy to design tax shelters that don’t meet code. I can do it in my sleep. You just think of a very large tax deduction,structure it as a tax shelter partnership, get a lawyer’s opinion that it’s legitimate and sell it. (Whoops, I forgot, you’re an attorney. This is going to be easy.) Bingo, bango, bongo. Done. Buy a $20 million house on Lake Geneva, put $95 million in the bank and hunker down to wait for the storm. If the storm comes, you’ll hire the best attorneys money can buy to get you off. After all it’s a victimless crime.

What you’ve just done is come up with a novel approach to tax law which seemingly meets all the the surface requirements, but fails to meet more arcane requirements such as valid business purpose, economic substance, at risk rules or passive activities.

The linked article is about the trial of the tax attorney. I can assure you without reading it, the IRS case revolved around one or more of the issues I just outlined. You know in your hearts, none of the people involved actually lost enough money to make the deduction legitimate. For the IRS this was like shooting ducks in a barrell.

Today, since the 86 tax act, there is no such thing as a tax shelter. If you think you’ve got a tax shelter, what you’ve actually got is a ticking time bomb.

With one exception.

A cash flow business. But that’s a story for another day.

The CPA/attorney was 63 years old and got 15 years in prison and has to pay tax and penalties amounting to $435 million. And if he lives long enough to get out of jail, the people who bought the tax shelter will be waiting to sue him for another $435 million. This is what you call, crash & burn.

I decided to post this because I was talking with a business associate this morning from Santa Cruz and our conversation veered off into unreputable professionals and scam artists and how they’re attracted to young entrepreneurs in and around the Silicon Valley. I have no doubt there are stories out there that would curdle your blood. We just haven’t heard about them.

We traded a few war stories, and I made the point that in my experience, many of these types actually think they’re competent professionals. They end up with the founder’s ear because the founder has no idea how to evaluate this kind of talent, nor does anyone else for that matter. But they know just enough to get their clients into trouble and gobble up their money. The more they gobble, the more they gravitate to the dark side. You find them everywhere. Some of the most dangerous work for big name firms. Foolish and foolhardy is a bad combination, but it seems to flourish in professional firms.

This is my advice. Beware of relationship marketing.

If they’re petting your dog in order to get your business, they’re probably not very good. Make them describe how they differ from the guy down the street, and measure results against cost. That’s the only way you’ll know if they’re delivering meaningful value.


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