DOJ charges Texas billionaire in $2 billion tax fraud scheme

TEXAS - Federal prosecutors charged Texas billionaire Robert Brockman on Thursday with a $2 billion tax fraud scheme in what they say is the largest such case against an American.

Department of Justice officials said at a news conference that Brockman, 79, hid capital gains income over 20 years through a web of offshore entities in Bermuda and Nevis and secret bank accounts in Bermuda and Switzerland. Prosecutors announced that the CEO of a private equity firm that aided in the schemes would cooperate with the investigation.

The 39-count indictment unsealed Thursday charges Brockman, the chief executive officer of Ohio-based software company Reynolds and Reynolds Co., with tax evasion, wire fraud, money laundering, and other offenses.

Prosecutors also announced that Robert F. Smith, founder and chairman of Vista Equity Partners, will cooperate in the investigation and pay $139 million to settle his own tax probe. Smith, 57, stunned a senior class last year when he promised to wipe out the student loan debt of the entire graduating class at Morehouse, a historically Black all-male college.

“Complexity will not hide crime from law enforcement. Sophistication is not a defense to federal criminal charges," said David L. Anderson, U.S. attorney for the Northern District of California. “We will not hesitate to prosecute the smartest guys in the room."

Brockman appeared in federal court from Houston via Zoom Thursday. He entered a plea of not guilty to all counts and was released on $1 million bond, said Abraham Simmons, spokesman for the Northern District of California.

“Mr. Brockman has pled not guilty, and we look forward to defending him against these charges," said his attorney, Kathryn Keneally, in an email.

Prosecutors said Brockman used encrypted emails with code names, including Permit, Snapper, Redfish and Steelhead, to carry out the fraud and ordered evidence to be manipulated or destroyed.

Brockman, a resident of Houston and Pitkin County, Colorado, is chairman and CEO of Reynolds and Reynolds, a 4,300-employee company near Dayton, Ohio, that sells accounting, sales and management software to auto dealerships. The software helps set up websites, including live chats with potential customers, find loans and calculate customer payments, manage payroll and pay bills.

Reynolds & Reynolds issued a statement saying the allegations were outside Brockman’s work with the company and that the company is not alleged to have participated in any wrongdoing.

In 2013, a charitable trust set up by Brockman’s late father withdrew a pledged $250 million donation to Centre College, a small liberal arts school in Danville, Kentucky, where Brockman attended class and once served as chairman of the board of trustees.

At the time the school said it was due to a “significant capital market event” that didn’t pan out. A spokesman for Reynolds and Reynolds said in 2013 that the event was a proposed refinancing deal involving Vista Equity Partners, Smith's company.

According to the indictment, Brockman gave an unnamed individual detailed instructions regarding the proposed gift to the college, including talking points, and directed the person to threaten to pull out if his demands were not met. In August, he instructed the person to cancel the gift.

Prosecutors say that Smith used about $2.5 million in untaxed funds to buy and upgrade a vacation home in Sonoma, California; purchase two ski properties in France; and spend $13 million to buy a property and fund charitable activities at his property in Colorado.

Anderson applauded Smith for stepping up, despite the serious nature of his crimes, which occurred from 2000 to mid-2015.

“Smith’s agreement to cooperate has put him on a path away from indictment," he said.

In 2019, Smith announced to the graduating class at Morehouse College that he would pay off the student loan debt of the entire class, saying that he expected the graduates to “pay it forward.” The estimated cost was $40 million.

Forbes lists Smith as #461 on its billionaires list, with a net worth of more than $5 billion.

He founded the tech investment firm Vista in 2000 and Forbes reports that it now has over $50 billion in assets and is “one of the best-performing private equity firms, posting annualized returns of 22% since inception.” Vista has offices in San Francisco and Oakland.

Wilson Tax Law Group, APLC (www.wilsontaxlaw.com) is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group is exclusively comprised of former IRS litigators and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division and Criminal Division.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Newport Beach and Yorba Linda, California

 

Tel: (949) 397-2292 (Newport Beach Office)

 

Tel: (714) 463-4430 (Yorba Linda Office)

Treasury Clarifies Loan PPP Forgiveness Application Deadline

The Treasury Department, along with the Small Business Administration, on October 13, 2020, issued updated Frequently Asked Questions (FAQs) on the Paycheck Protection Program (PPP), following up on new guidance issued on October 11 simplifying the forgiveness process for certain loans.

The updated FAQs, as related to the new guidance, specifically provides the timeline for applying for loan forgiveness. The FAQ also seeks to clear up confusion related to an expiration date listed in the loan forgiveness application forms (3508, 3508EZ, and 3508S).

The full text of the FAQ can be found here.

Wilson Tax Law Group, APLC (www.wilsontaxlaw.com) is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group is exclusively comprised of former IRS litigators and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division and Criminal Division.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Newport Beach and Yorba Linda, California

Tel: (949) 397-2292 (Newport Beach Office)

Tel: (714) 463-4430 (Yorba Linda Office)

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California—Property Tax: New Construction Exclusion Enacted

A new construction California property tax exclusion is enacted for property damaged or destroyed by a Governor-declared disaster.

New Construction Exclusion Conditions

For property that has been substantially damaged or destroyed by a Governor-declared disaster on or after January 1, 2017, a construction exclusion for comparable property that is reconstructed on the site of the damaged or destroyed property is available under the following conditions:

• the property must be substantially damaged or destroyed by a disaster, misfortune, or calamity, as declared by the Governor;


• the property is substantially damaged or destroyed if the improvements sustain physical damage that amounts to more than 50% of the improvements' full cash value immediately prior to the disaster;


• reconstructed property is comparable if it is similar in function, size, and utility;


• only the owner(s) of the property substantially damaged or destroyed is eligible to receive this relief; and


• construction must be completed within five years of the date of the damage or destruction.

Comparable Reconstruction

Reconstructed property is comparable if it is similar in function, size, and utility as follows:

• property is similar in function if it is subject to similar governmental restrictions, such as zoning; and


• property is similar in size and utility if is used or intended to be used in the same manner and its full cash value does not exceed 120% of the full cash value of the damaged original property, determined just prior to the date of damage/destruction.

If the full cash value of the reconstructed property exceeds the 120% threshold, the amount above 120% will be added to the transferred base year value.

Applicability Date

These provisions apply to real property damaged or destroyed by misfortune or calamity on or after January 1, 2017.

Ch. 124 (A.B. 2013), Laws 2020, effective January 1, 2021, and applicable as noted.

Wilson Tax Law Group, APLC (www.wilsontaxlaw.com) is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group is exclusively comprised of former IRS litigators and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division and Criminal Division.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Newport Beach and Yorba Linda, California

Tel: (949) 397-2292 (Newport Beach Office)

Tel: (714) 463-4430 (Yorba Linda Office)

Tax Alert - California Enacts Sales and Use Tax Restrictions for Cannabis

The California cannabis trailer bill for the 2020-21 budget, which contains changes necessary to implement the budget, is enacted for cannabis excise and cultivation tax purposes.

Cannabis Excise Tax Mark-Up Amount

The California Department of Tax and Fee Administration (CDTFA) is prohibited from increasing the mark-up amount during the period beginning on and after September 18, 2020, and before July 1, 2021.

Cannabis Cultivation Tax Inflation Adjustment

The CDTFA is also prohibited from adjusting for inflation the cannabis cultivation tax rates that are imposed in the 2021 calendar year unless the adjustment is for an inflation rate that is less than zero. Moreover, beginning January 1, 2023, the rates imposed for the previous calendar year must be annually adjusted for inflation by the CDTFA.

Wilson Tax Law Group, APLC (www.wilsontaxlaw.com) is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group is exclusively comprised of former IRS litigators and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division and Criminal Division.

For further information or to arrange a consultation, please contact Wilson Tax Law Group, APLC  at our offices in Newport Beach or Yorba Linda, California.

Tel: (949) 397-2292 (Newport Beach Office)

Tel: (714) 463-4430 (Yorba Linda Office)

IRS Releases Information on Syndicated Conservation Easement Transaction Initiative

The IRS has released additional information to help address questions related to syndicated conservation easement (SCE) transaction initiative. See here.  Further, the IRS Chief Counsel has released Chief Counsel Notice 2021-001 (CC Notice), which contains information regarding Chief Counsel’s settlement initiative for certain pending Tax Court cases involving abusive SCE transactions described in Notice 2017-10, I.R.B. 2017-4, 544.  See here.

The IRS will soon publish updates to the Conservation Easement Audit Technique Guide, which will set out new arguments that taxpayers can expect the IRS to make in cases involving SCE transactions. Notably, the newly established Office of Fraud Enforcement and the National Fraud Counsel are coordinating with examining agents and Chief Counsel attorneys to canvas cases for additional fraud considerations, which might include assertion of the 75 percent civil fraud penalty, or where applicable, referrals to Criminal Investigation. The CC Notice entails the following:

It responds to a recurring question raised by several groups of partners. The CC Notice explains that, in rare cases, Chief Counsel may permit less than all the partners to settle on some terms. In most cases, however, the IRS will require settling groups of less than all partners to pay an additional 5 percent penalty, reflecting the lost efficiencies of the IRS having to proceed with the partnership case.

It indicates that the IRS would settle with individual partners (or groups of individual partners) only when they own a significant percentage of the partnership and they cooperate with Chief Counsel. The CC Notice provides that partners or groups of partners interested in resolving their cases on these terms have 30 days from the date of this Notice to elect to settle.

It also explains that Chief Counsel would consider a variety of factors in deciding whether to extend an offer in the Tax Court, including whether the partnership fully cooperated with the IRS during the audit.

Finally, it answers numerous procedural questions related to the settlement terms.

Wilson Tax Law Group, APLC (www.wilsontaxlaw.com) is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group is exclusively comprised of former IRS litigators and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division and Criminal Division.

For further information or to arrange a consultation, please contact Wilson Tax Law Group, APLC at either of our office locations in Newport Beach and Yorba Linda, California.

Tel: (949) 397-2292 (Newport Beach Office)

Tel: (714) 463-4430 (Yorba Linda Office)

 

Tax Alert- California Excludes PPP Loan from Income but Disallows Necessary and Ordinary Business Expenses

California "will not tax" forgiven Paycheck Protection Program (PPP) loan amounts. For tax years beginning on and after January 1, 2020, California conforms to federal law excluding from income any covered loan amount forgiven pursuant to:

• Section 1106 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136);


• the Paycheck Protection Program and Health Care Enhancement Act (P.L. 116-139); or


• the Paycheck Protection Program Flexibility Act of 2020 (P.L. 116-142).

For California purposes, "covered loan" has the same meaning as in the CARES Act.

The BAD - No Credit or Deduction for Expenses Paid Using Forgiven PPP Funds

California will not allow a credit or deduction for any expenses paid for using forgiven PPP funds. Taxpayers must reduce any credit or deduction otherwise allowed for those expenses by the amount of the forgiven loan excluded from income.  So effectively

A.B. 1577, Laws 2020, operative as noted

Wilson Tax Law Group, APLC (www.wilsontaxlaw.com) is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group is exclusively comprised of former IRS litigators and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division and Criminal Division.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Newport Beach and Yorba Linda, California

Tel: (949) 397-2292 (Newport Beach Office)

Tel: (714) 463-4430 (Yorba Linda Office)

IRS Warns of Higher Penalties on Tax Returns Filed After September 14

The IRS warns taxpayers who have not yet filed their tax returns, that higher penalties will be imposed if they file after September 14. Further, taxpayers who submitted an extension have until October 15 to file and would not face the failure to file penalty if they file their taxes by that deadline. However, an extension to file is not an extension to pay so any taxes the taxpayers owe after the July 15 deadline are subject to the failure to pay penalty and interest.

If a tax return is more than 60 days late, a minimum penalty applies. If no return has been filed after 60 days, the minimum penalty that can be charged is USD 435 or 100-percent of the unpaid tax, whichever is less. This year, that important 60-day date occurs after September 14. In addition to penalties, interest will also be charged on any tax not paid by the July 15 due date. The IRS has reminded taxpayers that Free File is available through October 15 to prepare and e-file a 2019 individual return. In addition, taxpayers who have not been assessed any penalties for the past three years may qualify to have penalties abated. A taxpayer who does not qualify for the first-time penalty relief may still qualify for penalty relief if their failure to file or pay on time was due to reasonable cause and not willful neglect. However, interest cannot be abated.

Moreover, qualified taxpayers can choose to pay any taxes over time through an installment agreement. Further, more information for taxpayers who owe taxes, but cannot afford to pay the full amount is available on the IRS website. Taxpayers can use the IRS Tax Withholding Estimator to do a paycheck checkup to have the right amount of tax withheld during the year. The IRS has reminded taxpayers to visit the "Are Payments I Receive for Being Unemployed Taxable?" tax tool to determine if their unemployment is taxable.

Wilson Tax Law Group, APLC (www.wilsontaxlaw.com) is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group is exclusively comprised of former IRS litigators and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division and Criminal Division.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Newport Beach and Yorba Linda, California

Tel: (949) 397-2292 (Newport Beach Office)

Tel: (714) 463-4430 (Yorba Linda Office)