In Tax Fraud Case Against Investment Company Executives, Are the Clients the Next Targets?

Two Tampa businessmen, Duane Crithfield and Stephen Donaldson, Sr., were indicted for conspiracy to commit tax fraud, based on an allegedly fraudulent tax strategy for affluent clients. The defendants have not yet entered pleas. Are the “affluent clients” the next targets for the government?

According to the indictment, Mr. Crithfield and Mr. Donaldson held themselves out as owning, operating or being affiliated with several foreign and domestic entities.  Those entities had such solid sounding names as “Alliance Holding Company” and “First Fidelity Trust.”

But the main entity at issue was one called “Foster & Dunhill.” The two defendants supposedly used this Florida entity—along with several others—to promote and market “a fraudulent offshore tax strategy known as the ‘Business Protection Plan’” (BPP). The indictment alleges that the BPP allowed clients to

claim business expense deductions based on sham ‘insurance premium’ payments made to offshore entities . . . in amounts intended to substantially reduce the clients’ taxable income for a particular year.

According to the government, the supposed “insurance” did not protect against any business risks and instead was simply used to reduce taxable income. In addition, the client would later receive over 80% of the premium back after the benefit of the tax deduction.

The indictment names only Mr. Crithfield and Mr. Donaldson as the co-conspirators and there’s no suggestion for now that the government is targeting individual clients who used BPP. In fact, the indictment seems to go out of its way to make clear that the clients may have been unwitting participants. For example, the indictment notes that the two men “withh[e]ld and conceal[ed] from their clients that a prominent law firm withdrew its opinion letter upon learning that the promoters had misrepresented material facts about BPPs.” It also alleges that when the defendants received another opinion letter from a different firm, they ignored that one too.

However, the indictment also explains that Mr. Crithfield and Mr. Donaldson “told prospective BPP clients not to file a claim against their BPP insurance policies because they could get a large portion of their premiums back tax free.” Mr. Donaldson supposedly told attenders at a conference sponsored by Foster & Dunhill in the Bahamas that if there were no claims on the policy, then the clients

are going to get eighty-five cents back on the dollar and, of course, when I do that, I would just as soon send it back to the insurance company as send it to the IRS.

Query whether people dislike sending money to their insurance companies more or less than sending it to the IRS; it strikes me that neither is particularly popular.

If the clients using BPP were truly “affluent” and thus sophisticated in some sense, the indictment leaves me wondering whether there were sufficient red flags here for potential investors that justify the government investigating them. However, given that the defendants allegedly lied about the existence of an opinion letter approving the tax strategy, those clients may have a good-faith defense that may not make it worthwhile to investigate them. Only time will tell.

This entry was posted in Conspiracy, Criminal Investigation, Tax fraud. Bookmark the permalink.

One Response to In Tax Fraud Case Against Investment Company Executives, Are the Clients the Next Targets?

  1. Pingback: Top 10 Posts in 2015 (and My Other Favorites) | Grand Jury Target

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s