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Bad tax shelter advice (and more) leads to Florida man's federal indictment

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Sometimes, shelters don't work out as hoped. That's also the case with tax shelters set up to take, rather than save, your money. (Photo by Min An)

Looking for a way to save tax dollars is not a crime. But setting up a bogus tax shelter is.

That's what federal investigators accuse a Florida man of doing, along with a few other things, in a grand jury indictment. The document was unsealed by the U.S. Department of Justice on Sept. 26 in Gulfport, Mississippi.

It charges the Sunshine State financial advisor, securities broker, and insurance salesman (whose name I’m not including in this post, but which you can find in the public indictment), with a years-long scheme to promote and operate an illegal tax shelter, stealing some of his clients’ funds, and money laundering.

Tax shelter first: The court document alleges that beginning in late 2013, he allegedly conspired with several others to defraud the Internal Revenue Service by promoting an illegal tax shelter.

This was done by allegedly instructing clients participating in the shelter to transfer money, in amounts they wished to claim as federal tax deductions, to a company he or his co-conspirators controlled.

The clients got their money back, less a percentage fee charged by the alleged tax shelter conspirators, but prosecutors allege that the Florida man then directed them to claim the transferred funds as a tax deduction on their tax returns, and to label it as a royalty payment.

The Florida man allegedly earned more than $3 million in fees from the shelter.

Followed by theft and money laundering: The charges against the former financial advisor also allege that in January 2016 the federal government seized funds from some of the accused's clients, who were engaged in a scheme to defraud health care benefit programs, including the U.S. Department of Defense’s TRICARE.

Prosecutors allege that the Florida man conspired with a relative to take advantage of the seizure and steal some of the money that those clients had transferred through the tax shelter. He then allegedly laundered the stolen funds, which he knew were proceeds of healthcare fraud.

The indicted man then allegedly used some of the money stolen from his clients to buy a home in Delray Beach, Florida.

These various illegal acts led to the Florida man being officially charged with conspiracy to defraud the United States, aiding in the preparation of false tax returns, conspiracy to commit wire fraud, conspiracy to commit money laundering, and money laundering.

Lengthy jail time possible: If convicted, he could face a maximum penalty of five years in prison for conspiring to defraud the IRS, a maximum penalty of three years in prison for each substantive count of aiding in the preparation of false tax returns, a maximum penalty of 20 years in prison for conspiring to commit wire fraud, a maximum penalty of 20 years in prison for conspiring to commit money laundering, and a maximum penalty of 20 years in prison for each substantive count of money laundering.

Yikes! Not only is that one of the longest sentences ever, it's a potentially devastating outcome for the indicted Floridian.

If convicted on all charges, he better hope the federal district court judge handling sentencing goes for concurrent, not consecutive jail terms.

Tax Felon Friday: I know, this case is just an indictment. And, as the Department of Justice is careful to note in announcing the charges, an indictment is merely an allegation. All defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

But it earns mention on Tax Felon Friday because (1) the tax charges, and (2) among those who investigated the case were agents from the IRS Criminal Investigation unit.

It also offers a good news hook to remind folks to take their time when offered a new way to reduce their taxes. Often these savings’ proposals, although elaborate, are just plain old tax scams.

Make sure you know and trust your tax (and financial) adviser. And don't be in such a hurry to save on taxes that you end up a scheme victim. 

Fake shelters are all too common: In fact, this year’s IRS Dirty Dozen specifically cited bogus tax avoidance strategies in its latest annual list of the worst tax scams and scheme. In many cases, like the one of the indicted Florida adviser, scammed taxpayers end up paying fees for tax break advice that the IRS ultimately disallows.

And when taxpayer returns with the phony deduction is caught by IRS examiners, it’s the taxpayers who must pay the tax they thought they avoided, along with penalty and interest charges.

So, as 2024 winds down and you are looking at ways to cut this year’s tax bill, make sure any that are suggested are legitimate. An illegal tax write-off eventually will cost you more than you thought you saved.

If you want to catch up on all sorts of tax miscreants, the ol' blogs' special Tax Felon Friday page is a good place to start.

And if you want more tax crime posts, notably those that were published long before I gave them a special end-of-week feature, you can peruse, what else, the 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:

 

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