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...

The law makes it difficult for itemizers to deduct medical expenses. To reap any write-off, you must pay bills that aren't covered by insurance, reimbursed by employers or otherwise satisfied by, for example, a company-...
Drug patents held overseas can pare makers’ tax billsAs the Obama administration tries to stop companies from avoiding taxes by moving their headquarters overseas, the makers of some of the world’s most lucrative...
Starting in October, the IRS will send warning letters to tax return preparers who appear not to be complying with Earned Income Tax Credit (EITC) due diligence requirements.Section 6695(g) of the Internal Revenue Code...

Already a member? log in here.

Upcoming CPE Webinars

Oct 9In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards.
Oct 15This webinar presents the requirements of AU-C 600, Audits of Group Financial Statements (Including the Work of Component Auditors).
Oct 21Kristen Rampe will share how to speak and write more effectively by understanding your own and your audience’s communication style.
Oct 23Amber Setter will show the value of leadership assessments as tools for individual and organizational leadership development initiatives.