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:

Tax Protestor Convictions Affirmed (2/11/13)

In United States v. Hopkins, 2013 U.S. App. LEXIS 2488 (10 Cir. 2013), here, the defendants, husband and wife, were convicted of tax evasion and Klein conspiracy.  The Court offers a good summary of the facts leading to the indictments (footnote omitted):

After becoming increasingly involved in tax-protester groups, Defendants decided to stop "volunteering" to pay federal and state taxes. From 1996 to 2009, they paid no income tax. Instead, Defendants created several trust accounts, which they believed were tax proof, and designated family members and friends as trust beneficiaries and themselves as trust managers. The trusts were "sovereign trusts" sold to them by tax-protester seminar leaders who touted the trusts as tax exempt. Mark Hopkins, an emergency-room doctor, had his employers (medical institutions) pay his earnings to a trust, Shalom Enterprises, an entity incorporated under Oregon nonprofit law. According to Defendants Shalom Enterprises was a nonprofit ministry corporation, but in fact its funds were used to finance their living expenses. Defendants transferred funds and property among their numerous trusts to evade detection by the Internal Revenue Service (IRS). Predictably, Defendants faced mounting difficulties with the IRS, and on April 9, 2009, they were indicted on seven counts of tax evasion under 26 U.S.C. § 7201 and one count of conspiracy to defraud the United States under 18 U.S.C. § 371.

Most tax protestors are not charged criminally; the IRS deals with their cases on the civil side (if not always, perhaps, civilly).  But some are charged, and when charged they usually go down (are convicted).  For example, Cheek went down, ultimately.  The Hopkinses went down in this case.

On appeal, they complained about an IRS levy preventing them from obtaining certain proceeds that they had paid into the court registry in connection with their pretrial release.  Prior to trial, upon motion by them, the district court ordered that the funds be released to them.  Whereupon, having previous tax assessments against the defendants, the IRS levied on the clerk of court to deliver the funds to the IRS rather than the defendants.  The defendants did not appreciate that and complained.  Their complaints at the trial and appellate levels were for naught.

One facet of their complaints was the the levy interfered with their Sixth Amendment right to counsel.  When the district court sustained the levy, their first counsel moved to withdraw for nonpayment of fees.  The district court granted the motion.  The district court then granted Mrs. Hopkins ("Wife") appointed counsel, but she somehow quickly retained Tommy Cryer, a well know tax-protestor type lawyer (even has a Wikipedia entry describing his adventures, here).