Monday, August 15, 2005

Attorneys in Trouble Over Taxes

Two attorneys in Texas have run afoul of the IRS and DOJ for filing false tax returns.  Odessa attorney Stephen Ashley entered a guilty plea to one count of filing a false estate tax return in connection with the settlement of his father's estate (press release here):

Ashley was the executor of his father’s estate and assumed responsibility for filing all pertinent tax documents with the Internal Revenue Service concerning the estate’s affairs. By pleading guilty, Stephen Ashley admitted that during the preparation of the tax return of his father’s estate he directed his secretary to type four (4) backdated Gift Deeds falsely reflecting that his father, Connell D. Ashley, had deeded a certain portion of a ranch he owned to his sons in 1989, 1990, 1991, and 1992, when in fact his father had not truly begun to deed portions of the ranch to him and his brothers until 1993. He also had his father’s former secretary forge his signature on the false deeds and had false notary records created.

Houston attorney James Quay was sentenced to a 15-month term of imprisonment for filing a false tax return in 1997 involving transfers from an off-shore trust related to an abusive tax shelter (see press release here):

[Quay] filed a U.S. Individual Income Tax Return (Form 1040) for calendar year 1997 with the Internal Revenue Service Center in Austin, Texas (“Quay's 1997 Tax Return”), which included a Schedule C deduction for administrative services expense in the amount of $221,000 that he knew to be false. This deduction shifted, or expatriated, income in the amount of $221,000 from his personal return to an offshore company via intervening transfers to intermediary domestic and foreign trusts under a foreign tax shelter program called “Aegis,” which envisioned the return, or repatriation, of that income to Quay through tax-exempt payments on debt, called “basis notes” created when the transferee entities were formed. Under the terms of the Aegis tax shelter program, basis note payments were supposed to be made from deposits to an account of the offshore company corresponding in amount to the amount of income expatriated. Quay did not deposit, and never intended to deposit, into an account of his offshore company an amount of cash corresponding to the amount of income expatriated. Rather, Quay deposited only $25,000 into an offshore account by the end of 1997, well short of the $221,000 expatriated. By the time he had filed his 1997 tax return in October 1998, Quay had used all but a few thousand dollars of those funds to pay credit card charges rather than any “basis note.”

In sentencing Quay, the district judge found that he used his special skills as an attorney in committing the offense. 

An interesting question will be how long these two defendants will lose their law licenses.  Each violated the law through their actions as an attorney, which calls into question their fitness to represent clients and appear before the courts.  Should they be allowed to continue to practice law, and if so, how long should they be removed from legal practice?  The bar authorities are all over the map on the amount of time a lawyer convicted of a crime related to their role as a lawyer (as opposed to a personal capacity) should lose the license to practice. (ph)

http://lawprofessors.typepad.com/whitecollarcrime_blog/2005/08/tax_attorneys_i.html

Prosecutions, Sentencing, Tax | Permalink

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