Tax Law & Practice Section MCLE Program Webinar September 30

Tax Law & Practice Section MCLE Program Webinar September 30, 2020

11:45 AM – Noon Welcome/Introductions Kimberly Nagle, Section Chair

Noon – 1:00 PM Program

How to Protect Yourself from Potential Client-Caused Federal Criminal/Civil Penalties

Howard L. Stone, Esq. Stone McGuire & Siegel, P.C.

Speakers’ Bio are attached

Failure to protect yourself against various client frauds makes yourself personally susceptible to substantial financial and criminal liability. Learning how to proactively protect yourself, your reputation, and your finances from false allegations and client fraud is key.

Link to Evaluation The evaluation must be completed in order to receive CLE credit. https://www.surveymonkey.com/r/TaxLaw093020

Next Meeting: TBD

COVID Relief Fund

The DCBA and the DuPage Bar Foundation have established an assistance fund for lawyers facing personal hardship due to the downturn in work caused by the COVID-19 pandemic. Please help us promote the availability of this fund, and, if you are in need, please submit a confidential application at www.dcba.org/reliefapply. Donations to the fund are also welcome at www.dcba.org/reliefdonate.”

Earn CLE Online!

DCBA OnDemand CLE is Now Powered by IICLE The Illinois Institute for Continuing Legal Education (IICLE®)and the DuPage County Bar Association (DCBA) are excited to offer a new IICLE®Share collaboration to provide DCBA members a high quality and reliable online learning experience. Members can find the link to The Illinois Institute for Continuing Legal Education (IICLE) on the DCBA website under “Legal Community” → OnDemand CLE → Online CLE Catalog. You must be logged into your DCBA Membership Profile in order to view courses for free or at a reduced price

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Manage Profile -> Professional Development (under content & features) and choose the icon to the left of each meeting to print your certificate directly or choose to have them emailed to you to save to your computer (you MUST be logged in to view this feature)

The DCBA Law Practice Management and Technology Section invites you to subscribe to The Friday Files which you can find in the handouts for today’s program. This newsletter consists of links to articles, blog posts, podcasts and technology reviews that will help you improve the management of your law practice. Join the Law Practice Section on your DCBA member profile so you don’t miss this valuable benefit. You can find a catalog of all issues of The Friday Files at www.dcba.org/thefridayfiles.

Speaker’ Bio

Howard Stone is an accomplished litigator and investigative lawyer with extensive experience in white-collar criminal defense and health care and health care administrative law. A former IRS agent and former Assistant United States Attorney in the Northern District of Illinois, he is experienced in both civil and white collar criminal defense. He started and caused the indictment and conviction of eleven Illinois State Legislators for bribery in a case involving concrete ready-mix truck weight legislation.

In private practice for over 40 years, Howard has focused on defending health care providers in investigations by United States Department of Justice and the United States Department of Health and Human Services, Office of the Inspector General (OIG). He has protected owners and corporate officers from civil and criminal actions by implementing Owner/Officer Protection Programs and Compliance Programs.

Howard successfully represented the concrete industry to prevent implementation of a national pavement design standard that skewed road building contracts to the asphalt/oil industry. Had the standard been adopted, it would have shortened the life of roads endangering and inconveniencing drivers while raising repair and replacement costs for taxpayers. He also successfully represented companies owned by a Southeast Asian foreign ally under criminal investigation by the United States Department of Justice for price manipulation of an oil commodity.

Howard has also worked tirelessly on behalf of older Americans, joining with Dr. Morton Creditor to establish a geriatric research program at the University of Illinois and served as President of the Fund for Gerontology Research at the University. He also is an adjunct lecturer at the University of Illinois. 9/24/2020

Howard L. Stone, CPA, CFE, JD Stone, McGuire & Siegel, P.C.

Purpose of This Session  This session will help describe and teach the Federal criminal laws, especially those specific to tax, for the purposes of preventing and detecting criminal, civil, and administrative violations by clients, which could lead to false allegations from clients against tax practitioners.

 You will learn how to avoid violating Federal criminal laws, specifically those relating to tax. I will include education on other Federal criminal laws as well.

 You will also be exposed to recent tax prosecutions against individuals, and we will discuss a few federal law enforcement techniques used to enforce federal criminal law, with a focus on tax fraud.

 © Copyright by Stone, McGuire & Siegel, P.C. September 2020. Nothing herein can be reproduced in whole or in part without the express written consent of Stone, McGuire & Siegel, P.C.

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Brief Biography – Howard Stone

 President and Managing Partner ‐ Stone, McGuire & Siegel, P.C.

 United States Department of Justice, U.S. Attorney’s Office, Northern District of Illinois  Assistant U.S. Attorney  Chief Financial Crimes Auditor and Investigator

 United States Treasury Department, Internal Revenue Service  Revenue Agent  Regional Director of the IRS Organized Crime Strike Force for Illinois, Indiana, and Wisconsin  Chief Revenue Agent in the Audit of a New York Stock Exchange (NYSE) Corporation

 Licensed Attorney (Illinois Courts, U.S. Tax Court, U.S. District Court for the Northern District of Illinois, 7th Circuit Court of Appeals, U.S. Supreme Court)

 Certified Public Accountant (CPA)

 Certified Fraud Examiner (CFE)

 © Copyright by Stone, McGuire & Siegel, P.C. September 2020. Nothing herein can be reproduced in whole or in part without the express written consent of Stone, McGuire & Siegel, P.C.

Selected Obligations Under Treasury Circular No. 230

 Due Diligence. You must exercise due diligence in preparing and filing tax returns and other documents/submissions, and in determining the correctness of representations made by you to your client or to the IRS. You can rely on the work product of another person if you use reasonable care in engaging, supervising, training, and evaluating that person, taking into account the nature of the relationship between you and that person. You generally may rely in good faith and without verification on information furnished by your client, but you cannot ignore other information that has been furnished to you or which is actually known by you. You must make reasonable inquiries if any information furnished to you appears to be incorrect, incomplete or inconsistent with other facts or assumptions.

 [Source: Treasury Circular No. 230 §10.22, §10.34(d); IRS Guidance to Practitioners Regarding Professional Obligations Under Treasury Circular No. 230.]  © Copyright by Stone, McGuire & Siegel, P.C. September 2020. Nothing herein can be reproduced in whole or in part without the express written consent of Stone, McGuire & Siegel, P.C.

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Selected Obligations Under Treasury Circular No. 230  Supervisory Responsibilities. If you have or share principal authority and responsibility for overseeing your firm’s tax practice, you must take reasonable steps to ensure that your firm has adequate procedures in place to raise awareness and to promote compliance with Circular 230 by your firm’s members, associates, and employees and that all such employees are complying with the regulations governing practice before the IRS. Treasury Circular No. 230 §10.36.

 [Source: Treasury Circular No. 230 §10.36; IRS Guidance to Practitioners Regarding Professional Obligations Under Treasury Circular No. 230.]

 © Copyright by Stone, McGuire & Siegel, P.C. September 2020. Nothing herein can be reproduced in whole or in part without the express written consent of Stone, McGuire & Siegel, P.C.

Definition of Knowingly and Willfulness  Knowingly: A person acts knowingly if he realizes what he is doing and is aware of the nature of his conduct, and does not act through ignorance, mistake, or accident. A juror may find that a defendant acted knowingly if he/she finds beyond a reasonable doubt that defendant believed it was highly probable that [state fact as to which knowledge is in question, [e.g.,“the financial statement was false,”] and that he took deliberate action to avoid learning that fact. A juror may not find that the defendant acted knowingly if he was merely mistaken or careless in not discovering the truth, or if he failed to make an effort to discover the truth. [AKA Ostrich Instruction] [Source: 7th Circuit Criminal Jury Instructions]

 Willfulness: Willfulness has been defined by the courts as a voluntary, intentional violation of a known legal duty. The taxpayer must be shown to have been aware of his or her obligations under the tax laws. [Source: Cheek v. United States, 498 U.S. 192 (1991).]

 © Copyright by Stone, McGuire & Siegel, P.C. September 2020. Nothing herein can be reproduced in whole or in part without the express written consent of Stone, McGuire & Siegel, P.C.

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Tax Fraud ‐ 26 USC § 7206(1) ‐ FRAUD AND FALSE STATEMENTS  Jury Instructions for 26 U.S.C. § 7206(1)  The government must prove each of the 5 following elements beyond a reasonable doubt:

1. The defendant prepared or cause someone to prepare an income tax return; and

2. The income tax return was false or incomplete as to a material matter; and

3. The defendant signed the income tax return, which contained a written declaration that it was made under penalties of perjury; and

4. The defendant acted willfully (knew that he had a legal duty to file a truthful and complete tax return, but when he signed the return, he did not believe that it was truthful or complete) as to a material matter; and

5. The defendant filed or caused someone to file the income tax return with the Internal Revenue Service.

 Penalty: An individual may be punished by a fine up to $100,000 ($500,000 in the case of a corporation), imprisonment of up to three years, or both.

 © Copyright by Stone, McGuire & Siegel, P.C. September 2020. Nothing herein can be reproduced in whole or in part without the express written consent of Stone, McGuire & Siegel, P.C.

Tax Fraud ‐ 26 USC § 7206(2) ‐ FRAUD AND FALSE STATEMENTS

 Jury Instructions for 26 U.S.C. § 7206(2)  The government must prove each of the 3 following elements beyond a reasonable doubt:

1. The defendant aided, assisted in, procured, counseled or advised the preparation or presentation of an income tax return that was false as to a material matter. There must be some affirmative participation which at least encourages the perpetrator. The return must be filed with the Internal Revenue Service. The government is not required to prove that the defendant prepared or signed the tax return.; and

2. The defendant knew that the income tax return was false, that is, that the income tax return was untrue when it was made.; and

3. The defendant acted willfully, that is, with the intent to violate the law.

 Penalty: An individual may be punished by a fine up to $100,000 ($500,000 in the case of a corporation), imprisonment of up to three years, or both.

 © Copyright by Stone, McGuire & Siegel, P.C. September 2020. Nothing herein can be reproduced in whole or in part without the express written consent of Stone, McGuire & Siegel, P.C.

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Case Example – Conspiracy to File False Tax Returns  ATTORNEY AND CLIENT INDICTED FOR CONSPIRACY TO FILE FALSE FEDERAL INCOME TAX RETURNS  A grand jury returned an indictment charging Victor Kearney and Robert Fiser, an attorney, with preparing and filing false tax returns and with participating in a conspiracy to defraud the United States by impairing the ability of the Internal Revenue Service (“IRS”) to assess and collect revenue in the form of income taxes. The indictment further charges Fiser with allegedly aiding and assisting Kearney in the preparation of Kearney’s false return.

 According to the indictment, Kearney allegedly received annual income as a beneficiary of Mary Pat Abruzzo‐Kearney Trust B and C. Kearney hired Fiser, a licensed attorney, to prepare his tax returns. Both Kearney and Fiser knew Kearney received annual income from the Abruzzo‐Kearney trusts, but they did not report that income to the IRS. Kearney and Fiser allegedly concealed their tax evasion by signing false returns and making false statements under oath at depositions in civil lawsuits.

 Kearney and Fiser each face a sentence of up to 5 years in prison if convicted of the conspiracy offense. Kearney faces up to 3 years in prison for making and subscribing a false return. Fiser also faces 3 years in prison for aiding and assisting in the preparation of the false return.

Tax Fraud ‐ 26 USC § 7201 – Attempt to Evade or Defeat Tax  Jury Instructions  The government must prove each of the 4 following elements beyond a reasonable doubt:

1. On the date for filing a federal income tax return, federal income tax was due and owing by the defendant; and

2. The defendant knew he had a legal duty to pay the tax; and

1. The defendant did some affirmative act to evade payment of, assessment of, or computation of the tax. Any conduct that is likely to have a misleading or concealing effect can constitute an affirmative act. A lawful act can serve as an affirmative act if it is done with the intent to evade income tax. The mere failure to file a tax return is not an affirmative act.; and

1. In doing so, the defendant acted willfully, with the intent to violate his legal duty to pay the tax. The government is not required to prove the precise amount of additional tax alleged in the indictment or the precise amount of additional tax owed.

 Penalty: An individual may be punished by a fine up to $100,000 ($500,000 in the case of a corporation), imprisonment of up to five years, or both.

 © Copyright by Stone, McGuire & Siegel, P.C. September 2020. Nothing herein can be reproduced in whole or in part without the express written consent of Stone, McGuire & Siegel, P.C.

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Case Example – Conspiring to Defraud the US and Tax Evasion  Jury Finds Texas Attorney and Client Guilty of Conspiring to Defraud the Internal Revenue Service  A federal jury convicted a Texas attorney, John O. Green, and his client, Thomas Selgas, for conspiring to defraud the United States. The jury also convicted Selgas of tax evasion.

 Selgas conspired with Green to defraud the United States by obstructing the Internal Revenue Service (IRS) from assessing and collecting Selgas’s taxes. Selgas and his wife owed approximately $1.1 million in outstanding taxes that Selgas refused to pay. When the IRS made efforts to collect the outstanding taxes, Selgas concealed funds by using Green’s Interest on Lawyers Trust Account(IOLTA) rather than using accounts in his own name. Selgas deposited proceeds from the sale of gold coins and other income into Green’s IOLTA and Green would then pay the Selgases personal expenses, including their credit card bills, from that account.

 Selgas and Green also filed a false tax return on behalf of a partnership Selgas co‐ founded, omitting a substantial portion of the partnership’s income.

 Selgas faces a statutory maximum sentence of five years in prison for each of the conspiracy and tax evasion counts. Green faces a maximum sentence of five years in prison for the conspiracy count.

26 USC § 7203 ‐ FAILURE TO FILE RETURN, SUPPLY INFORMATION, OR PAY TAX  Jury Instructions  The government must prove each of the 3 following elements beyond a reasonable doubt: 1. The defendant was required by law to file an individual, partnership, corporate, trust, or other income tax return for the fiscal year in question; and

2. The defendant failed to file the return as required by law; and

3. The defendant acted willfully [that is he knew that he was required by law to file an income tax return and intentionally failed to do so].

 Penalty: An individual may be punished by a fine up to $25,000 ($100,000 in the case of a corporation), imprisonment of up to five years, or both.

 © Copyright by Stone, McGuire & Siegel, P.C. September 2020. Nothing herein can be reproduced in whole or in part without the express written consent of Stone, McGuire & Siegel, P.C.

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26 USC § 7207‐ FRAUDULENT RETURNS, STATEMENTS, OR OTHER DOCUMENTS  Jury Instructions  The government must prove each of the 3 following elements beyond a reasonable doubt: 1. The delivery or disclosure to any officer or employee of the Internal Revenue Service of any list, return, account, statement, or other document;

2. The return, statement, or other document is false or fraudulent as to a material matter; and,

3. Willfulness or knowledge by the individual that the return, statement, or other document is false or fraudulent as to a material matter.

 Penalty: An individual may be punished by a fine up to $10,000 ($50,000 in the case of a corporation), imprisonment of up to one year, or both.

 © Copyright by Stone, McGuire & Siegel, P.C. September 2020. Nothing herein can be reproduced in whole or in part without the express written consent of Stone, McGuire & Siegel, P.C.

False Statements  18 U.S.C. §1001. False statements or entries generally   Jury Instructions for 18 U.S.C. § 1001  The government must prove each of the 5 following elements beyond a reasonable doubt: 1. The defendant made a statement or representation; and

2. The statement was false, fictitious, or fraudulent; and

3. The statement or representation was material; and

4. The defendant acted knowingly and willfully; and

5. The defendant made the statement or representation in a matter within the jurisdiction of the executive, legislative, or judicial branch of the government of the United States.

 PENALTY: An individual may be punished by a fine up to $250,000, imprisonment of up to five years, or both. If the offense involves international or domestic terrorism (as defined in section 2331), imprisonment of up to 8 years, or both.

 © Copyright by Stone, McGuire & Siegel, P.C. September 2020. Nothing herein can be reproduced in whole or in part without the express written consent of Stone, McGuire & Siegel, P.C.

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Conspiracy Statute  18 U.S.C. §371. Conspiracy to commit offense or to defraud the United States

 Jury Instructions for 18 U.S.C. §371  The government must prove each of the 3 following elements beyond a reasonable doubt: 1. That there was an agreement between two or more persons to commit a crime; 2. That Defendant knowingly became a member of the conspiracy with an intent to advance the conspiracy; and 3. That one of the conspirators committed an overt act in an effort to advance the goal of the conspiracy.

 Penalty: Fines under this title or imprisonment not more than five years, or both. If, however, the offense, the commission of which is the object of the conspiracy, is a misdemeanor only, the punishment for such conspiracy shall not exceed the maximum punishment provided for such misdemeanor.

 © Copyright by Stone, McGuire & Siegel, P.C. September 2020. Nothing herein can be reproduced in whole or in part without the express written consent of Stone, McGuire & Siegel, P.C.

Klein Conspiracy  A conspiracy to defraud the IRS generally charged under section 371's defraud clause is commonly referred to as a "Klein conspiracy." [United States v. Klein, 247 F.2d 908, 915 (2d Cir. 1957).]

 There are three elements to a Klein conspiracy:  (1) The existence of an agreement to defraud or impede by dishonest means the IRS in its assessment or collection of tax;  (2) The taxpayer knew of the agreement and voluntarily partook in the conspiracy; and  (3) the conspirators committed an overt act to further a conspiracy.

 The statute places no condition on the method used to defraud the United States, and it reaches any “interference or obstruction of a lawful governmental function ‘by deceit, craft or treachery or at least by means that are dishonest.’ ” [United States v. Collins, 78 F. 3d 1021, 1037 (6th Cir. 1996); Harmas, 974 F.2d at 1267.]

 The IRS can assert a conspiracy charge even if the taxpayer complied perfectly with the letter of the tax law. That is, even if the tax position taken by the taxpayer is perfectly correct, the IRS may still assert a Klein Conspiracy on the grounds that he has attempted to avoid the IRS’s ability to detect and conduct an audit. [U.S. v. Coplan 703 F. 3d 46 (2nd Cir. 2012).]

 [Source: U.S. Department of Justice Criminal Tax Manual –Section 23.00 – Conspiracy to Commit Offense or Defraud U.S.]

 © Copyright by Stone, McGuire & Siegel, P.C. September 2020. Nothing herein can be reproduced in whole or in part without the express written consent of Stone, McGuire & Siegel, P.C.

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Mail Fraud Statute  18 U.S.C. §1341. Frauds and Swindles (Mail Fraud)

 Jury Instructions for Mail Fraud  The government must prove each of the 4 following elements beyond a reasonable doubt: 1. That the defendant knowingly devised or participated in a scheme to defraud;

2. That the defendant did so with the intent to defraud;

3. The scheme to defraud involved a materially false or fraudulent pretense, representation, or promise; and

4. That for the purpose of carrying out the scheme or attempting to do so, the defendant used or caused the use of the United States Mails, a private or commercial interstate carrier in the manner charged in the particular count.

 PENALTY: An individual may be punished by a fine up to $250,000, imprisonment of up to five years, or both.

 © Copyright by Stone, McGuire & Siegel, P.C. September 2020. Nothing herein can be reproduced in whole or in part without the express written consent of Stone, McGuire & Siegel, P.C.

Case Example – Mail Fraud  Coralville Attorney Sentenced to Federal Prison on Mail Fraud and False Claims Charges  Soo Hyun Jung, was sentenced to 38 months in prison after pleading guilty to two counts of Mail Fraud and one count of False Claims to a Government Agency. Jung was ordered to serve three years of supervised release, pay a $300 special assessment to the Crime Victims’ Fund, and pay $618,021 in restitution to twelve victims.

 Jung represented clients as an attorney and tax preparer. In 2014, Jung filed tax returns and requested refunds on behalf of a client. In July 2015, Jung contacted IRS to check on the status of these returns. During this contact, Jung updated the client’s home address on file with the IRS to Jung’s business address in Coralville. In August 2015, Jung filed additional tax returns without the consent of the client that contained information that was not accurate and requested refunds. These returns falsely claimed a refund of $15,252. As a result, Jung received three United States Treasury refund checks totaling $202,179. Jung forged an endorsement on these checks and, in a series of transfers, caused these funds to be deposited into his personal bank account.

 In May 2016, in relation to a different client, Jung caused an investment fund to be cashed out and a $200,000 check mailed to Jung in Coralville, Iowa. Jung later caused these funds to be deposited into his personal bank account and withdrew $115,000.

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Wire Fraud Statute  18 U.S.C. §1343. Fraud by wire, radio, or television (Wire Fraud)

 Jury Instructions for Wire Fraud  The government must prove each of the 4 following elements beyond a reasonable doubt: 1. That the defendant knowingly devised or participated in a scheme to defraud; and

2. That the defendant did so with the intent to defraud; and

3. The scheme to defraud involved a materially false or fraudulent pretense, representation, or promise; and

 PENALTY: An individual may be punished by a fine up to $250,000, imprisonment of up to five years, or both.

 © Copyright by Stone, McGuire & Siegel, P.C. September 2020. Nothing herein can be reproduced in whole or in part without the express written consent of Stone, McGuire & Siegel, P.C.

Bank Fraud Statute  18 U.S.C. § 1344. Scheme to Defraud a Financial Institution

 Jury Instructions for Bank Fraud  The government must prove each of the 5 following elements beyond a reasonable doubt: 1. There was a scheme to defraud a bank/specified financial institution; 2. The defendant knowingly carried out/attempted to carry out the scheme; 3. The defendant acted with the intent to defraud the bank/specified financial institution; 4. The scheme involved a materially false or fraudulent pretense, representation, or promise; and 5. At the time of the charged offense the deposits of the bank/financial institution were insured by the Federal Deposit Insurance Corporation.

 PENALTY: An individual may be punished by a fine up to $1,000,000, imprisonment of up to 30 years, or both.

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Case Example – Bank Fraud  Attorney Charged with Fraudulently Obtaining $9 Million in Loans Meant to Help Small Businesses During COVID‐19 Pandemic

 Jae H. Choi, an attorney, was arrested and charged with three counts of bank fraud and one count of money laundering for fraudulently obtaining approximately $9 million in Paycheck Protection Program (PPP) loans.

 Choi allegedly submitted three fraudulent PPP loan applications to three different lenders on behalf of three different businesses that purportedly provided educational services. The complaint also alleges that Choi fabricated the existence of hundreds of employees, manipulated bank and tax records, and falsified a driver’s license on the applications.

 Choi allegedly falsely represented to the lenders that the companies controlled by him had hundreds of employees and paid over $3 million in monthly wages. Based on Choi’s alleged misrepresentations, each lender funded each of the three businesses with an approximately $3 million PPP loan. As a result, the complaint alleges that Choi received a total of nearly $9 million in federal COVID‐19 emergency relief funds meant for distressed small businesses.

False Statements to Financial Institutions  18 U.S.C. §1014. False Statement to Financial Institution

 Jury Instructions for Bank Fraud  The government must prove each of the 4 following elements beyond a reasonable doubt: 1. The defendant made a false statement to a bank/financial institution, orally or in writing; 2. At the time the defendant made the statement, he knew it was false; 3. The defendant made the statement with the intent to influence the action of the bank/financial institution concerning an application, loan, etc.; and 4. The accounts of the bank/financial institution were insured by the Federal Deposit Insurance Corporation.

 PENALTY: An individual may be punished by a fine up to $1,000,000, imprisonment of up to 30 years, or both.

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Aiding and Abetting in the Commission of a Crime  18 U.S.C. §2. Principals [Aiding and Abetting]

 ELEMENTS OF PROOF: 1. The accused had specific intent to facilitate the commission of a crime by another; 2. The accused had the requisite intent of the underlying offense; 3. The accused assisted or participated in the commission of the underlying offense; and 4. Someone committed the underlying offense.

 © Copyright by Stone, McGuire & Siegel, P.C. September 2020. Nothing herein can be reproduced in whole or in part without the express written consent of Stone, McGuire & Siegel, P.C.

Perjury  18 U.S.C. §1622. Subornation of Perjury

 Elements of the Offense 1. The defendant knowingly and willfully persuaded an individual to testify; 2. The defendant knew the testimony the person would give was materially false; and 3. The person knowingly and willfully testified falsely.

 PENALTY: An individual may be punished by a fine up to $250,000, imprisonment of up to five years, or both.

 © Copyright by Stone, McGuire & Siegel, P.C. September 2020. Nothing herein can be reproduced in whole or in part without the express written consent of Stone, McGuire & Siegel, P.C.

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Obstruction of Justice Statute  18 U.S.C. §1503. Influencing or Injuring an Officer or Juror

 Elements of the Offense 1. There was a pending judicial proceeding;

2. The defendant knew this proceeding was pending; and

3. The defendant then corruptly endeavored to influence, obstruct, or impede the due administration of justice.

 PENALTY: Any individual in violation shall be fined up to $250,000, imprisoned up to 10 years, or both. In the case of a killing, the person shall be punished as provided by the laws related to murder, and in the case of an attempted killing, or a case in which the offense was committed against a petit juror and in which a class A or B felony was charged, imprisonment up to 20 years, a fine under this title, or both.

 © Copyright by Stone, McGuire & Siegel, P.C. September 2020. Nothing herein can be reproduced in whole or in part without the express written consent of Stone, McGuire & Siegel, P.C.

U.S. Department of Justice (DOJ) Issues Memorandum Re Individual Accountability for Corporate Wrongdoing (September 2015)  Key Points

1. Eligibility for any cooperation credit requires corporations to provide DOJ with all relevant facts about the individuals involved in the misconduct. 2. Both criminal and civil corporate investigations should focus on individuals from the investigation’s inception. 3. Criminal and civil DOJ attorneys handling investigations should be in routine communication with one another. 4. No corporate resolution will provide protection from criminal or civil liability for individuals, except in “extraordinary circumstances.” 5. Corporate cases should not be resolved without a “clear plan” to resolve related individual cases before the statute of limitations expires, and declinations as to individuals in such cases must be memorialized.

 © Copyright by Stone, McGuire & Siegel, P.C. September 2020. Nothing herein can be reproduced in whole or in part without the express written consent of Stone, McGuire & Siegel, P.C.

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Section on Individual Accountability in U.S. Department of Justice Manual (JM)  ………... Provable individual culpability should be pursued, particularly if it relates to high‐level corporate officers, even in the face of an offer of a corporate guilty plea or some other disposition of the charges against the corporation, […] a separate evaluation must be made with respect to potentially liable individuals. [Justice Manual (“JM") §9‐28.210).]

 © Copyright by Stone, McGuire & Siegel, P.C. September 20202019. Nothing herein can be reproduced in whole or in part without the express written consent of Stone, McGuire & Siegel, P.C.

Case Example ‐ Jenkens & Gilchrist Attorneys, Ex BDO Seidman Execs Sentenced for Multi‐Billion Dollar Criminal Tax Fraud Scheme  A tax attorney and certified public accountant, Paul Daugerdas, was sentenced to serve 15 years in prison for orchestrating a massive fraudulent tax shelter scheme in which he and his co‐conspirators designed, marketed and implemented fraudulent tax shelters used by wealthy individuals to evade over $1.6 billion in taxes owed to the Internal Revenue Service (IRS). The scheme generated over $7 billion in fraudulent tax losses and yielded approximately $95 million in fees to Daugerdas personally.

 A second attorney, Donna Guerin, was sentenced to eight (8) years in prison on conspiracy and tax evasion charges stemming from the same scheme.

 Two former executives at the accounting firm BDO Seidman LLP, Charles Bee and Adrian Dicker, received prison sentences of 16 months and 10 months for their roles in the tax fraud scheme. Both Bee and Dicker testified against BDO CEO and Chairman Denis Field, who was acquitted by a jury in a retrial, finding that the government did not prove that he conspired to evade billions of dollars in federal income tax.

 [Source: Law360 Article Re Ex‐BDO Execs Get Prison Time For Tax Shelter Scheme; See also, TaxAnalysts Article Re Former BDO Seidman CEO Acquitted of Tax Shelter Charges, Attorney Convicted]

 © Copyright by Stone, McGuire & Siegel, P.C. September 2020. Nothing herein can be reproduced in whole or in part without the express written consent of Stone, McGuire & Siegel, P.C.

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Case Example – U.S. v. W Carl. Reichel  In October of 2015, the pharmaceutical company, Warner Chilcott, pled guilty to a criminal charge of health‐care fraud and paid $125 million to resolve a Justice Department investigation of its payments to physicians. In addition, the president of Warner Chilcott at that time, Carl Reichel, was one of five people criminally charged as part of the investigation. Reichel was charged with violating the Federal Anti‐Kickback statute.

 Federal prosecutors had specifically accused Mr. Reichel of directing his company’s U.S. sales force to induce doctors with kickbacks for the prescriptions. In fact, Warner Chilcott sales managers and district managers testified against Reichel. Reichel’s defense attorneys argued that the conduct of the sales team was not at Reichel’s direction but rather their own rogue actions. In spite of his sales team testifying against him, Carl Reichel had to prove his innocence, which he did. A jury found him not guilty.

 After years of being investigated, Reichel first lost his job, then was indicted, went to trial and spent hundreds of thousands of dollars on his legal team. Additionally, his reputation was dragged in the mud by various media outlets. Reichel was finally acquitted of orchestrating this kickback scheme but only after he lost so much. This can happen to you.

 © Copyright by Stone, McGuire & Siegel, P.C. September 2020. Nothing herein can be reproduced in whole or in part without the express written consent of Stone, McGuire & Siegel, P.C.

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Questions?  Thank you for your time!

IRS MANUAL RE ESTATE AND GIFT TAX EXAMINATIONS

TABLE OF CONTENTS

Part 4. Examining Process

Chapter 25. Estate and Gift Tax

4.25.1 Estate and Gift Tax Examinations

• 4.25.1.1 Program Scope and Objectives • 4.25.1.1.1 Background • 4.25.1.1.2 Authority • 4.25.1.1.3 Program Objectives and Review • 4.25.1.1.4 Terms/Definitions/Acronyms • 4.25.1.1.5 Related Resources • 4.25.1.2 Obtain and Review IDRS Transcripts and Prints • 4.25.1.2.1 Verify and Protect Statute of Limitations • 4.25.1.2.1.1 Estate Tax Return Statute of Limitations • 4.25.1.2.1.2 Gift Tax Return Statute of Limitations • 4.25.1.2.2 Verify Assessments and Payments • 4.25.1.2.3 Verify AIMS/ERCS Codes • 4.25.1.2.4 Required Filing Checks • 4.25.1.3 Related Returns Necessary for Examination • 4.25.1.3.1 Obtaining Historical Gift Tax Returns (Form 709) • 4.25.1.3.2 Obtaining Estate Tax Returns (Form 706) for Reference • 4.25.1.4 Scope of Examinations • 4.25.1.4.1 Limited Scope Examinations • 4.25.1.4.2 Project Cases • 4.25.1.4.3 Limiting the Scope of an Examination After Assignment • 4.25.1.5 Perfection of Returns • 4.25.1.6 Surveying Returns Selected for Examination • 4.25.1.6.1 Time Reporting for Surveyed Returns • 4.25.1.6.2 Closing a Surveyed Case • 4.25.1.7 General Guidelines for Estate and Gift Examinations • 4.25.1.7.1 Inventory Management for Estate and Gift Tax Examinations • 4.25.1.7.2 Efficient Resolution and National Standard Timeframes • 4.25.1.7.3 Time Spent on Examination • 4.25.1.7.4 Professional Communication • 4.25.1.7.4.1 Oral Communication • 4.25.1.7.4.2 Written Communication • 4.25.1.7.4.3 Information Document Requests (IDRs) • 4.25.1.7.4.4 Documents Obtained From Taxpayer • 4.25.1.7.5 Taxpayer Rights and Notifications • 4.25.1.7.5.1 Taxpayer Rights Included with Initial Contact Letter • 4.25.1.7.5.2 Taxpayer Rights and Notifications During Examination • 4.25.1.8 Issue Management System (IMS) • 4.25.1.8.1 Creating a Case in IMS • 4.25.1.8.2 Entities: Related Returns • 4.25.1.8.3 Team Members and Taxpayer Contacts • 4.25.1.8.4 Revenue Protection Codes (RPC) • 4.25.1.8.5 Standard Audit Index Number (SAIN) Codes • 4.25.1.8.6 Uniform Issue List (UIL) Codes • 4.25.1.8.7 Establishing the Actual Closed Date • 4.25.1.8.8 IMS Time Sheet and Form 9984, Activity Record • 4.25.1.8.9 Uploading Documents to IMS • 4.25.1.8.10 IMS Synchronizations • 4.25.1.9 Estate and Gift Tax Program Exam Process and Documentation • 4.25.1.9.1 Estate Tax Mandatory Lead Sheet • 4.25.1.9.2 Limited Scope Audit Mandatory Lead Sheet • 4.25.1.9.3 Gift Tax Examination Mandatory Lead Sheet • 4.25.1.9.4 Statute Verification Lead Sheet • 4.25.1.9.5 Form 9984, Activity Record • 4.25.1.9.6 Manager Plan to Close Lead Sheet • 4.25.1.9.7 Penalty Approval Lead Sheet • 4.25.1.9.8 Reasonable Cause Lead Sheet • 4.25.1.9.9 Fraud Lead Sheet • 4.25.1.9.10 Risk Analysis Lead Sheet • 4.25.1.9.11 Issue Specific Lead Sheets • 4.25.1.9.12 "All-in-One" Lead Sheet • 4.25.1.10 Estate and Gift Notebook Job Aid • 4.25.1.11 Manager Embedded Quality Review and Specialty Exam National Embedded Quality Review Programs • 4.25.1.11.1 Office of Policy Manager Responsibilities • 4.25.1.11.2 Territory Manager and Field Group Manager Responsibilities • 4.25.1.11.3 Estate and Gift Tax Embedded Quality Job Aid • 4.25.1.12 Protection of Returns (Physical) • 4.25.1.13 Protection Against Unauthorized Disclosure • Exhibit 4.25.1-1 Examination Process and Documentation Quick Reference Guide to Tools • Exhibit 4.25.1-2 Required Uploads to IMS

Attorneys Audit Technique Guide

NOTE: This document is not an official pronouncement of the law or the position of the Service and cannot be used, cited, or relied upon as such. This guide is current through the publication date. Since changes may have occurred after the publication date that would affect the accuracy of this document, no guarantees are made concerning the technical accuracy after the publication date.

Revision Date - March 2011 Table of Contents

Chapter 1 - Overview of Attorney Returns ...... 3 Introduction ...... 3 RecordKeeping ...... 4 Bank Accounts ...... 5 General Trust Account ...... 6 Segregated Trust Account ...... 6 Other Revenue Sources ...... 7 Client-Related Expenses ...... 7 Attorney-Client Privilege ...... 8 General Rules ...... 8 Fee Arrangements and Client Identity ...... 9 Summonses ...... 10 Information Reports ...... 11 Summary ...... 12 Exhibit 1-2 Attorney-Client Privilege ...... 13 Chapter 2 - Audit Steps ...... 15 Pre-Contact Analysis ...... 15 Accurint Searches ...... 15 Internet Searches ...... 16 Web Currency and Banking Retrieval System (WEB CBRS)...... 16 Return Preparer Listings ...... 18 IRP Transcript ...... 18 Comparative Analysis ...... 18 Information Document Requests ...... 18 Initial Interview ...... 18 Exhibit 2-1, Sample Information Document Request (IDR) ...... 21 Exhibit 2-2 Bank Document Request List ...... 22 Exhibit 2-3 Interview ...... 24 Chapter 3 - Audit Issues ...... 28 Gross Income ...... 28 Introduction ...... 28 Gross Income Types ...... 28 Client Trust Accounts ...... 30 Noncash Sources ...... 30 Cash Payments ...... 31 Constructive Receipt ...... 31 Expenses ...... 32 Entertainment, Promotion and Advertising ...... 32 Travel ...... 33 Disguised Hobbies ...... 33 Corporate Expenses ...... 33 Depreciable Books and Periodicals ...... 33 Advanced Client Costs ...... 34

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Employee Versus Independent Contractor Issue ...... 39 Corporate Officer is an Employee ...... 43 1099 Issues: ...... 43 Form 8300 Issue ...... 43 Related Entities/Taxpayers ...... 44 Corporate Taxpayers ...... 44 Corporate and Individuals ...... 44 Personal Service Corporation Accounting Periods and Tax Computations ...... 45 Exhibit 3-1 Client Costs and Advances ...... 48 Exhibit 3-2 ...... 49 Exhibit 3-3 20 Common-Law Factors/Rev Rul 87-41 ...... 51

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