Taxation Law - An International Perspective; Examples of Abusive Tax Scheme Investigations in the USA - Fiscal Year 2009 - Part 2

The following examples of abusive tax schemes are written from public record documents on file in the courts in the judicial district in which the cases were prosecuted.

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Baby Bliss Owner Goes to Jail for Tax Evasion

On December 15, 2008, in Grand Rapids, Mich., Charles Lee Edkins, the former owner of Baby Bliss, Inc., was sentenced to 48 months in prison, followed by three years of supervised release, and ordered to pay $285,711 in restitution, with $200,000 due immediately. Edkins was also ordered to cooperate with the Internal Revenue Service (IRS) and file back tax returns.  According to court records, between 1995 and 1998, Edkins owned and operated Baby Bliss, Inc., which manufactured young girls’ clothing primarily for Pleasant Company, the marketer and distributor of “American Girl” brand products. During 1995 through 1997, Edkins filed false tax returns with the IRS and, in 1998, failed to file a tax return.  Edkins’ gross income over the four-year period totaled more than $885,000. During the investigation, Edkins refused to provide books and records to the IRS, as required by law. He also directed a business associate to lie to the IRS if questioned about his income. In addition, Edkins disguised personal expenses as business expenses, including referring to a purchased Lincoln Town Car in his records as “five used Singer sewing machines,” purchasing two personal residences utilizing a sham corporation, and withdrawing corporate funds for personal use. After his June 2005 indictment, Edkins fled to the Bahamas and was considered a fugitive until his arrest in Miami, Florida, in February 2008. Prior to being arrested, $66,000 in checks issued to him from a numbered Swiss banking account was seized by authorities. The judge also ordered that Edkins endorse these checks, which were provided to the Court for payment towards his restitution.

Fifth Aegis Company Principal Sentenced in Chicago to 200 Months for His Part in Firm’s $60 Million Tax Fraud Conspiracy

On December 5, 2008, in Chicago, Ill., Robert W. Hopper, of Gadsden, Ala., was sentenced to 200 months in prison and ordered to pay the $240,000 cost of his prosecution for tax fraud conspiracy, 17 counts of aiding and assisting in the filing of false returns, four counts of personal income tax evasion, two counts of mail fraud and one count of wire fraud. Hopper was the fifth of six Aegis Company defendants to be sentenced on various tax crimes. According to court documents, Hopper was an original founder of the Aegis Company and was the managing director. Hopper and his co-defendants were found to have carried out a scheme to market and sell sham domestic and foreign trusts to 650 wealthy taxpayer clients. According to court documents and evidence at trial, the tax fraud scheme used a network of promoters, sub-promoters, managers, attorneys and accountants and resulted in a $60 million tax loss to the United States. As a condition of his three years of supervised release, Hopper was ordered to pay $220,000 for his own unpaid federal taxes, plus penalties and interest owed.

Indiana Man Sentenced to 210 Months for His Part in Aegis Company $60 Million Tax Fraud Conspiracy

On December 3, 2008, in Chicago, Ill., Timothy Shawn Dunn, a Chesterton, Ind., resident was sentenced to 210 months in prison for his role in marketing and selling fraudulent domestic foreign trusts for The Aegis Company. Dunn remains liable for approximately $315,000 for his own unpaid taxes, plus penalties and interest owed.  He was found guilty of tax fraud conspiracy, 11 counts of aiding and assisting in the filing of false returns, one count of personal income tax evasion and two counts of filing false personal income tax returns. According to court documents, Dunn owned Moneyfacts, a financial advisory business in Highland, Ind. Three of Dunn's co-defendants were sentenced earlier. Michael A. Vallone was sentenced to 18½ years in prison in October 2008. Vallone was one of the founders and the executive director of Aegis. Also in October 2008, William S. Cover, a promoter and manager of Aegis trusts and the president of Sigma Resource Management Inc., which provided management services to purchasers of Aegis trusts, was sentenced to 13 years in prison and ordered to forfeit his home and $4.125 million. On November 19, 2008, Michael T. Dowd, a promoter and manager of Aegis trusts who provided management services to purchasers of Aegis trusts through Aegis and Sigma Resource Management Inc., was sentenced to 10 years in prison. All of the defendants were convicted following an 11 week trial. They were indicted in 2004 following a lengthy undercover investigation by IRS agents, code-named “Operation Trust Me,” involving the seizure of 1.5 million documents, computer files and related materials.  Dunn and his co-defendants carried out a nearly decade-long scheme to market and sell sham domestic and foreign trusts through the Aegis Company, now defunct and formerly based in Palos Hills, Ill., to 650 wealthy taxpayer clients. According to court documents and evidence at trial, the defendants diverted income from businesses into sham trusts for clients and hid hundreds of millions of dollars in income for those clients. Their fees ranged from $10,000 to $75,000. The fraudulent trusts attempted to hide the purchasers' assets and income in order to illegally reduce or eliminate their income tax liability. Trial evidence also showed that the scheme diverted profits from businesses to a sham trust and transferred funds either to a bogus charitable trust or to bank accounts in tax haven countries, such as Belize and Antigua. Nationwide, the Chicago based investigation resulted in convictions of more than 30 defendants and charges against approximately 30 other defendants around the country, including in Florida, Illinois, New York, Ohio and West Virginia.