Washington State Trust Promoters Indicted for Tax Conspiracy

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.

You may like these other stories...

Many senior US tax professionals believe that a streamlined audit process will be the top benefit resulting from the IRS Transfer Pricing Audit Roadmap, a new toolkit organized around a notional 24-month audit timeline,...
Tax accounting to be simplified for money-market fundsThe US Securities and Exchange Commission (SEC) voted 3-2 on Wednesday for sweeping changes to institutional money-market funds, Emily Chasan, senior editor of...
By Cathy Stopyra and Todd SimmensUnderpayment interest, refund interest, and penalties charged to businesses are just a few of the considerations the IRS calculates when determining taxation for a given company. Though...

Upcoming CPE Webinars

Jul 31
In this session Excel expert David Ringstrom helps beginners get up to speed in Microsoft Excel. However, even experienced Excel users will learn some new tricks, particularly when David discusses under-utilized aspects of Excel.
Aug 5
This webcast will focus on accounting and disclosure policies for various types of consolidations and business combinations.
Aug 20
In this session we'll review best practices for how to generate interest in your firm’s services.