Tax-Evading Toymaker Gets Slap on the Wrist

H. Ty Warner

Billionaire H. Ty Warner, the sixty-nine-year-old founder of the Beanie Baby franchise, could have been sent to federal prison for five years for tax evasion. Instead, a US district court judge in Chicago treated the toy magnate with kid gloves.

On January 14, Warner received a relatively mild sentence of two years probation and 500 hours of community service.

Warner is among dozens of tax offenders who have been singled out by federal prosecutors for hiding assets in offshore accounts. Just last year, the same district court sentenced Peter Troost, owner of a cemetery monument business, to a year and a day in prison after admitting to dodging taxes on more than $3.3 million in income. Warner, who according to Forbes has a net worth estimated at around $2.6 billion, allegedly evaded tax on almost $25 million, or nearly eight times as much as Troost.

After a meteoric rise in the plush toy industry, Warner opened up an account at UBS in 1996 and subsequently transferred $93.6 million to a Swiss bank. He submitted false tax returns and failed to file the required Report of Foreign Bank and Financial Accounts (FBAR).

The light sentence was handed down by Judge Charles Kocoras, who said about Warner, “Society will be best served by allowing him to continue his good works.”

The Beanie Baby creator reportedly has donated $140 million in cash and toys to various charities and organizations. Kocoras was swayed in part by more than seventy letters sent in support of Warner. In particular, he cited a $20,000 medical bill that Warner paid for a stranger on kidney dialysis and the $20 million he donated from sales proceeds of a toy commemorating Princess Diana following her death.

“Warner’s private acts of kindness, benevolence, and generosity are overwhelming,” the judge concluded.

On the civil side, Warner has already paid a penalty of $53 million for failing to file FBARs, as well as filing amended tax returns for the eleven-year period spanning 1999 through 2008. He has also paid back taxes and interest totaling $16 million.

Assistant U.S. Attorney Michelle Petersen had pushed for prison time for Warner, citing the sentence imposed on Troost, whose unpaid tax liability was only a fifth of Warner’s.

In court papers, prosecutors said that a mere probation “would further a public perception that a defendant of means can avoid further punishment simply by writing a large check” and could lead would-be evaders “to believe that if they underreport their income, they can simply pay a fine and the tax due.”

For his part, Warner appeared contrite in his court appearance.

“I never realized the biggest mistake of my life would cost me the respect of those closest to me,” the billionaire said. “I am truly sorry.”

Related articles:

Will Beanie Baby Founder Do the Time for His Tax Crime?
Beanie Babies at the Center of Tax Scandal?

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