Examples of Abusive Tax Schemes - Fiscal Year 2011

Two Men Sentenced for Investment Fraud

On June 9, 2011, in Minneapolis, Minn., Mark S. Sutton, of Minnetonka, was sentenced to 42 months in prison on one count of conspiracy to commit mail and wire fraud, one count of conspiracy to commit money laundering, and one count of conspiracy to defraud the U.S. On November 17, 2009, Sutton was indicted along with Joseph L. Finney, of Colorado Springs, Colorado. Finney, who pleaded guilty on September 24, 2010, to one count of conspiracy to commit mail and wire fraud and one count of conspiracy to commit money laundering, was sentenced to 64 months in prison. Court documents indicate that from approximately 2000 to 2005, Sutton, Finney, and others sold shares in an investment called Envestclub, which they marketed as providing returns far greater than run-of-the-mill investments. The defendants failed to inform potential investors of important information, including that they took some investor funds as sales “commissions” and that Finney was convicted of fraud in federal court in 2003. In the present case, Sutton also was convicted of conspiring with a Plymouth, Minnesota, man to evade payment of that man’s federal income taxes for 1991 and 1992. Trial evidence proved that Sutton helped create a trust into which property was placed for the purpose of evading taxes. Moreover, he referred his co-conspirator to individuals who specialized in tax avoidance schemes.

New Jersey UBS Client Sentenced for Failing to Report More Than $1 Million in Swiss Bank Account

On May 24, 2011, in Newark, N.J., Harry Abrahamsen, of Oradell, New Jersey, was sentenced to three years probation, including 12 months of home confinement with electronic monitoring, after admitting he failed to file a Report of Foreign Bank and Financial Accounts (FBAR), concealing more than $1 million in Swiss bank accounts. Abrahamsen was also ordered to pay back taxes, interest and penalties totaling more than $600,000 and as a condition of his guilty plea, agreed to pay an FBAR penalty in excess of $300,000. At his plea hearing, Abrahamsen admitted that he failed to file an FBAR for calendar year 2005 in addition to failing to report his account at UBS AG in Switzerland on his individual income tax return for that year, and failed to report a second account opened in the name of Lucille Abrahamsen Jackson, his daughter. The UBS accounts, originally opened in 1992, were transferred into the name of Primrose Properties S.A., a nominee Panamanian corporation, in 2000. Abrahamsen established Primrose in early 2000 in order to hide these accounts from the Internal Revenue Service (IRS). Abrahamsen also admitted that he funded the UBS accounts with approximately $1.3 million in false and inflated expenses paid by his pre-press printing business, SJT Imaging Inc., to a Swiss company. The inflated expenses were then deducted on SJT Imaging Inc.’s corporate tax returns, which allowed Abrahamsen to under report personal income for the years 1999 through 2003. Jackson pleaded guilty on November 18, 2010, to an Information charging her with willfully subscribing to a false tax return and was sentenced on May 23, 2011, to a year of probation.

Owner of Tradex Sentenced for Concealing Income in Foreign Shell Companies and Overseas Bank Accounts

On May 4, 2011, in Los Angeles, Calif., Arthur Allen Ferdig, owner of Tradex, a foreign exchange investment company, was sentenced to 18 months in prison and three years of supervised release. Ferdig pleaded guilty on September 28, 2010, to tax evasion for the 2002 tax year. In addition, Ferdig agreed to pay taxes owed for 2002, inclusive of the civil fraud penalty and statutory interest. According to the plea agreement, during 2002 and 2003, Ferdig, a U.S. citizen, lived in Jamaica and the Bahamas where he owned and controlled Tradex, a purported foreign exchange investment company based in the Caribbean island of Dominica. To conceal and disguise his income from Tradex, Ferdig admitted that he knowingly and intentionally failed to file a U.S. tax return for 2002, directing his income from Tradex to be wired into offshore bank accounts that were held in the names of various shell companies under his control, including Industrial Metals and Mining, a mining venture in Nevada. According to court documents, Ferdig admitted that he failed to report as income approximately $529,000, resulting in tax due of approximately $148,000 to the Internal Revenue Service.

Michigan Chiropractor Sent to Prison for Tax Evasion

On Tuesday, May 3, 2011, in Grand Rapids, Mich., Kerry Thomas Kilpatrick was sentenced to 24 months in prison and two years of supervised release for tax evasion. Kilpatrick was also ordered to cooperate with the IRS and pay restitution of $85,014 for taxes owed in 2002. In his plea agreement, Kilpatrick admitted that he evaded paying taxes for income he earned as the self-employed owner of the Kilpatrick Chiropractic Life Center in Grand Rapids for the 2002 tax year. He also acknowledged that he did not pay federal income taxes on income earned from 1999-2007. According to court records, during 1999 through 2007, Kilpatrick paid himself through direct payments from his business credit union account without including any withholdings for state or federal payroll taxes. Kilpatrick also used the business credit union account to directly pay his home mortgage, along with other personal expenditures. During 2001 through 2002, Kilpatrick formed numerous holding companies, corporations, and enterprises that lacked any economic substance and were located in Nevada, Oregon, and the Republic of Panama. He used the entities to evade his income taxes, pay local property taxes on his real estate, and to hold the title on his 1999 Ford Expedition, $63,000 Tiffin Motor Home, and other property.

International Businessman Sentenced for Filing False TaxReturns and Failing to File FBARs

On March 29, 2011, in South Bend, Ind., James A. Simon was sentenced to 72 months in prison, followed by three years of supervised release and ordered to pay $886,901 in restitution to the Internal Revenue Service (IRS). Simon was convicted at trial of filing false federal income tax returns, failure to file reports of foreign bank and financial accounts, mail fraud involving private financial aid, and fraud involving federal financial aid. According to court documents, from 2003 to 2006, Simon received money from five business entities with which he was affiliated. He did not report the funds received from these entities on his federal tax returns and failed to report a total of over $3.1 million to the IRS. Simon also did not disclose that he had an interest in foreign bank accounts and did not file required Report of Foreign Bank and Financial Accounts (FBARs) with the Treasury Department regarding the foreign accounts. Further, Simon provided false information regarding his family’s income and expenses on applications for private financial aid to two different schools and on applications for federal financial aid to one college. He will also pay restitution of $48,070 to the Department of Education, $17,000 to Canterbury School, and $101,600 to Culver Academy.