Article on Commissioner Rettig Comments on College Admission Scandal (4/13/19)

Laura Davison, IRS Head Says College Admission Scandal Parents May Face Hefty Tax Bills (Bloomberg News 4/10/19), here. 

Excerpts:

IRS Commissioner Chuck Rettig told the Senate Finance Committee his agency anticipates that “numerous other individuals” will be charged with criminal tax violations as a result of the investigation into alleged bribes paid to test examiners and college sports coaches to guarantee spots for students at elite U.S. universities. 

People charged with criminal tax violations could be required to correct their tax returns and pay back taxes, plus interest and penalties, Rettig told the panel Wednesday. Many tax crimes carry a maximum five-year prison term and a fine of $100,000. Fines for civil tax violations can run as high as 75 percent of the unpaid tax, plus interest. 

Last month, 33 parents were charged with conspiring with college admissions strategist and confessed ringleader William Rick Singer to pay $25 million in bribes to entrance exam administrators, a surrogate test-taker and university sports coaches to get their children into Yale, Georgetown, Stanford and other exclusive schools. 

The U.S. alleges that some parents made payments to Singer through the nonprofit Key Worldwide Foundation, which they claimed as charitable contributions to get a tax deduction. 

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The IRS’s criminal investigations unit initiated about 3,000 cases in 2017, according to agency statistics. About 66 percent of the cases it completed that year resulted in jail time for the defendant.

JAT Comments:

1.  I doubt that all of the persons who played some role in the college admission scandal will be prosecuted for crimes (either tax or other crimes).  I am sure the detailed facts will show some type of spectrum -- from the worst offenders to the less culpable offenders.  The less culpable offenders while perhaps prosecutable may be able to avoid criminal prosecution because the Government will -- at least should -- focus prosecution and systemic resources on the more culpable.

2.  The civil tax consequences, though, could be significant for all of the culpable actors and the less culpable may not be able to avoid those.  The civil tax consequences are the tax arising from the improper charitable contributions, civil fraud penalty (75%), and interest on both from the due date off the return(s).  Some, perhaps, on the less culpable end of the scale might avoid the civil fraud penalty because of the high burden the Government must bear (clear and convincing evidence of fraud), but would be liable for the accuracy related penalty (20% to 40%, depending upon how the "contribution" was structured).

3.  I also included the excerpt on the IRS CI statistics above showing about 2/3 of cases that the IRS CI "completed" resulted in incarceration.  I have not tried to break the statistic down, but I infer that "completed" means forwarded to DOJ Tax with a recommendation for prosecution (or perhaps the IRS recommended prosecution after further grand jury work).  Then, of course, not all IRS CI recommendations for prosecution result in DOJ Tax seeking indictment.  I do not recall the statistics, but perhaps 10% of IRS CI recommendations are not prosecuted.  So, those that are prosecuted have a higher percentage incarcerated than 66%.  And, of the number that are not incarcerated, we don't have the breakdown between between (i) those who were prosecuted and acquitted and (ii) those who were prosecuted, convicted but received no incarceration.