Thursday, April 15, 2021

Houston Tax Attorney Indicted for Conspiracy and for Aiding and Assisting (4/15/21; 4/16/21)

I have previously written about the unnamed enabler named in the Smith nonprosecution agreement as Individual B.  See One Big Fish Indicted and Lesser Big Fish Achieves NPA for Cooperation (Federal Tax Crimes Blog 10/16/20), here.  Individual B was subsequently identified as Carlos Kepke in the Brockman discovery as an enabler for Brockman.  Individual B, the Houston Attorney in the Smith NPA, Is Unmasked (Federal Tax Crimes Blog 12/1/20; 12/2/20), here.  Today, DOJ announced that Kepke has been indicted for conspiracy (18 USC 371) and for three years of aiding and assisting (§ 7206(2)) relating to his assistance of Smith.  See press release titled Tax Attorney Indicted for Facilitating Tax Fraud: Helped Private Equity CEO Defraud IRS of Taxes on $225 Million in Capital Gains (4/15/21), here.

Kepke is from Houston.  I have known him since I practiced in a short stint in the 1970s with a law firm in which he was partner and I a senior associate.  He was the person I suspected as Individual B which I inferred from what I learned about his practice when I was with that law firm.

Added 4/16/21 3:30pm:

Kepke's indictment is here.  I have limited points to make because the press release covers most of the interesting ones in the indictment.  I think that the prosecutors could have substantially flowered up the indictment with a lot more juicy facts, but after all a lot of fluff after putting the defendant on notice is often superfluous.

JAT comments:

1.  The conspiracy charged is the defraud conspiracy rather than the offense conspiracy.  I suppose that, on these facts, they could have charged offense conspiracy to violate either or both of § 7201 (evasion) or § 7206(1) (tax perjury) but that would have required additional elements of proof at trial.  Similarly, they could have charged evasion against Kepke directly.  But the charges are perhaps the minimum DOJ Tax felt necessary under all the facts, particularly since the maximum incarceration period on the counts charged is 14 years (5 for conspiracy and 3 each for the 3 counts of aiding and assisting).  Another factor though is that the amount of tax involved over all the years (and not just the charged years) can be included in the Sentencing Guidelines offense level calculation which would likely mean that, if the total tax Smith evaded were the $56.278 million, my rough and ready SG calculation assuming acceptance of responsibility is 70-87 months.  Of course, Kepke won't get that much, considering his age and health.  (Note, on 4/17/18, I corrected the SG calculation because I erroneously based the original calculation (now deleted) on the income rather than the tax.)

2.  It is not clear why Kepke's activity in the same pattern for Brockman were not included.  Perhaps the statute of limitations for that activity had closed.  Or, perhaps, Brockman was left out because they had what they needed on the Smith activity, particularly with Smith's cooperation to testify against Kepke.  But then, I think a creative prosecutor might be able to include Brockman tax in the calculation for SG purposes.  And perhaps Kepke's other clients (I suspect that there were some) with the same pattern.  Of course, larding additional tax loss on will not likely affect that actual sentence Kepke.

3,  A thought experiment.  With the substantial whistleblower awards in § 7623(b), those having some information about Kepke's practice could have profited handsomely if they could put some of the pieces together and delivered them to the Whistleblower Office without violating the attorney-client privilege.  With the crime-fraud exception, that might be easier even for some of the players in the adventure.  So, could Kepke have been a whistleblower?  In this regard, § 7623(b)(3) provides:

(3)Reduction in or denial of award
If the Whistleblower Office determines that the claim for an award under paragraph (1) or (2) is brought by an individual who planned and initiated the actions that led to the underpayment of tax or actions described in subsection (a)(2), then the Whistleblower Office may appropriately reduce such award. If such individual is convicted of criminal conduct arising from the role described in the preceding sentence, the Whistleblower Office shall deny any award.

So, logically it seems to me that if Kepke were the source of the information leading to either Brockman or Smith, he would have worked the whistleblower claim through an intermediary appearing as principal on the claim.  Just a thought experiment, and there are several different variations of that thought experiment.

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