IRS Takes Down $40 Million Tax Shelter — Four Convicted Over 98% Tax-Saving Claims

Offering tax-saving services to high-net-worth individuals is a lucrative business model in the US. The wealthy often explore diverse tax-savings strategies to avoid paying tax bills worth billions of dollars. Amid concerns of a proposed wealth tax, many billionaires are even moving to different states with more favourable tax structures.

However, some companies offering tax-savings services appear to be going overboard with deductions. Marcia Predmore, Roderick Prescott, Suzanne Thompson, and Weldon Wulstein promoted an illegal 'layered' trust tax shelter to hundreds of high-net-worth business owners across the US. They were convicted by a federal jury in the District of Colorado for orchestrating the tax evasion scheme, which resulted in $40 million in losses to the US.

The trust tax shelter had four trusts: a business trust, family trust, charitable trust, and a private family foundation. The promoters helped clients learn how to leverage the tax shelter to evade federal income taxes on more than 98% of their business profits. This was partly done through claiming a tax deduction for non-deductible personal living expenses and fraudulent charitable contributions.

Some of the promoters even went further to market the tax scheme at seminars hosted across the US and advertised that the tax shelter would allow clients to 'own nothing, control everything.' The tax shelter costs between $25,000 to $50,000 to set up.

'These defendants were repeatedly warned by attorneys, CPAs, financial professionals, and IRS guidance that this trust-based scheme was illegal, yet they chose to ignore those warnings. Their conspiracy was a deliberate attempt to conceal income and undermine the integrity of our nation's tax system while lining their own pockets through their lies,' said Amanda Prestegard, Special Agent in Charge, IRS-CI Denver Field Office.

Some of the Convicts Are Financial Experts

Wulstein, who is also a certified public accountant, prepared false tax returns for clients who set up a tax shelter along with Thompson, who ran a bookkeeping firm. Meanwhile, Prescott promoted that family foundation, and taught clients how to claim tax deductions for funds donated to the foundation while maintaining control over those funds for personal expenses.

Note that Prescott was earlier convicted of tax evasion and permanently enjoined from promoting abusive tax shelters.

Lastly, life insurance agent Predmore was engaged in marketing the tax shelter via a business she operated with her spouse, Timothy McPhee. In December, McPhee was sentenced to 151 months of imprisonment for conspiracy, tax evasion, and wire fraud due to his role in the tax evasion scheme as well as for operating an investment fraud scheme that went by the name, ROI Cash Flow Fund.

Thompson and Wulstein were also convicted of six counts each of helping prepare false tax returns for clients who used the tax shelter. Meanwhile, Predmore was convicted of six counts of tax evasion. All four promoters face a maximum penalty of five years in prison for conspiracy to defraud the US.

Predmore faces an additional maximum penalty of five years in prison for each count of tax evasion. A federal district court judge will determine any sentence after considering sentencing guidelines and other statutory factors.