Wednesday, January 10, 2024

DOJ Tax Publicizes Sentencings and Plea Agreements of Syndicated Conservation Easement Enablers; Where Are the Taxpayers (1/10/24)

DOJ Tax issued a press release about sentencing and guilty pleas of enablers in abusive, illegal (maybe redundant) syndication easement tax shelters. Two Tax Shelter Promoters Sentenced to 25 Years and 23 Years in Billion-Dollar Syndicated Conservation Easement Tax Scheme; Two More CPAs Plead Guilty (Press Release # 24-29 1/9/23), here.

The lengths of the sentences are noteworthy.

The two other individuals pled guilty to a single count each of the Klein/defraud conspiracy, thus capping their potential sentences each to 5 years. Of course, they were not the masterminds of the fraudulent tax shelter scheme, but their pleas indicate that they willfully participated.

Of course, it is late in the Syndicated Conservation Easement game, so enablers in the game should be on notice now that they can be caught and punished. How much effect this will have as a future deterrent is unknown because, I suspect, many who know the downside will attempt maneuvers to prevent the IRS or DOJ Tax from discovering their complicity in such conduct. Most economic crime violators (including enablers) do not think they will be caught or their skullduggery will be understood.

My only comment relates to what I call the elephant in the room—the taxpayers willfully participating in such schemes. My experience in these elaborate abusive shelters is that well-heeled taxpayers are also complicit. Those taxpayers who are complicit feel (or at least hope) that the blizzard of paper (including fake opinions and appraisals) and participation of facially expert promoters will protect them from penalties, civil and criminal, thus giving them cost-free access to the audit lottery. But those who consulted independent counsel (and many, probably most, did at least in the Son-of-Boss shelters and, I suspect, in the Syndicated Conservation Easement Shelters) would have known the shelters did not work.

If the IRS and DOJ Tax want to discourage abusive tax shelters, it should prosecute the taxpayers involved (or at least enough of them, the more egregious ones, to send the message to the abusive tax shelter taxpayer community that there is risk of a criminal reckoning). Even where the enablers of the abusive tax shelters put together a package that facially seems to support the tax benefits claimed, most well-heeled tax shelter investors have their own independent legal counsel. Good advice would certainly include enough warning that the gambit is illegal and that their participation is willful. Prosecuting and convicting taxpayers would send the message of risk to all participating in abusive shelters and could substantially reduce the number of players involved by reducing the market for abusive tax shelters.

Further, it seems to me that the IRS (with DOJ Tax participation) could implement a type of voluntary disclosure program for enablers where enablers would “earn” a lesser plea (not absolution altogether) with lesser incarceration exposure for delivering proof of the taxpayers’ guilt. I will let readers’ minds go into high gear on how enablers can deliver that proof. Indeed, “well-advised” enablers wanting to play the abusive tax shelter game may adopt in their toolkits getting incriminating information as to the taxpayers’ actions and state of knowledge.

This type of voluntary disclosure program could apply even to enablers that are already in the IRS or DOJ Tax sites as potential targets. Indeed, even without a formal voluntary disclosure program, if I were representing an enabler target of an IRS or DOJ Tax investigation, I would explore the possibility of a lesser plea for delivering up the taxpayers for criminal prosecution. 

Of course, one issue that such a program, formal or informal, might raise is whether the Government is in effect deputizing the enablers willing to gather information on the taxpayers' guilt. This would certainly raise the prospect of entrapment which is an issue that I can't develop here. See e.g., DOJ Criminal Resource Manual 645. Entrapment—Elements, here.

And, there would be a civil benefit of pursuing the taxpayers (with a broader net than could be cast for criminal prosecution) is to make them subject to the civil fraud penalty in § 6663 where the burden of proof on the Government is, in theory, the lesser clear and convincing standard (as opposed to the criminal standard of beyond a reasonable doubt). This possibility too could serve as a deterrent for the market for bogus tax shelters.

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