Here are the excerpts from the plea agreement that I thought particularly interesting (where there is boldfacing, it is supplied by JAT]:
As charged in the information, between 1996 and continuing until at least November 2007, defendant H. TY WARNER, a resident of Oak Brook, Illinois, willfully did attempt to evade and defeat approximately $885,300 in income tax due and owing by him to the United States of America, and the payment thereof, for calendar year 2002 and took affirmative acts, including those described below to accomplish his evasion. [JAT Note, the amount is only 2002; the amount critical for sentencing is the tax loss number which can include relevant conduct going back to 1996; see below.]
* * * *
On or about January 31, 1996, WARNER traveled to Zurich, Switzerland to open a secret offshore financial account with the Union Bank of Switzerland ("UBS"). The account held funds of WARNER's with profits or losses credited or debited to the account.
On or about January 31, 1996, WARNER agreed that any correspondence pertaining to his UBS account be held by the bank as opposed to being mailed elsewhere.
* * * *
In December of 2002, WARNER confirmed with UBS representatives his intention to close his UBS account and transfer those assets to Zurcher Kantonalbank ("ZKB") in Zurich,
Switzerland. As a result, in and around December 2002 and January 2003, WARNER agreed to have UBS transfer the assets in his UBS financial account, which had a balance of approximately $93,630,083 as of December 19, 2002, to ZKB.
Beginning in and around December 2002, WARNER concealed his name from being listed on the ZKB account by holding the account in the name of a purported "Molani Foundation."
In calendar year 2002, WARNER earned gross income through investments in the UBS account in the approximate amount of $3,161,788. WARNER failed to report that income to his outside accountants.
* * * *
On or about October 15, 2003, WARNER caused the preparation and caused the filing of a false and fraudulent United States Individual Income Tax Return (Form 1040) for calendar year 2002, which tax return was verified by written declaration that it was made under penalties of perjury, and which was filed with the Internal Revenue Service on behalf of himself. On that return, WARNER falsely claimed his total income was $49,124,095 in that he failed to report additional income in the approximate amount of $3,161,788 earned through investments in his UBS account, he falsely checked the "No" box and failed to disclose he had a financial account in Switzerland on his Schedule B, and he failed to report and pay over an additional $1,257,064 in taxes.
On or about November 5, 2007, WARNER filed an Amended U.S. Individual Income Tax Return (Form 1040X) for calendar year 2002 with the Internal Revenue Service and claimed a tax refund based on a net operating loss carryback in excess of $39,000,000 related to his 2004 tax year. WARNER failed to include his 2002 UBS income of $3,161,788 and falsely understated the "Correct amount" of his adjusted gross income and taxable income on that form. WARNER additionally understated the "Correct amount" of his total tax by approximately $885,300. [JAT Note: The amended return is likely what caused the statute of limitations to be open for the tax year 2002; there were likely other acts that might have caused that, but the amended return was a clear "refreshing" of the statute of limitations; note that the claim of evasion for 2002 alleges unpaid tax of $885,300 but the actual original 2002 return apparently failed to report $1,257,064 which seems to me should be the unpaid tax in the charge, but it makes no difference, I suppose, if all of that is included in the relevant conduct (see below).]
By the time the amended return was filed, WARNER had failed to disclose the existence of the UBS account and the fact that he had earned $3,161,788 in investment income through that account in calendar year 2002 to his tax return preparers. As a result, WARNER falsely understated his adjusted gross income and taxable income for 2002 by that amount on the amended return. Additionally, WARNER falsely understated his "Correct amount" of total taxes on the amended return by approximately $885,301.
Additional Offense and Relevant Conduct
In addition to the charged year of 2002, WARNER failed to provide information about his offshore accounts at UBS and ZKB and the annual amounts of income earned through those accounts to his tax return preparers until no earlier than in 2009. As a consequence, WARNER under reported his gross income on his annual federal income tax returns for tax years 1996 through 2007 by amounts earned on his investments held in those financial accounts, and WARNER concealed the existence of those accounts from the Internal Revenue Service by falsely claiming he did not have any foreign financial accounts by checking the "No" box on the Schedule Bs attached to those tax returns. The amount of undisclosed gross income for the tax years for which investment and income records still exist, 1999 through 2007, is approximately $24,448,912.
* * * *
Sentencing Guidelines Calculations
* * * *
b. Offense Level Calculations.
i. Pursuant to Guideline §§ 2T1.1(a)(l) and 2T4.1(J), the base offense level is 24 because the total amount of the tax loss from the charged offense and relevant conduct ($5,594,877) is more than $2,500,000, but not more than $7,000,000.
ii. The base offense level should be increased by 2 levels under Guideline § 2T1.1(b)(2) because the offense and relevant conduct involved sophisticated means.
iii. Defendant has clearly demonstrated a recognition and affirmative acceptance of personal responsibility for his criminal conduct. If the government does not receive additional evidence in conflict with this provision, and if defendant continues to accept responsibility for his actions within the meaning of Guideline§ 3El.l(a), including by furnishing the United States Attorney's Office and the Probation Office with all requested financial information relevant to his ability to satisfy any fine or restitution that may be imposed in this case, a 2-level reduction in the offense level will be appropriate.
iv. In accord with Guideline§ 3E1.1(b), defendant has timely notified the government of his intention to enter a plea of guilty, thereby permitting the government to avoid preparing for trial and permitting the Court to allocate its resources efficiently. Therefore, as provided by Guideline § 3E1.1(b), if the Court determines the offense level to be 16 or greater prior to determining that defendant is entitled to a 2-level reduction for acceptance of responsibility, the government will move for an additional 1-level reduction in the offense level.
c. Criminal History Category. With regard to determining defendant's criminal history points and criminal history category, based on the facts now known to the government, defendant's criminal history points equal 0 and his criminal history category is I.
d. Anticipated Advisory Sentencing Guideline Range. Based on the facts now known to the government, the anticipated offense level total is 23, which, when combined with the anticipated criminal history category of I, results in an anticipated advisory Sentencing Guideline range of 46-57 months of imprisonment, in addition to any term of supervised release, fine, and restitution the Court may impose.
* * * *
12. Regarding restitution, defendant agrees to pay restitution to the United States Treasury, arising from the offense conduct and relevant conduct set forth above, pursuant to Title 18, United States Code, Sections 3663(a)(3) and 3664 in an amount to be determined by the Court at time of sentencing. Defendant understands that the amount of tax loss as calculated by the IRS may exceed the amount of tax due as calculated for restitution in the criminal case.
** * *
15. Defendant further agrees that, in order to resolve his civil liability for willfully failing to file annual Reports of Foreign Bank and Financial Accounts for calendar years 1996 through 2008, defendant shall pay to the United States Treasury, prior to the date of sentencing, a civil money penalty in the amount of $53,552,248, which represents 50% of the highest balance of defendant's offshore accounts between calendar years 1996 and 2008 (that is, 50% of $107,104,968, the ZKB maximum account balance in 2008).
* * * *
18. Defendant understands that nothing in this Plea Agreement shall limit the IRS in its collection of any taxes, interest, or penalties from defendant or defendant's corporations. Defendant understands that the amount of tax as calculated by the IRS may exceed the amount of tax due as calculated for the criminal case.JAT Comment: Observers of the tax sentencing scene have noted for some time now that offshore account tax cheats fare better in sentencing than do ordinary tax cheats with similar sentencing characteristics. See e.g., Lower Sentences For Offshore Tax Cheats - Role of 5K1 Departures (Federal Tax Crimes Blog 9/28/13), here. (I am currently updating the master spreadsheet that will contain some nonoffshore sentencing data to compare to the offshore sentencing data.) As noted in my blog, the apologists for this phenomenon assert that it is perhaps related to the 5K1 substantial assistance downward departure. Note that there is no such down departure provided in the Warner plea agreement. Hence, this case will test whether these offshore cheats really get treated better. Warner is the poster child for the big fish that got caught.
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The following is some information I had posted to this blog before getting the plea agreement.
Beanie Babies Creator Cries, Pleads Guilty (ABC 10/2/13), here. Excerpts:
H. Ty Warner broke down crying in court and apologized as he entered his plea on Wednesday.
* * * *
He added, "There's no excuse for my actions.
Judge Charles Kocoras stopped Warner and told him "there will be time for you to bare your soul" at his Jan. 15 sentencing.Addendum 10/3/13 8:00 AM
As of 10/3/13 at 8:00 am, the plea agreement does not appear on the docket sheet, but it is referred to in the article below.
Becky Yerak and Jason Meisner, Beanie Babies billionaire Ty Warner enters emotional guilty plea (Chicago Tribune 10/2/13), here Excerpts are (emphasis is supplied by JAT):
In court, Warner acknowledged that he told no one of his foreign bank accounts, not even his accountants. Warner even concealed his name from one account by registering it as "Molani Foundation," a "sham company," prosecutors said in court.
"I'm pleading guilty because I am guilty," said Warner, whose continued expressions of remorsefulness led Kocoras to interrupt him, saying he could say more at his sentencing Jan. 15.
Sentencing guidelines call for prison time of 46 to 57 months, according to Warner's 18-page plea agreement.
Prosecutors say he failed to report $24.4 million in income from 1999 to 2007 and failed to pay taxes of about $5.6 million.
The judge said Warner, who lives in Oak Brook, may continue to travel internationally. His stuffed-toy company, Ty Inc., of which he is sole owner, is based in Westmont. He ranks 209th in a recent Forbes list of the richest Americans. His net worth is estimated at $2.6 billion.Per the docket sheet, the attorneys for Warner are:
Warner has paid more than $1 billion in federal taxes during his lifetime, his lawyer, Gregory Scandaglia, told the Tribune after the hearing.
Mark E Matthews
Caplin & Drysdale
One Thomas Circle, Nw
Suite 1100
Washington, DC 20005
(202) 862-5000
Email: mmatthews@capdale.com
LEAD ATTORNEY
PRO HAC VICE
ATTORNEY TO BE NOTICED
Designation: Retained
Gregory J. Scandaglia
Scandaglia & Ryan
55 East Monroe Street
Suite 3440
Chicago, IL 60603
(312) 580-2020
Email: gscandaglia@scandagliaryan.com
ATTORNEY TO BE NOTICED
Designation: Retained
Michael John Garcia
Kirkland & Ellis Llp
601 Lexington Avenue
New York, NY 10022
(212) 446-4810
Email: michael.garcia@kirkland.com
PRO HAC VICE
ATTORNEY TO BE NOTICED
Designation: Retained
Michael Samuel Shapiro
Scandaglia & Ryan
55 East Monroe Street
Suite 3440
Chicago, IL 60603
(312) 580-2020
Fax: (312) 782-3806
Email: mshapiro@scandagliaryan.com
ATTORNEY TO BE NOTICED
Designation: Retained
See also Editorial: Crackdown on offshore tax cheaters is paying dividends (Chicago Tribune 10/1/13), here.
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