WASHINGTON, D.C. – David Carroll Stephenson was convicted today of conspiring to defraud the United States and willful failure to file income tax returns for 1998 through 2000, in connection with his promotion of a tax evasion scheme using “pure equity trust” organizations, the Justice Department and Internal Revenue Service (IRS) announced. Co-defendant Michael Joseph Shanahan pleaded guilty to the conspiracy charge in the middle of trial and pleaded guilty to failing to file an income tax return for 1999 on the eve of trial. A federal jury returned the verdict today after a two-week trial in Tacoma, Washington.
According to the indictment and evidence introduced at trial, from 1994 through 2000, Stephenson and Shanahan marketed trust packages through a Tacoma-based organization they called American Business Estate and Tax Planning (ABETP). The defendants falsely advised customers that they could avoid paying income taxes if they placed their income and assets in “pure equity trusts,” even though the customers retained control over the use of the income and assets they placed into the trusts. The defendants—who promoted the scheme through seminars, a website, and booklets—received over $2 million in revenue from the sales of more than 400 trusts, charging customers approximately $5,000 to $7,500 for the trust packages. At trial, the government called approximately 25 witnesses—including an undercover IRS investigator and an IRS trust expert—and introduced over 200 exhibits, which included tapes of trust promotion seminars.
“People who claim to be tax planning professionals and promote schemes that conceal taxpayers’ income and assets from the IRS harm all honest taxpayers,” said Eileen J. O’Connor, Assistant Attorney General for the Department of Justice’s Tax Division. “The Department of Justice will vigorously prosecute tax fraud and those who facilitate it.”
“The use of abusive trust arrangements and establishment of sham entities to shelter income from the IRS are illegal,” said Richard Speier, Acting IRS Chief, Criminal Investigation. “Taxpayers should be cautious of tax planning businesses that charge huge fees and claim to drastically reduce or eliminate their tax liability while still allowing them unlimited access to their money.”
“Today's jury verdict makes it clear that those who engage in ‘shell-games’ to avoid paying their fair share in taxes will be held accountable,” said John McKay, U.S. Attorney for the Western District of Washington.
Each defendant faces a maximum sentence of five years in prison and a $250,000 fine for the conspiracy conviction. On each count of willful failure to file an individual income tax return, the defendants face a maximum sentence of one year in prison and a $100,000 fine. U.S. District Judge Ronald B. Leighton remanded Stephenson to the custody of the U.S. Marshals and scheduled his sentencing for May 18, 2006 at 9:00 AM PDT. Shanahan’s sentencing is scheduled for May 12, 2006, at 11:00 AM PDT.
Assistant Attorney General O’Connor and U.S. Attorney McKay thanked Assistant U.S. Attorney Arlen R. Storm and Tax Division Trial attorney Charles E. Pell who prosecuted the case. They also thanked the Special Agents of the IRS, whose assistance was essential to the successful investigation and prosecution of the case.
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