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Former Billionaire Found Guilty of Tax Fraud

Posted in Offshore Account Update on June 15, 2016 | Share

Sam Wyly and his brother Charles Wyly have been found guilty of tax fraud and are subject to potentially serious penalties. Sam Wyly is a former billionaire who is now in bankruptcy court. During his bankruptcy court proceedings held in May, a U.S. Bankruptcy Court judge found that the two brothers had intentionally tried to evade taxes through the use of a complex and elaborate offshore non-grantor trust structure.

The Wylys had indicated they relied on the judgment of financial professionals; however, the bankruptcy court judge found their explanation was too “glib.” Reliance on professionals was not considered an excuse for failing to fulfill tax obligations.  The judge made clear that a wealthy person could not insulate himself from accusations of wrongdoing by claiming they just followed the advice of middlemen.

This case is one of many in which serious consequences are imposed because of an alleged effort to hide money and avoid taxes.  While it wasn't considered a valid defense to claim a reliance on expert advice, there may be other defenses which could be raised by others who find themselves in a similar situation. A Washington DC criminal tax attorney should be consulted if anyone is being investigated for tax fraud or tax evasion in any form. 

Understanding Tax Fraud Convictions

The story of the Wyly brothers dates back decades and the bankruptcy court judge held that they committed a sustained course of tax fraud over close to 15 years. Sam Wyly had made his fortune through founding or expanding businesses, including University Computing Company, Bonanza Steakhouse and Gulf Insurance.

In 2006, Sam had an estimated net worth of around $1.1 billion.  He and his brother also sat on the boards of several public and privately-traded companies back in 1992.

In 1992, the Wylys, who had received stock options for services on the boards, set up 10 different Nevada corporations and 16 different offshore trusts in the Isle of Man. They also set up 38 different offshore companies.  The Nevada corporations were owned by offshore non-grantor trusts which were under the Wylys’ control.

The Wylys subsequently transferred $200 million in stock options to the Nevada corporations that had been created. The offshore non-grantor trusts that owned the Nevada corporations did not have any named beneficiaries. The trusts were able to accumulate income, but didn't get taxed as grantor trusts would have.

Since there were no beneficiaries named in the trust agreement, nonbinding letters of wishes were used instead to access trust assets. The Wylys also used their stock options to obtain annuity agreements. They subsequently argued they did not owe tax on any of their compensation until they began to receive annuity payments. 

The Wylys used the funds in the arrangement just as if they had come from a personal piggybank, maintaining control of assets the entire time. However, the entire complicated scheme was set up to provide tax advantages. 

After an SEC charge in 2010 resulted in a $300 million judgment, the tax avoidance scam came to light and a tax assessment was issued for failure to pay taxes on offshore income since 1992.  It was this failure that ultimately led to the bankruptcy court judge ruling that fraud had occurred.

The case is a cautionary tale not to count on experts to save you from being accused of tax fraud. Even very complex tax avoidance schemes can be unraveled and lead to legal consequences. A DC criminal tax attorney like Kevin Thorn should be consulted if you believe you could end up facing accusations of wrongdoing.


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