Eileen J. O’Connor, Assistant Attorney General for the Tax Division, United States Department of Justice and John L. McKay, United States Attorney for the Western District of Washington, announced this week that a federal grand jury in Seattle, Washington returned an indictment against David C. Stephenson and Michael J. Shanahan. The indictment charges the defendants with conspiring to defraud the United States by impeding and impairing the Internal Revenue Service in the ascertainment and collection of income taxes. The indictment also charges Mr. Stephenson with three counts of failing to file tax returns and criminal contempt for violating a permanent injunction. Mr. Shanahan is also charged with one count of failing to file a tax return.
According to the indictment, the defendants told their clients to transfer assets and income to trusts and corporations established by the defendants. The defendants allegedly falsely claimed that neither the clients nor the entities would be required to file tax returns, although the clients could continue to control the property conveyed to their trusts as if the trusts did not exist. The indictment charges that the defendants created and sold more than 400 trust packages and helped their clients to avoid paying more than $7 million in income taxes.
The indictment also alleges that the defendants charged approximately $3,000 to $8,000 for a trust package, and that they concealed their activities from the IRS by not filing income tax returns reporting the income they earned from the sale of the trust packages.
On July 30, 2004, the United States District Court permanently enjoined Mr. Stephenson from promoting abusive trusts and required that he give the government a complete list of customers to whom he had sold trusts. The indictment alleges that Mr. Stephenson committed criminal contempt of court by providing a false client list in response to the court order.
If convicted, each defendant faces maximum potential sentences of five years in jail and $250,000 in fines on the conspiracy charge (18 U.S.C. §371), and one year in jail and a $100,000 fine on each failure to file charge (26 U.S.C. §7203). The punishment for contempt of court (18 U.S.C. § 401) is a fine or imprisonment, or both, at the discretion of the court.
The charges contained in the indictment are only allegations. In the American justice system, a person is presumed innocent unless and until he or she is proven guilty in a court of law.