Friday, August 7, 2020

Houston Attorney Sentenced to 24 Months for Conspiracy and Tax Evasion (8/7/20)

DOJ Tax has this press release:  Houston Attorney Sentenced to Prison for Offshore Tax Evasion Scheme: Conspired to Secretly Bring to the US More Than $18 Million in Untaxed Money Held in Foreign Banks, here.  The key excerpts are:

A Houston, Texas, attorney was sentenced to 24 months in prison for conspiring to defraud the United States and tax evasion, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division and U.S. Attorney Ryan K. Patrick for the Southern District of Texas. 

In September 2019, a jury convicted Jack Stephen Pursley, also known as Steve Pursley, of conspiring with a client to repatriate more than $18 million in untaxed income that the client had earned through his company, Southeastern Shipping.  According to the evidence presented at trial, Pursley knew that the client had never paid taxes on these funds so Pursley designed and implemented a scheme to transfer the untaxed funds from Southeastern Shipping’s business bank account, located in the Isle of Man, to the United States.  Pursley helped to conceal the movement of funds from the Internal Revenue Service (IRS) by disguising the transfers as stock purchases in United States corporations owned and controlled by Pursley and his client. 

Pursley received more than $4.8 million and a 25% ownership interest in the co-conspirator’s ongoing business for his role in the fraudulent scheme.  In 2009 and 2010, Pursley evaded the assessment of and failed to pay the taxes he owed on these payments by, among other means, withdrawing the funds as purported non-taxable loans and returns of capital.  Pursley used the money he garnered from the fraudulent scheme for personal investments, and to purchase personal assets, including a vacation home in Vail, Colorado, and property in Houston, Texas. 

In addition to the term of imprisonment, U.S. District Judge Lynn N. Hughes ordered Pursley to serve 2 years of supervised release and to pay approximately $1,788,753 in restitution to the United States. 

Being from Houston and otherwise familiar with the case, I was interested.  I posted on the case.  See particularly, Houston Attorney Convicted of Klein Conspiracy and Tax Evasion (Federal Tax Crimes Blog 9/6/19), here.

 At the sentencing or shortly thereafter the judge unsealed the Government’s sentencing memorandum.  I offer the sentencing memorandum here.  Some key points from the memorandum are:

  • The tax loss (both Pursley’s tax evaded and the unindicted co-conspirator’s tax evaded) was $6,500,858.  (See p. 9.)
  • In the calculations, the Government sought both the sophisticated means adjustment and the special skills adjustment, urging that both could apply and should apply in this case.  See p. 9 fn. 2, citing United States v. Olis, 429 F.3d 540, 549 (5th Cir. 2005), citing United States v. Calbat, 266 F.3d 358, 363 (5th Cir. 2001) (upholding the application of both enhancements).
  • The Government sought (p. 10) the upward adjustment for “criminal activity that involved five or more participants,” pursuant to U.S.S.G. § 3B1.1(a).”  The Government cited the PSR so presumably the PSR recommended the adjustment as well.
  • The Government sought (p. 18) restitution of $2,517,823, which included interest.  Interest is not included in the tax loss calculation (unless the crime is evasion of payment, which I don’t think was charged here, even in the conspiracy).  But, according to the Government should be included in restitution, citing United States v. Adams, 955 F.3d 238, 251-52 (2d Cir. 2020) (affirming inclusion of interest in restitution to IRS because the full loss to the victim included the time value of money); United States v. Perry, 714 F.3d 570, 577 (8th Cir. 2013) (same).  Pursley did seek credit for certain overpayments for two years indicated on amended returns, but the IRS has not processed those returns (I guess for refund statute of limitations purposes they were filed but not processed to generate either a refund or denial).  The Government said that that could be determined later.  In this regard, the Court did set a restitution hearing for 10/29/20, presumably to permit further consideration of the restitution amount determined at sentencing.  Also, at least in the Government's calculation, there is no restitution with respect to the co-conspirator’s taxes where the tax loss was enabled by Pursley, apparently because that co-conspirator had otherwise resolved his tax liabilities.  Also, as to the inclusion of interest, the IRS can always assert interest later by invoking the deficiency procedures if appropriate and can even assert additional tax and penalties (if appropriate) by invoking the deficiency procedures, which it certainly will for the civil fraud penalty (75%). 

 The Government’s bottom line recommendation to the Court was (p. 19):


For six years, the defendant conspired to undermine the U.S. tax system. He failed to pay more than $1.7 million in individual taxes and facilitated the evasion of over $4 million by his co-conspirator. Motivated by greed, he lied and manipulated to execute his carefully orchestrated crime. These serious crimes deserve serious punishment. For the  aforementioned reasons, the government respectfully recommends that this Court sentence the defendant to a within guidelines sentence of 151 to 188 months, a three-year term of supervised release, a mandatory fee assessment, a fine of $35,000 to $350,000, and restitution payable to the IRS in the amount of $2,517,823. Such a sentence is appropriate in this case and consistent with the U.S. Sentencing Guidelines and the factors enumerated in 18 U.S.C. § 3553(a).

So, the Court set the sentencing incarceration at 24 months, quite a downward variance based on the Government's recommendations.  I don't know precisely what occurred at the sentencing hearing with respect to the Guidelines calculations.  If I get the Court's Guideline calculations and I think they are of some interest, I will update this blog entry.  (I did hear informally that the lower end of the Judge's Guideline calculation range was 68 months, but that the calculation gave certain calculation benefits that one might argue Pursley was not entitled to; even assuming the Judge did the calculations right, a variance from 68 months (low-end) to 24 months is still pretty significant and, based on my anecdotal observance of variances, seems to be quite large given the conduct described in the press release and the Government's sentencing memorandum.

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