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Top Ten Tax Recoveries of 2020

Posted  February 5, 2021

Tax fraud and tax evasion, unfortunately, continued apace last year.  Yet even in the face of waning tax resources, enforcement authorities chalked up some key wins in 2020.

Criminal recoveries tend to dominate the headlines because many of the biggest tax recoveries are not public: the IRS scrupulously protects taxpayer privacy, and no announcements are made for civil tax recoveries.  Thus only those that result in criminal prosecutions or civil litigation tend to reach the public eye.  The 2020 results were no different: criminal convictions and key litigations in key enforcement areas like offshore accounts, tax shelters, employment taxes, and fraudulent credits.

Although their role is almost never publicized, whistleblowers are often critical to identifying and combatting those who would cheat the public.  Last year, tipsters under the IRS Whistleblower Reward Program were responsible for $472 million in tax collections.  Under the program, which provides for a reward between 15 to 30% of the government’s recovery, whistleblowers received $87 million in award payments.

Looking back, here are the top ten tax recoveries we covered for 2020 by the numbers:

  1. Bank Hapoalim – $875 million: On April 30, 2020, Bank Hapoalim pleaded guilty to conspiring with customers, including U.S. taxpayers, to hide more than $7.6 billion in secret accounts at its main Israeli bank and by its Swiss subsidiaries.  The resolution shows the continued focus by U.S. authorities on offshore tax avoidance.  Along with the plea, the bank paid $216.8 million in restitution to the IRS, $160.3 million in forfeiture, federal penalties of $239.8 million, $37.4 million in civil monetary penalties to the Federal Reserve System, and $220 million in penalties to the New York State Department of Financial Services.
  2. Wells Fargo – $420 million: This year the Eighth Circuit closed the book on a long-running saga involving tax shelters known as Structured Trust Advantaged Repackaged Securities (STARS) transactions.  In Wells Fargo’s case, it had generated $350 million in tax avoidance through a scheme involving the creation of a UK trust that it jointly entered into with Barclay’s.  Through the arrangement, the two swapped tax benefits, generating enormous US foreign tax credits for Wells Fargo.  The appellate decision upheld the disallowance of those benefits and, critically for enforcement, the additional 20% negligence penalty.
  3. Stein and Corey Agee – guilty pleas to arranging $250 million in tax avoidance: Swooping in just before the new year to claim second place, these two Georgia accountants pleaded guilty on December 21, 2020, to promoting a fraudulent tax shelter that was responsible for more than $1.2 billion in bogus deductions.  The two marketed, promoted, and sold tax shelters that purported to invest in real estate that was entitled to claim tax deductions for setting aside easements for conservation.  But these fraudulent Syndicated Conservation Easements (SCEs) were shams, lacking business purpose, and simply designed to shelter enormous amounts of income.  The pleas represent the first criminal case involving conservation easements, but it surely will not be the last.
  4. Robert F. Smith – $139 million: On October 15, 2020, Smith entered a non-prosecution agreement, paid $139 million, and gave up a $182 million refund claim, all in the face of charges he had illegally used offshore entities in Belize and Nevis to avoid taxes on his substantial private equity earnings.  But wait, there’s more!  Smith agreed to cooperate in related investigations.  That same day, federal prosecutors charged Robert T. Brockman with concealing $2 billion in income from tax authorities by using entities and accounts in Bermuda, Nevis, and Switzerland.  So stay tuned.
  5. Ambiance Apparel – $118 million: On August 26, 2020, Ambiance and owner Sang Bum “Ed” Noh pleaded guilty to a combination of tax and customs offenses.  On the tax side, they had engaged in a classic dodge: conducting cash transactions and keeping a second set of books to conceal those earnings from tax authorities.
  6. Renewable Fuel Credit Scams – $27 million and 35 years imprisonment:  Clocking in at number three are a set of convicted fraudsters with independent schemes but similar ideas.  All of them were convicted of a variation of fraudulently claiming production of renewable fuels that they did not actually produce, all to secure renewable fuels tax credits.  For their schemes, Ben Wootton and Race Miner, the owners of Keystone Biofuels Inc., each got over five years in prison and jointly owed over $9 million in restitution and fines.  Matthew Taylor of Shintan, Inc., earned 7 years and $7.2 million in restitution.  David Dunham Jr. got seven years in prison and a restitution order of $10 million.
  7. Christie’s – $16.7 million: Topping out the state and local recoveries on our list is Christie’s.  On April 9, 2020, the auction house entered a Deferred Prosecution Agreement with New York and Manhattan prosecutors in which it admitted to failing to collect state and local sales tax on its auction transactions.  Although no whistleblower was reported involved in this action, it’s an example of the kind of tax avoidance that can potentially be pursued through an action under the New York False Claims Act’s tax provisions.
  8. Union Bancaire Privee – $14 million:  This alleged repeat offender shows that non-prosecution agreements are not empty pieces of paper. UBP participated in the DOJ’s Swiss bank account program, which yielded total fines of $1.36 billion, with UBP paying $187.8 million.  As part of its deal with DOJ, it signed an NPA requiring it to disclose all material information about offshore accounts with US owners. In 2020, however, it acknowledged that it failed to do so, earning it the more recent fine.
  9. Steve Choi – $11 million and 21 months imprisonment:  Mr. Choi was sentenced and ordered to pay back taxes for an unfortunately common fraud.  As the founder and operator of nine foodservice companies located in government buildings, he had the same obligation as all employers to collect and pay employment taxes to the IRS and the DC Office of Tax and Revenue.  Despite withholding amounts from his employees’ paychecks, he did not pay them to the government; instead, he pocketed some, paid personal expenses, and gave cash advances.
  10. Ricardo Betancourt – $9 million and 2 years imprisonment: Like his predecessor on the list, Mr. Betancourt failed in his role as custodian of his employees’ tax withholdings.  Running a business with over $100 million in revenue and hundreds of employees, Mr. Betancourt was responsible for collecting and paying over millions in payroll taxes to the federal government.  Instead, according to DOJ, he spent the money on a “lavish lifestyle”, including motorcycles, cars, cosmetic surgery, and jewelry. Now he can repay it, with time and money.

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Annual Whistleblower Insider Top Ten Lists

Every January, Whistleblower Insider looks back at the significant government enforcement actions of the past year. Our Top Ten lists highlight the biggest recoveries and significant enforcement efforts by different government actors in cases of interest to whistleblowers.
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Tagged in: Abusive Tax Shelters, FCA State, IRS Whistleblower Reward Program, Tax Fraud, Whistleblower Rewards,