Guardian named in latest 412(i) case

Henry Norris and Norris and Associates filed suit in the Circuit Court of Escambia County Florida on June 18th against Guardian Life Insurance Company of America, Webb Financial Group, O'Shields and Associates, Adams and Associates, and Creative Consultants, LLC.

In addition to the usual claims which are made in 412 cases, including unsuitability, etc. the plaintiff directly challenges the promotional materials provided to him by Guardian. According to the complaint, the Guardian promotional material presented to the plaintiff provided the following:

a. The IRS permits older business owners to make higher annual contributions to this plan than to virtually any other type of qualified plan.

b. The Fully Insured PLan (the 412(i)) can be an excellent solution for those ages 35 or older.

c. You work hard for your money. Why pay any more in taxes than is necessary? Wouldn't you rather reduce taxes and have that money growing tax deferred to provide for your family's security at retirement?

d. With a Fully Insured Plan it can. Every dollar you contribute is tax deductible to your business. You can use the money you'd normally lose in taxes to fund your own retirement.

e. The Fully Insured Plan can provide you with many thousands of dollars in tax deductions now...and leave your with many thousands of dollars more later, when you retire.

f. Advantages for Older Business Owners including:

*Maximum Benefits and Contributions;
*Guarantee Asset Growth;
*Contributions-100% Tax Deductible;
*Pre-Tax Dollars Lowers Life Insurance Cost;
*Dividends Can Lower Contributions;
*Higher Level of Family Protection



In addition, the plaintiff claims that the defendants recommended and set up a separate benefit fund on behalf of his employees by the name of United Employee Benefit Fund. James E. Holland, Chief Actuary for the Internal Revenue Service has referred to these funds as "the phony Union Scam."

The plaintiff also claims the defendants also unilaterally took loans against the policy, triggering an automatic disqualification of the plan under Section 412(i).

In discussions with Guardian representatives about the filing of a form 8886 the Plaintiff claims that he was advised that such action was "harsh and unnecessary" by Guardian Defined Benefit Analyst Peter Debruel. Plainiff also claims that Debruel and fellow Guardian Benefit Analyst John Paulis informed him that although the loan disqualified the plan, there was no taxable event because there was no distribution.

Henry Norris and Norris & Associates are represented in this case by the firms of Pittman Dutton Kirby & Hellums and Whatley Drake & Kalis.

For more information, contact Chris Hellums at ChrisH@pdkhlaw.com.

IRS cracking down on offshore tax shelters: notably UBS and Swiss Bank Accounts

The Department of Justice yesterday released a statement about UBS client, Steven Michael Rubinstein, a chartered accountant living in Boca Raton, Fla., who pleaded guilty to filing a false tax return for tax year 2004. Rubinstein was charged with filing a false tax return that intentionally failed to disclose the existence of a Swiss bank account maintained by UBS of which he was the beneficial owner and failed to report any income earned on that account.

The IRS Commissioner Doug Shulman says combating offshore tax evasion by wealthy taxpayers continues to be one of the IRS top priorities.

The UBS indictment and investigation highlights the IRS' commitment to vigorously pursuing those who illegally hide their money offshore as well as the financial institutions which help them.

In December 2007, a billionaire California real estate developer (Igor Olenicoff) and his banker (Birkenfeld) pleaded guilty to tax crimes. With evidence from this case, U.S. prosecutors have been able to penetrate the veil of financial invisibility that Switzerland guards as a national treasure.

To avoid immediate prosecution, UBS, which is Switzerland’s second- largest bank by stock market value, agreed in February to pay the U.S. $780 million. UBS also renewed a pledge to stop unlicensed recruiting of customers in the U.S. and agreed to cooperate with investigators during 18 months of probation. The bank admitted in court that it had helped American clients dodge taxes from 2000 to 2007.

The bank did provide information on more than 250 customers -- an unprecedented breach of Switzerland’s bulwark of secrecy.

The IRS is suing UBS in federal court in Miami to get the names of 52,000 American account holders who may have broken U.S. tax laws. This is causing a battle between UBS, Swiss governmetn and the US. The bank said in April 30 court filings that the U.S. efforts would force bank employees to violate Swiss criminal laws barring disclosure of secret account information. The Swiss government says the U.S. is trampling on its sovereignty.

If the bank fails to convince a federal judge that it shouldn’t turn over the names to the IRS, the court can fine UBS for civil contempt. The Justice Department, under the deferred- prosecution agreement, could seek criminal indictment of the bank, says tax attorney Robert Fink of Kostelanetz & Fink LLP in New York.

Since April 2, prosecutors have charged two UBS clients in Florida with filing false tax returns. Hundreds of UBS clients in the U.S. may face prosecution and Edward Robbins Jr., a California, tax lawyer who represented Olenicoff, said “this may be the biggest criminal tax investigation ever because of the dollars involved coupled with the vast number of criminal defendants, both at the UBS level and the American account holder level.”

U.S. prosecutors say UBS earned $200 million a year managing $20 billion in assets for American customers.

The Justice Department last week denied allegations they would drop the lawsuit against UBS and we will know more on June 30, when the Department said they would file a brief seeking an enforcement of the summons.

Sources:
Bloomberg News / Reuters

412(i) Lawsuit Filed in New Jersey

A second 412(i) lawsuit has been filed in Essex County Superior Court in New Jersey.

It is believed to be the second lawsuit filed in New Jersey against the following defendants : Indianapolis Life Insurance Company, Matt Lang, Lorac Financial Services, Inc., Summit Enterprises, Economic Concepts, Inc., Kenneth R. Hartstein, Harold Dischino and Dischino & Associates.

In this transaction, Lang acted as the agent and Dischino was the accountant for the plaintiff.

The complaint asserts the Defendants not only engaged in a pattern and practice of misrepresentations and omissions relating to life insurance policies promoted and represented as suitable products to be used as part of a comprehensive retirement plan, but also engaged in racketerring activity in violation of New Jersey's RICO statute.

The complaint further alleges Defendants knowingly sold Plaintiffs an abusive tax shelter causing them to incur significant financial losses by working in concert with one another and devised a scheme to sell, promote and administer abusive and illegal tax shelters as retirement plans under the auspices of Section 412(i) of the Internal Revenue Code.

The complaint states Defendants knew or should have known that these arrangements would be heavily scrutinized by the IRS, be deemed abusive tax avoidance transactions by the IRS, and expose those participating in such arrangement to costly IRS audits, including substantial tax liabilities, penalties, and interest.

Moreover, Plaintiffs assert Defendants knew or should have known that their continuing representations and omissions they made after the issuance of an IRS ruling in 2004 regarding the tax-related consequences of 412(i) plans and how the policies should be funded in the future were intentionally misleading, deceptive and fraudulent.

For a copy of the complaint, contact Chris Hellums @ Chrish@pdhklaw.com

Pittman Dutton Kirby & Hellums currently represents individuals and small businesses against brokers, promoters, accountants, and in some cases attorneys, regarding the sale of 412(i) plans. If you have purchased a 412(i) or have any questions about this litigation, please do not hestitate to contact us.

CHAIRMEN OF HOUSE AND SENATE TAX COMMITTEES ASK IRS TO STAND DOWN ON 6707 PENALTIES

Senators Grassley, R-Iowa and Max Baucus, D-Mt, who are members of the Senate Finance Committee, along with John Lewis, D-Ga. and Charles Boustany, R-La of the House Ways and Means Oversight Committee have asked the IRS to cease efforts to collect penalties from small businesses who bought certain employee-benefit plans branded tax shelters by the IRS.

In a letter to IRS Commissioner Doug Shulman, they advised that they intend to pass legislation reducing the penalties for such tax shelter transactions. In the meantime, they want IRS to suspend collection efforts in cases where the penalty exceeds the actual tax benefit realized.

At issue are the 6707 penalties for "listed" transactions, which the IRS considers the most egregious.
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Failure to disclose such a transaction to the IRS now automatically draws a penalty of $100,000 per year for individuals and $200,000 per year for businesses. The penalties are stackable so that a small business owner would be subject to a $300,000 penalty for a single year's participation in the tax shelter.

In a press release, Senator Grassley said "[w]hen I advanced the legislation to shut down tax shelters, I did not intend to bankrupt small businesses that had no ill intent," ... "The penalty should be commensurate with the transgression."

Perhaps the focus here is in the wrong place. I would submit that if the insurance companies, brokers, promoters, and attorneys who create such plans were held accountable with the fines, penalties, and perhaps criminal liability for creating such plans, the would cease being hatch every five or so years.

Chris Hellums represents numerous individuals and small businesses in litigation against the brokers and promoters of such plans. He can be reached by e-mail at Chrish@PDKHLAW.com

Latest Information on 6707 Penalties

I recently found this blog which tracks the latest developments regarding the current status of legislation to reform 6707 penalties.

I think it is a great resource for anyone who is potentially subject to those penalties.

Yesterday, I was told that legislation is expected out of the Finance Committee which will reduce the penalties to a percentage of the taxes owed (20-30%) rather than a flat amount of $100,000 per year for individuals and $200,000 per year for corporate entities, that the IRS may be given some discretion on levying these penalties, and that the IRS may stand down on these penalties pending the outcome of the legislation.

http://6707a.wordpress.com/

Lawyers and others Indicted on Charges of Marketing Phony Tax Shelters

Bloomberg News and the Dallas Morning News are reporting that seven individuals, including attorneys at the now defunct Jenkens & Gilchrist law firm and executives at BDO Seidman LLP were among seven defendants indicted Tuesday on criminal charges of marketing phony tax shelters. The allegations included conspiracy and tax evasion in the marketing of fraudulent tax shelters


John DiCiccio, the acting assistant attorney general in the Justice Department's Tax Division, had this to say:


"Dishonest and fraudulent tax professionals, including accountants, attorneys and bankers, should stand up and take note of today's indictment,"

In 2007, Jenkens & Gilchrist admitted it developed and marketed tax shelters that generated more than $1 billion in phony losses. Jenkens and Gilchrist no longer exists, but most of the remaining lawyers and staff joined Hunton & Williams, a national law firm based in Richmond, Va., in April 2007, including Henry Gilchrist.

One of the attorneys indicted, Paul Daugerdas, 58 denies any wrongdoing. Source: http://amlawdaily.typepad.com/.a/6a00e55044cbaf883401156ff27763970c-pi



"Paul Daugerdas firmly believes that the tax advice provided to his clients was well within the scope of then-existing federal tax law," Margarite Wypychowski said in a statement. "He categorically denies any participation in or approval of any wrongdoing in connection with his rendering of professional legal services."

How many times have we seen such a statement from attorneys make massive sums of money marketing and promoting abusive tax shelters only to see them blow up in the faces of their clients who relied on their "expertise" in this area.

In January 2005, Jenkens agreed to pay $81.6 million to clients who had sued over its tax shelter advice.

I suspect that more indictments will be forthcoming on this sort of conduct.

Chris Hellums can be reached via email : ChrisH@pdkhlaw.com

Federal Authorities indict three, claim to have uncovered one of the largest tax schemes ever.

The Los Angeles Times is reporting from Seattle that U.S. attorneys have indicted two executives and a Los Angeles attorney in what could be one of the largest tax fraud schemes ever.

According to the article, two principals of the Quellos Group created 1.3 billion in fraudulent losses for clients. The clients did not know of the fraud, and had been offered tax opinion letters from well-known law firms and their tax attorneys that the transactions were legal.

The indicted are accused of setting up a complex series of sham transactions through a shell company on the Isle of Man. Gains of wealthy investors' earnings were offset with an equal number of stock losses to avoid owing capital gains taxes. According to the indictment, the losing stocks didn't exist, and that the company that acquired the stocks had no employees or earnings and the blended investment vehicles were a fraud.

The participants reportedly received tax opinion letters from the law firms of Cravath, Swaine & Moore of New York, the second-oldest law firm in the U.S., and Bryan Cave, an international firm that specializes in corporate transactions. Their written opinions affirmed that it was "more likely then not" that the plan would produce favorable tax consequences.

According to a 2006 investigation by the U.S. Senate's permanent subcommittee on investigations, Bryan Cave made more than $1 million in fees but disavowed knowledge of how the paper portfolio was formed.

To read the article in its entirety, see http://www.latimes.com/business/la-fi-quellos5-2009jun05,0,3888434.story

Court Enters $1,640,000 Judgment in 419 Case

The Honorable Judge Charles E. Robinson entered a judgment in favor of the plainiff in a 419 case. The court awarded $440,000 in compensatory damages and $1,200,000 in punitive damages for a total verdict of $1,640,000.

The case involved a Bysis plan that was later converted into a plan administered by The Arrowhead Trust.

The plaintiff in the case was represented by Chris Hellums of the law firm of Pittman Dutton Kirby & Hellums