A Rapid City, North Dakota jury found Dr. Edward Picardi guilty of 13 tax charges in 2012. The charges all stemmed from an elaborate offshore tax scheme designed to hide income and assets from the IRS. Shortly after his conviction, Picardi was sentenced to 5 years in prison. Last week a federal appeals court in St. Louis upheld his conviction.
Edward Picardi was one of a handful of physicians who hired Anthony Kritt, a South Dakota CPA and tax lawyer for tax planning services. According to the Justice Department, Kritt ran and promoted a phony tax scheme involving two leasing companies and offshore bank accounts. The scheme was designed to allow Dr. Picardi to “lease” his services in return for a small wage. The larger portion of the “leasing fee” was deposited in an offshore account and considered deferred compensation. Picardi then would access the offshore monies through transactions disguised as loans. No FBARs were filed on the foreign account nor was tax paid on much of the bogus leasing fees.
The scheme failed and both Picardi and another participant were indicted. After a jury trial, Picardi was convicted and sentenced to 5 years in prison. In appealing his conviction, Picardi asked the appeals court to find the trial judge failed to instruct the jury that it could consider whether the FBAR and offshore reporting rules were so vague and debatable as to excuse compliance. (Picardi had wanted the trial judge to tell the jury that, “Where the tax law is vague or highly debatable, a defendant lacks the requisite intent to violate it.”)
Lawyers consider these articles to be a “Hail Mary,” and like most Hail Mary attempts, it failed. The appeals court found no reversible errors by the trial court.
What makes this case very interesting is that the other physician who participated in the scheme was acquitted at trial! In a footnote to its opinion, the court says that the other physician, Dr. Randy Brodnick, ultimately reported his foreign accounts.
The lesson here is that a late filed FBAR is better than nothing. Here, the late FBAR filings of Dr. Brodnick didn’t stop the IRS from charging him criminally but it may have made a difference with the jury. Brodnick was acquitted while Picardi must look forward to 60 months in prison.
Phony employee leasing scams are rife with problems. Coupled with unreported offshore accounts, the combination is a recipe for criminal prosecution. If you are behind in FBAR filings or are using an employee leasing arrangement to shelter your income, speak to an IRS tax attorney right away.
Mahany & Ertl – America’s IRS tax attorneys. Services available nationwide.