Tuesday, June 9, 2020

Extradited E&Y Tax Shelter Enabler Sentenced (6/9/20/ 6/10/20)

I have often posted on the Government’s criminal prosecution of persons promoting abusive tax shelters.  There were a number of prosecutions starting around 2005 as the Government focused on major accounting firms, law firms and financial firms and the persons involved with them.  One set of the prosecutions related to principals at Ernst & Young, the accounting giant.  I blogged on a major Second Circuit decision in the prosecutions and included further links to the blogs on the E&Y prosecutions.  Major CA2 Decision on E&Y Tax Shelter Convictions (Federal Tax Crimes Blog 11/29/12), here; see also E&Y Admits Wrongdoing on Bullshit Tax Shelters; Will Pay $123 Million (Federal Tax Crimes Blog 3/1/13), here.

One of the E&Y defendants in the prosecution, David Smith, reached a plea agreement but left the country before he could be sentenced and serve whatever time would be imposed.  After fighting extradition for years, Smith, an attorney and one of the major facilitators at E&Y, was extradited and sentenced yesterday to three years in prison, the maximum that he could be sentenced under his plea agreement.  The Bloomberg news report is here:  Chris Dolmetsch, Lawyer Who Ran From Ernst & Young Tax Shelter Case Gets 3 Years (Bloomberg News Wire 6/8/20), here. 

According to the article, Smith requested that “he be sentenced to the 11 months he’d already served in New York’s Metropolitan Correctional Center,” after extradition.  Apparently, he also cooperated earlier during the initial investigation phase and reached the plea agreement before he fled the country, so that would be a positive factor for him.  And, in mitigation, Smith claimed that he did not go on the lam to avoid incarceration, but because of the 9/11 events; moreover, he claimed, "he feared prosecutors would renege on promises of leniency after he fully cooperated with their investigation."  The judge imposed the harshest sentence he could under the plea agreement.  I gather that the judge did not buy Smith's claims.  

It is a good thing that his attorneys negotiated a plea with a maximum possible sentence of three years.  The plea was to tax perjury, § 7206(2).  Attached here is a copy of the judgment on CourtListener.  The plea agreement was quite very favorable for Smith given his apparent role in the overall scheme.

Note the last paragraph was revised 6/10/20 12:00pm to reflect that the plea agreement was to § 7206(1), tax perjury, rather than § 7212(a), tax perjury, as I had speculated in the original version.  Either way, the incarceration period is limited to three years.  And, the major point was that the plea was a sweet deal given his apparent role.  Of course his time being held from the date of extradition to the sentencing does not count toward the sentence, but that period is really attributable to the fact that he fled the country rather than punishment for the underlying crime.

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