Thursday, November 7, 2013

Chicago Lawyer Enjoined From Promoting Fraudulent Tax Schemes (11/7/13)

According to this DOJ Tax Press Release, here, by consent, Gary J. Stern has been "permanently barred Gary J. Stern from promoting tax fraud schemes and from preparing related tax returns."  Key Excerpts from the press release:
According to the complaint, Stern designed at least three tax-fraud schemes that helped hundreds of customers falsely claim over $16 million in improper tax credits and avoid paying income tax on at least $3.4 million.  Stern allegedly promoted the schemes to customers, colleagues, and business associates.  The complaint alleges that his customers included lawyers, entrepreneurs and professional football players, and some of the latter, including NFL quarterback Kyle Orton, have sued Stern in connection with the tax scheme, alleging fraud, breach of fiduciary duty and professional malpractice.

Federal law allows an income tax credit with respect to certain sales of fuel from non-conventional sources (FNS), including methane produced from landfills.  According to the complaint, beginning in the early 2000’s Stern created a web of partnerships, companies and other entities to serve as a conduit for sham transactions designed to funnel false FNS credits to his customers.  Stern allegedly funneled over $11.4 million of these bogus FNS credits to customers and used a bogus trust arrangement to fraudulently distribute an additional $5.34 million in FNS credits to his customers.

Finally, according to the complaint, Stern promoted an abusive income-shifting technique to help his wealthiest customers illegally avoid taxes.  Stern and his business associates allegedly kept most of the money that customers contributed to this scheme.  The court has barred Stern from using any entity to assist others in illegally shifting income for the purpose of avoiding tax.   
The only question I have is whether his consent resolves or mitigates the criminal exposure implicated by the allegations in the complaint (as recounted in the press release).  The press release states that he consented to the injunction but did not admit the allegations.  That perhaps is a fine line.

The Justia entry is here.

The effect of this injunction is that Mr. Stern can be held in contempt and jailed if he violates the injunction by promoting fraudulent schemes or preparing fraudulent returns.  But, then that conduct would be criminal under a host of statutes.  So, it is unclear what exactly an injunction does in terms of compulsion to avoid the conduct.  The contempt proceeding on the injunction would be more summary than criminal charges, but other than that I am not sure what this does.

Readers comments will be appreciated.

I did a Google search on "Gary J.Stern" and identified a lawyer in Chicago with that name.  I am not sure it is the same lawyer, so I decided not to post a link.

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