Dr. Patricia Lynn Hough, of Englewood, Florida, was sentenced today to serve two years in prison and three years supervised release by U.S. District Court Judge John Steele in Fort Myers, Florida, for conspiring to defraud the Internal Revenue Service (IRS) by concealing millions of dollars in assets and income in offshore bank accounts at UBS and other foreign banks, and for filing false individual income tax returns which failed to report the existence of those foreign accounts or the income earned in those accounts, the Justice Department and the IRS announced. Hough was also ordered to pay $15,518,382 in restitution and $42,732.27 for the costs of prosecution . Hough was convicted by a jury on Oct. 24, 2013.
According to court documents and court proceedings, Hough owned two Caribbean-based medical schools, Saba University School of Medicine located in Saba, Netherlands Antilles, and Medical University of the Americas located in Nevis, West Indies. Hough conspired to defraud the IRS with her husband, Dr. David Fredrick, who is awaiting trial. They carried out the conspiracy by creating and using nominee entities, including a foundation, and by using undeclared accounts in their names and the names of nominee entities at UBS and other foreign banks to conceal assets and income from the IRS. Both schools and the associated real estate were sold on April 3, 2007, for more than $35 million, all of which was deposited into undeclared accounts in the names of the nominee entities. The majority of the proceeds from the sale were not reported to the IRS on their tax returns and no tax was paid. In total, between 2003 and 2008, Hough and Fredrick failed to pay more than $15 million in taxes.
The evidence at trial further proved that Hough and Fredrick used emails, telephone calls and in-person meetings to instruct Swiss bankers and asset managers to make investments and transfer funds from their undeclared accounts at UBS. The evidence also established that Hough and Fredrick caused funds from the undeclared accounts in the names of the medical schools to be transferred to undeclared accounts in their individual names or in the names of nominee entities. Hough and her husband then used the funds in their undeclared accounts to purchase an airplane, two homes in North Carolina and a condominium in Sarasota, Florida.
Hough was also convicted of three counts of filing false tax returns for 2005, 2007 and 2008. The evidence at trial showed that Hough filed false tax returns that substantially understated her total income because she failed to report substantial interest and investment income and because she failed to report her half of the proceeds from the sale of the medical schools in 2007. In addition, Hough failed to report that she had an interest in, or signature or other authority over, bank, securities or other financial accounts located in foreign countries.JAT Comments:
1. I have no time to comment now, other than say that the very recent sentencings have involved significant incarceration time. But as one practitioner noted at a recent meeting, Ms. Hough's sentencing was well below the Sentencing Guidelines range, which even the low point was likely over double what her sentence was. I haven't seen the calculations, but my rough and ready calculations suggest a range with a low-end exceeding 100 months. She received only 24 months. Hence, Dr. Hough benefited substantially from a Booker variance. As with Ty Warner (Beanie Baby fame), I speculate that that reflects well on the lawyers.
2. The tax loss is addressed in 1 sentencing order. United States v. Hough, 2014 U.S. Dist.LEXIS 63660 (MD FL 5/8/14). As readers know, the tax loss is the principal factor in calculating the offense level which sets the Guidelines Range. Hence, the first order of business in the order is to address the parties' claims on tax loss. Here are key excepts:
The government asserts that the tax loss for the years 2003 through 2008 is $7,771,972 for Hough and $7,746,410 for Fredrick, for a total of $15,518,382. Defendant asserts that the total tax loss for these years is $0.\
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Where the criminal activity is jointly undertaken, the district court may consider "all reasonably foreseeable acts and omissions of others in furtherance of the jointly undertaken criminal activity, that occurred during the commission of the offense of conviction, in preparation for that offense, or in the course of attempting to avoid detection or responsibility for that offense." U.S.S.G. § 1B1.3(a)(1)(B). Since the offenses in this case involved the filing of tax returns in which gross income was underreported, the tax loss is equal to 28% of the unreported gross income "unless a more accurate determination of the tax loss can be made." U.S.S.G. § 2T1.1(c)(1)(A).Dr. Hough and her husband ran their offshore operations through entities, Saba Foundation and Medical University of the Americas. The Government sought to ignore the entities and attribute the income to Dr. Hough and her husband as Schedule C income for tax loss purposes. Defendant argued that the entities must be respected. The Court found that the entities met the minimum / minimal requirements of Moline Properties, Inc. v. Commissioner, 319 U.S. 436 (1943). However, the Court then determined that the entities' attributes made them for tax purposes entities other than corporations. Under the U.S. rules, such entities are treated as partnerships rather than corporations and the income flows through. The Government won this argument.
3. In the order, the Court also rejected Dr. Hough's claim that, because her husband had the more active role, she should be given a downward role adjustment, reasoning:
While Fredrick clearly had a more active role in many of the activities in the conspiracy, Hough's role cannot be properly described as either minimal or minor. She was an active participant in the conduct which led to her convictions, including the conspiracy, and could reasonably foresee the conduct of co-defendant Fredrick. Additionally, the tax loss attributable to Fredrick's individual returns had no impact on the base offense level, since defendant's tax loss exceeded $7 million by itself but the combined tax loss was less than $20 million. U.S.S.G. § 2T41. Tax Table (K), (L). Defendant's request for a minimal or minor role adjustment is denied.4. I posted on her conviction here: Another UBS U.S. Depositor Convicted (10/25/13), here.