None of us enjoy receiving letters from the IRS. Some might argue and claim a refund is a nice thing to receive from the IRS but those checks come from the U.S. Treasury. While often a letter from the IRS signals an audit or notice saying that you owe more money, former HP board member and Oracle executive Ray Lane received a particularly nasty surprise in the mail. The IRS claims that an investment fund he owns is an abusive tax shelter. They say he now owes $100,000,000.00
That’s a lot of zeroes.
There are dozens of abusive tax shelters in the marketplace. We are surprised by how many otherwise smart people and well known accounting firms get stuck holding or recommending these schemes. In Lane’s case, the IRS says his fund was a partnership option portfolio securities scheme or POPS for short. (This is one that even we have not seen.)
According to the IRS, the fund was set up to conceal payments to fund managers and generate losses. Those losses would be used to offset the tens of millions of dollars of gains made by Lane from stock options.
The old adage about there being no such thing as a free lunch certainly applies to abusive tax shelters. Creative accountants frequently dream up new schemes that promise above market returns or promise to “legally” offset or hide income. When you hear claims like that you certainly want to believe. After all, who wants to pay taxes.
Unfortunately, most such claims are false. Worse, the IRS considers many to be abusive tax shelters which can set you up for huge civil “listed transactions” penalties.
There is really no reason for accountants to make these types of mistakes. The IRS publishes a list of abusive tax shelters and takes the position that simply making a few cosmetic changes to an otherwise fraudulent scheme won’t make it legal. (Recently we reported on another tax shelter case in which U.S. District Court Judge Brian Jackson said, “tax law deals in economic realities, not legal abstractions.” He also upheld an assessment of penalties because any reasonable and prudent person should have known that the tax shelter in that case was “too good to be true.”
Lane says he will appeal. He claims the fund was legitimate and denies the abusive tax shelter claims. Shortly thereafter, Lane settled with the IRS for an undisclosed amount.
In 2014 Lane sued Deutsche Bank AG, BDO Seidman LLP Arnold & Porter and an ex-BDO Seidman partner Michael Kerekes. Lane says Kerekes is the accountant who sold him on the plan. In 2009 Kerekes pled guilty to felony tax evasion and conspiracy to defraud the United States. According to the complaint, “In reality, BDO, Deutsche Bank, and A&P were peddling a tax shelter that they knew was illegal and that they knew possessed no chance for profit after the subtraction of fees and costs.” A&P refers to the Arnold & Porter law firm.
Deutsche Bank paid $553.6 million to settle charges that it peddled a number of different abusive tax shelters. BDO said it would pay $50 million.
IRS Whistleblower Rewards for Abusive Tax Shelters
Each and every day there are promoters hawking these shelters. Often the promoters are lawyers, accountants and insurance agents. Catching the promoters isn’t easy. Ditto for the folks who invest in these scams. That is why the IRS relies heavily on whistleblowers. If you have inside information about someone promoting or investing in a phony abusive tax shelter, you may be entitled to a reward.
Under the IRS whistleblower program, whistleblowers can collect up to 30% of whatever is collected from the wrongdoer or tax cheat. We aren’t sure how the scheme was exposed by prosecutors say the IRS lost $1.3 billion. For every dollar in taxes not collected because of fraud, the rest of us pay a dollar more. In this case, a billion dollars more. Just think of the rewards that could have been received had a whistleblower filed an IRS whistleblower complaint.
If you have information about illegal or abusive tax shelters, you may be entitled to a reward. To qualify for a whistleblower reward, you will need specific and credible knowledge of tax fraud that leads to an IRS investigation. Whistleblowers are not necessarily required to obtain direct evidence or detailed data. Any knowledge of individual or business participation in federal tax fraud is valuable and may be sufficient to file a claim.
Also, the whistleblower need not be a US citizen to be eligible for the IRS reward.
To learn more, visit our tax fraud whistleblower page. Ready to see if you qualify? Contact attorney Brian Mahany and the MahanyLaw IRS whistleblower team now for a private, no-fee consultation: by email , by phone or Report Online.
Mahany Law– America’s Tax Fraud Whistleblower Lawyers. Whistleblower services available worldwide.
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