Significant Tax Shelter Defendant Sentence After Acquittal of Co-Conspirators (5/27/13)

DOJ Tax recently announced, here, that Michael Parker had been sent to prison for 54 months pursuant to his plea of guilty to one count of conspiracy (a Klein Conspiracy).  Some readers may recall that Mr. Parker had been originally indicted along with David Haynor and Jon Flask to charges, including conspiracy, related to tax shelters which they promoted.  In 2009, Mr. Parker pled guilty to the one count of conspiracy.  See DOJ Tax Press Release, here, and Guilty Plea in SLOTS Tax Shelter (Federal Tax Crimes Blog 12/19/09), here.  Messrs. Haynor and Flask went to trial and were acquitted.  See my prior blogs on facets of that trial and acquittal, Good Faith as a Defense to Tax Crimes (Federal Tax Crimes Blog 2/9/13), here, and Jury Instructions in Tax Obstruction and Klein Conspiracy Case (Federal Tax Crimes Blog 2/6/13), here.

The key excerpts from  the press release are (emphasis supplied by JAT):

According to the plea agreement and statements made during trial and related proceedings before U.S. District Judge Sandra S. Beckwith in Cincinnati, Ohio, Parker admitted to conspiring with others to defraud the IRS with regard to tax shelter transactions. Parker, a CPA and an attorney, acted as the Chief Operating Officer of TransCapital Corporation during the alleged conspiracy. Parker testified at the trial of an accountant who was a tax partner at KPMG, LLC, at its Tysons Corner, Va., office, and an attorney for TransCapital, both of whom were acquitted of conspiracy charges after a four-week jury trial. 

According to the plea agreement, trial testimony and other statements, from 1998 through 2006, Parker and others marketed and implemented a tax shelter to KPMG clients called the Sale Leaseback of Tenant Improvements Strategy (SLOTS). The SLOTS shelter enabled client corporations to claim tax deductions totaling more than $240 million on corporate income tax returns filed with the IRS. During 2002 through 2004, the IRS audited three U.S. corporations that had claimed losses generated by SLOTS transactions, including The Kroger Company. Parker identified Kroger as the Fortune 500 corporation that did the largest SLOTS tax shelter transaction, and which claimed over $178 million in loss deductions, causing over $64 million in tax loss to the IRS. Parker admitted that he and the others conspired to impede and impair the IRS by making false and misleading statements to IRS agents and attorneys during these audits, including the Kroger audit. Additionally, Parker admitted that he and others concealed certain aspects of the tax shelter transaction from SLOTS clients, including Kroger, for the purpose of impeding and impairing the IRS. Parker further acknowledged that the SLOTS tax shelter and related transactions were themselves nothing more than devices to disguise and conceal mere financing transactions.

JAT Comments:

1.  I have stated before my belief that the Klein conspiracy to which Mr. Parker pled is sufficiently amorphous that its mere charge poses great risk to the defendant in trying to assess whether to go to trial or to plead guilty.  Indeed, because it  is amorphous and thus the risk that a jury will convict is quite uncertain, there is tremendous pressure to plead guilty for a defendant who might not think himself guilty (assuming he or she can get past the required allocution) or who would have a very good chance of prevailing at trial.  The Government can serve up acceptance of responsibility and 5K1 benefits to sweeten the deal and skew the defendant's assessments of risks and rewards toward a plea.  In this case, had Parker withstood that pressure and gone to trial, perhaps he would have been acquitted as well.  But he pled and must suffer the consequences of having pled -- including 54 months in jail, subject to his good time credit.

2,  Readers will recall that in United States v. Coplan, et al., 703 F.3d 46 (2d Cir. 11/29/12), here, the panel majority questioned the scope of the Klein conspiracy as frequently articulated and applied by the courts.  See my blog on that case, Coplan #1 - Panel Questions Validity of Klein Conspiracy (Federal Tax Crimes Blog 12/1/12), here.  Coplan is on petition for certiorari on that issue.  See Petition for Certiorari Seizing the Gauntlet Laid Down by the Second Circuit Majority Panel to Question the Klein Conspiracy (5/2/13), here.  It is highly unlikely that the Supreme Court would now throttle back upon the scope of the Klein / Hammerschmidt conspiracy (even though it appears to have been improperly expanded in the first place), or, if it were to do so, what effect it might have on cases disposed of prior to the Supreme Court action.

3. For those interested in seeing some of the excesses to which the Klein conspiracy notion as currently expanded, Fox News -- the self-styled "fair and balanced" news / spin source -- has this talking heads discussion - "Could IRS Officials Be Found Guilty of Klein Conspiracy?", here.  The reference is to the actions of the IRS employees who allegedly used improper political predilections in establishing selection criteria.  Fox news, of course, has a predilection to find egregious misconduct -- preferably criminal -- so as to tar the IRS and Obama.  But, it is hardly "fair and balanced" to even raise the specter of a Klein conspiracy -- as amorphous as it is -- on the anecdotal evidence which is publicly available considered objectively.  Asserting crime would require considerable speculation as to evidence which is not available, as one commentator, Jennifer Bonjean, properly notes.  (The balance of the video discusses Lois Lerner's assertion of the Fifth Amendment, with the conservative talking head (who just speculated about a Klein conspiracy violation) asserting that she had blown her assertion of the Fifth.)

4.  The announcement of the sentencing does not explain how the sentencing judge reached the ultimate conclusion that 54 months was an appropriate sentence.  The defendant should have gotten the acceptance of responsibility 3-level downward adjustment and some 5K1 adjustment for cooperation in the criminal trial of Messrs. Haynor and Flask.  To be sure, the Sentencing Guidelines would have still produced a significant sentence because of the tax loss involved, but the judge certainly had Booker flexibility to mete out a lesser sentence.  I am sure there is a story to tell there, and maybe some reader would  like  to add some detail by way of comment or by email to me.

Addendum 6/9/13:

I have just received a report from a close observer of the events that suggest considerable intrigue beyond what is apparent on the facts I was able to observe in making the comments above.  Apparently, so this report goes, Parker did not endear himself to the judge who thus was not inclined to exercise Booker variance authority.  Certainly, for those with information about this, posting comments onto this blog could be helpful.