Houston International Tax Fraud Scheme Prosecuted: In a recent criminal tax case, a Houston Tax Preparer may be facing time behind bars. The U.S. Government criminally prosecuted (and won) a case against a Tax preparer in Houston who was perpetrating an international tax fraud.
What makes this case interesting (to us), is the strategy the preparer used. The preparer focused on seeking exemptions for income tax based on treaty positions, which were just plain wrong.
Houston International Tax Fraud Scheme Prosecuted
We have seen this type of scam for two decades.
Many years ago, Golding & Golding litigated a $300,000+ penalty down to a full penalty abatement for a client who got caught up in this international scam. It took several rounds with the IRS, but in the end the IRS acknowledged that the Taxpayers should not be subject to penalties just because they were high net-worth taxpayers and scammed by an unethical tax preparer.
While it continues to morph, the basics of the scam is always the same — foreign earnings and no tax.
Reporting Foreign Income
When it comes time to reporting foreign income on a U.S. tax return, especially foreign employer pension contributions (outside of Canada and the UK), the rules are complex, and generally requires foreign earnings and pre-taxed foreign pension contributions to be taxed.
Some practitioners will simply tell Taxpayers all the income, contributions, deferrals are non-taxable, based on treaty rules – even when a treaty does not even exist with the country at issue and/or the treaty rules clearly show the income is taxable.
Beware of Tax Professionals Claiming “General Exemptions” from Federal Taxes
Nobody wants to pay tax, when that same money can be used for other (more fun) purposes. BUT, in order to avoid paying tax, there must be a reasonable and legitimate basis for not paying tax. If an attorney or tax professional tells you that the money is exempt, ask them to explain why, and provide a basis for it.
Not all tax treaties are built the same.
While a contribution (and growth) within a U.K. retirement plan may be exempt from immediate tax, that is not the same rule for all treaties. And, treaties do not generally exempt all wages of a U.S. person, based on residence.
That is why the IRS developed legal methods to reduce tax liability, such as the Foreign Tax Credits and the Foreign Earned Income Exclusion.
U.S. vs. Winfred Fields
In the case of U.S. vs. Winfred Fields, the Department of Justice Provided the following:
Winfred Fields operated tax and bookkeeping businesses from an office on Richmond Avenue in Houston for many years under the business names Fields Enterprises, Your Tax Professionals and The Tax Boss.
At trial, the jury heard Fields participated in a scheme involving the submission of U.S. Individual Tax Returns on behalf of foreign people working on vessels on the Outer Continental Shelf of the United States. These crewmembers were engaged in oil and gas exploitation activities in the Gulf of Mexico.
Evidence showed Fields falsely claimed workers were exempt from U.S. tax under a tax treaty between the U.S. and the United Kingdom, Spain or New Zealand. The employing companies had previously provided to the IRS withholdings from the worker’s wages and reported the income to the IRS. However, Fields submitted amended tax returns as well as original nonresident tax forms 1040NR claiming a refund of the entirety of the amounts paid in as U.S. taxes for various tax years including 2007 through 2012.
Fields charged a fee of $2,500 for each crew member’s first return and required a $1,000 fee for each return thereafter.
He required direct receipt of the refunds so that he could negotiate the checks and take his fee off the top. Fields had some refund checks deposited directly into one of several bank accounts he maintained.
Alternatively, he cashed the checks at a Houston check cashing business or had the checks deposited into one of several attorney trust accounts three different Houston lawyers had maintained. Fields gathered the check proceeds or deposited them into the attorney trust accounts after paying a fee to the check cashing business and the attorneys for the service of cashing the U.S. Treasury checks. Fields deposited the proceeds in one of several bank accounts he utilized during the scheme.
Fields agreed to provide the remainder of the refund proceeds to the foreign clients. He did that for a while, but ultimately stopped forwarding any money to the workers. As those individuals began contacting him to ask for updates on their refund claims, he repeatedly sent misleading and materially false responses to their questions.
The jury heard that Fields fraudulently obtained $3,097,974.19 in tax refunds from the IRS and kept approximately $1,302,271.75 for himself.
The defense attempted to convince the jury he acted in good faith and believed the wages were exempt. He also claimed he was trying to pay the crewmembers their refunds but just got behind. The jury rejected Fields’ contentions in their verdict and found him guilty as charged on all 15 counts.
U.S. District Ewing Werlein Jr. presided over trial and has set sentencing for May 2020. At that time, Fields faces up to 20 years for conspiracy to commit mail and wire fraud and count of mail fraud. For the other 13 tax fraud convictions, he also faces up to three years in federal prison. He may also be ordered to pay restitution to his victims and up to $250,000 in fines.
IRS – Criminal Investigation and U.S. Postal Inspection Service conducted the investigation. Assistant U.S. Attorneys Melissa Annis and Charles Escher prosecuted this case.
Golding & Golding: About our Firm
We specialize exclusively in international tax, and specifically IRS offshore disclosure.
We have successfully represented clients in more than 1,000 streamlined and voluntary offshore disclosure submissions nationwide and in over 70-different countries. We have represented thousands of individuals and businesses with international tax problems.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.
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*Beware of less experienced copycat firms misleading the public about the streamlined procedures and IRS offshore disclosure.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Golding & Golding Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Offshore Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
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No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.