Tuesday, December 29, 2015

The Good Life (For Awhile)

A well-compensated attorney's criminal tax convictions drew a three-year suspension from the New York Appellate Division for the First Judicial Department.

The Hearing Panel convened a sanction hearing on February 9, 2015, at which respondent testified on his own behalf. He described how he joined a New York law firm as an associate when he graduated from law school in 1992; he was made a partner with the firm in 2001. While taxes had been withheld while he was an associate, once he became a partner his share of the partnership income was remitted to him in full, and it was his responsibility to make quarterly estimated tax payments. Between 2001 and 2003 he made estimated tax payments, but not in a timely manner nor in the full amount owed. In 2003 he belatedly satisfied his 2001 tax liability, but for the tax years 2002 through 2008 he failed to file tax returns or pay the taxes owed. During this period, he earned approximately $10.8 million in partnership income.

Respondent acknowledged that he understood his tax obligations, and that each year he received a Schedule K-1 memorializing his share of the partnership income, as well as a certification form from the law firm, provided in an effort to ensure partners' compliance with their tax obligations. He also periodically received notices from the IRS and the New York State tax authorities, as well as from the California Franchise Tax Board (CFTB) because a portion of the firm's income was earned in that state. Nevertheless, respondent ignored those obligations in favor of spending all of his earnings on himself and his then live-in partner. In addition to ordinary living expenses, his expenditures included investing $3.2 million in a bookstore he co-owned with his partner; paying approximately $1 million for extensive international travel by his partner for his Ph.D. research; spending between $500,000 and $1 million on the expenses of a cottage he purchased in upstate New York; and paying for vacation trips with his partner to Italy, Spain, London and California multiple times.

In March 2009, the law firm learned from the CFTB of respondent's failure to pay his tax obligations in California, and at the meeting that followed, respondent admitted that he had also failed to pay his federal and New York taxes for years. On March 31, 2009, after the firm concluded that respondent could not continue as a partner there, he resigned his partnership. He then obtained counsel and accountants to calculate and arrange for his voluntary disclosure to the taxing authorities of his tax deficiencies and his proposals to satisfy those liabilities. However, a federal criminal investigation was instituted, resulting in the prosecution and guilty plea underlying this proceeding.

Respondent's psychiatrist testified that she has been treating him for hypersomnia since 2008, and that in addition, after his tax delinquencies were revealed, she also began treating him with antidepressants, which medication he took throughout his incarceration, but has since discontinued. While the psychiatrist identified aspects of respondent's personality that she believed contributed to his misconduct, she did not indicate that his misconduct was caused by any specific psychological impairment.

The suspension was imposed nunc pro tunc to an interim suspension imposed as a result of the "serious crime" conviction.

Abovethelaw reported that he was a Sullivan & Cromwell partner . Their post links to the sentencing memoranda of the defense and the government.

The government's dim view

With all of the advantages conferred by a comfortable upbringing, elite education, and partnership at one of the nation’s most prestigious and profitable law firms, O’Brien could have pursued a rewarding and productive life as an elite-firm lawyer, with compensation in the top few percent of the general population. Instead, O’Brien decided to take the money that would otherwise have gone to satisfy his tax obligations and use that money to fund what he hoped would be another money-making operation — a rare books and manuscripts business operated by and co-owned with his partner, Michael Phelps. It is undisputed that O’Brien made capital contributions of over $3,000,000 to fund that business partnership, Hudson Street Books, a partnership of which O’Brien was a limited partner. In addition, O’Brien used his unreported income to fund international travel for himself and Phelps; Phelps’s education; and various renovations of his and Phelps’s lakefront weekend home in the Adirondacks...

This case is not about niceties or even aggressive interpretations of the tax law. Instead, it is about the defendant’s decision, year after year, to disregard his simple obligations as a taxpayer. We cannot emphasize enough that meaningful criminal sanctions are essential to stop tax crimes like those perpetrated by O’Brien — a sophisticated professional who fully understood his legal obligations and chose to flout them. Put starkly, only the real fear of a prison sentence will deter tax cheats like O’Brien from carrying on their activities

Bloomberg reported that he was sentenced to 28 months. (Mike Frisch)

https://lawprofessors.typepad.com/legal_profession/2015/12/a-well-compensated-attorneys-criminal-tax-convictions-drew-a-three-year-suspension-from-the-new-york-appellate-division-for-t.html

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