Many people liken dealing with the U.S. tax code to wagering. You try to follow the casino rules and common sense, but the temptation to push your luck is often too enticing.
Sometimes those efforts pay off, but that usually produces only short-term winnings.
Eventually, a gambling adage typically applies to taxes, too. The house always wins.
Two men in popular betting meccas on different continents discovered that.
The duo, according to the separate investigations into their activities and subsequent criminal charges, each ended up costing the U.S. Treasury millions of dollars in unpaid taxes. Now they are facing jail time. And more.
What happens near Vegas ends up in court: Lance K. Bradford of Henderson, Nevada, was charged with aiding and assisting the filing of false tax returns as part of a purported investment scheme to sell false tax deductions.
Bradford, a CPA and tax preparer, allegedly offered his high-net-worth clients an "investment opportunity" in which the clients would make a payment to his partnership entity. In exchange, law enforcement officials said the clients were told they would get a tax deduction of approximately five to seven times the amount of money they "invested."
He told his clients, according to court documents, that their payments would entitle them to claim the large tax deduction based on losses derived from the partnership entity even though the tax laws did not permit the sale of such deductions in exchange for an investment. Compounding the matter, the partnership didn't actually incur the losses or depreciation in the purported amounts.
Bradford also did not report the purported investments as losses on the clients’ tax returns as promised. Instead, IRS Criminal Investigation (IRS-CI) and Federal Bureau of Investigation (FBI) agents uncovered evidence that Bradford reported large false deductions for cost of goods sold, professional and consulting fees, or nonpassive losses.
In total, the scheme based out of Bradford's company in suburban Las Vegas produced federal tax losses of at least $8 million.
Flashier betting locale, but still illegal: Another multi-million-dollar U.S. Treasury loss was instigated by a U.S. citizen living in a much more glamorous wagering destination.
IRS-CI agents alleged that the American in Monaco, Stephen L. Schechter, hid more than $5.13 million in income he received from a real estate transaction and securities investments in offshore bank accounts.
According to court documents and statements made in court, the Monaco-based Schechter was a licensed U.S. investment banker, a United Kingdom corporate finance advisor, and owner and operator of a U.S.-based financial investment advisory firm.
Schechter allegedly formed an entity in 2002 in the British Virgin Islands, and two years later opened a Swiss bank account in the company's name. In doing so, he and his bank relationship manager allegedly concealed Schechter's U.S.-citizenship status in bank documents. Until it was closed around January 2013, the account generated interest and dividends that Schechter never reported to the IRS as income.
Additionally, in 2011, Schechter sold a Monaco apartment for approximately €14 million, which he deposited into his company's Swiss account. He subsequently used the sale proceeds to purchase almost $9 million in various securities, on which he earned interest, dividends, and capital gains.
In addition, investigators said Schechter subsequently opened another corporate account in Monaco with a Swiss bank, closed the first account, and transferred the balance of approximately $10.2 million into the new account, earning additional undisclosed interest and dividends until 2017.
Law enforcement agents said that Schechter knew that, as a U.S. citizen, he was obligated to report and pay taxes on his income, even if he earned it abroad and lived outside the United States. But he never disclosed the income from the Monaco apartment sale or the securities bought from those sale proceeds to his tax return preparer.
FBAR foul up, too: Those foreign holdings also led to additional tax trouble for Schechter.
Investigators said he failed to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), that is required of U.S. citizens when the combined balance of all foreign accounts they own or have a financial interest in or signature authority over is more than $10,000 at any point during that calendar year.
Schechter did not file FinCEN Form 114 in connection with his two Swiss-held accounts, according to federal officials.
Guilty pleas in both cases: Both men recently pleaded guilty to charges arising from their respective criminal tax activities.
Schechter pleaded guilty on Oct. 13 to tax evasion for concealing more than $5.13 million in income from the Internal Revenue Service.
He faces a maximum penalty of five years in prison for tax evasion. He also faces a period of supervised release, restitution, and monetary penalties. Schechter's sentencing hearing is scheduled for March 1, 2024.
Bradford pleaded guilty on Oct. 17 to aiding and assisting the filing of false tax returns. Investigators said the investment scheme to sell false tax deductions that led to the fraudulent returns caused a tax loss to the IRS of at least $8 million.
He faces a maximum penalty of three years in prison, as well as a period of supervised release, restitution, and monetary penalties. Bradford is scheduled to be sentenced on Jan. 16, 2024.
The U.S. tax system collects on worldwide earnings, so as long as you're still a legal resident of the United States, all the money you earn, wherever you make it, is taxable.
The two cases also underscore that tax criminals often take elaborate steps to try to keep Uncle Sam from getting his legitimate piece of their income.
But tax investigators are good at their job. And, as noted at the beginning of this week's edition of Tax Felon Friday, the house — in this case, the IRS — generally wins.
You can catch up on previous tax crime posts, including those that were published long before I gave them a special designation, in the, what else, tax crimes category. You'll find this post at the top of that collection right now, so just scroll down for more.
You also might find these items of interest:
- Federal FBAR suit seeks $26 million in penalties
- Unscrupulous tax preparers are a target of new oversight bill
- New report predicts $4.7 trillion in global tax avoidance and evasion losses over next decade
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