WASHINGTON—Following a five-week trial, a federal jury in West Palm Beach has found defendant Louis Wayne Ratfield, a Lake Worth, Fla., tax return preparer, guilty on 50 charges against him in connection with his participation in a tax fraud scheme to hide income and assets in bogus trusts, Eileen J. O’Connor, Assistant Attorney General for the Justice Department’s Tax Division, R. Alexander Acosta, U.S. Attorney for the Southern District of Florida, and Michael Yasofsky, Jr., Special Agent in Charge, Internal Revenue Service (IRS), Criminal Investigation Division announced today.
On April 13, 2006, a 56-count indictment was returned charging Ratfield with preparing for clients and himself fraudulent federal individual and trust income tax returns, corruptly impeding the enforcement of the tax laws and criminal contempt. Prior to trial, the government dismissed five of those counts. The indictment alleged, and evidence offered at trial established, that Ratfield operated a tax preparation business, LWR Accounting and Tax Service, which was later called LWR Financial Services Trust. The businesses were located in Lake Worth where Ratfield also resided.
In or before 1997, Ratfield allegedly began collaborating on a book that was eventually published and widely marketed under the title, The Constitutional Common-Law Trust, which fraudulently advised readers that taxpayers could claim deductions for ordinary living expenses on their returns to which they were not lawfully entitled, such as the costs of utilities, food, clothing, vehicles and education through use of the so-called “common-law trust.” The evidence established that Ratfield provided advice on setting up and using “common law trusts,” keeping a second set of business records, and counseled readers not to trust advice from government, banks and other businesses.
Ratfield marketed “common law trust” packages to clients throughout the United States via group seminars and individual client meetings; sold over 100 trust packages at prices ranging from $2,995 to $5,995 each; and prepared at least 252 federal tax returns in connection with the scheme. The evidence at trial established that once the IRS began auditing his clients, Ratfield took numerous unlawful steps to obstruct and impede the audits. According to the indictment, Ratfield’s conduct caused a tax loss to the U.S. Treasury of more than $6.4 million.
On Sept. 7, 2001, the Department of Justice filed a civil lawsuit against the defendant in the U.S. District Court for the Southern District of Florida in connection with his marketing of the “common law trust” scheme. On Sept. 29, 2002, the court issued a preliminary injunction barring Ratfield from acting as a federal income tax return preparer until he provided a complete client list to the IRS. The injunction also barred him from organizing or selling abusive tax shelters, making false statements about purported tax benefits associated with participation in an abusive tax shelter, and assisting in the preparation of or preparing any tax returns that he knew would result in the understatement of a tax liability.
On Nov. 30, 2004, the court entered a permanent injunction against Ratfield and ordered him, among other things, to contact all of his trust clients and inform them of the court’s order. The indictment alleges and the evidence at trial established that Ratfield committed criminal contempt, in part, by continuing to promote and defend his “common law trust” scheme, representing clients before the IRS after the court ordered him to stop these activities, and continuing to make false statements about the taxability of income and deductibility of expenses.
“Promoting tax fraud and preparing fraudulent federal tax returns are serious crimes, and those who commit them face serious consequences” said Eileen J. O’Connor, Assistant Attorney General for the Justice Department’s Tax Division. “Working together with the Internal Revenue Service and United States Attorney’s Offices, the Tax Division has made investigating and prosecuting such crimes a high priority.”
U.S. Attorney Alex Acosta stated, “By fraudulently advising taxpayers that they could claim deductions for ordinary living expenses, including food, clothing, and the cost of education, Ratfield caused a tax loss to the U.S. Treasury of more than $6.4 million. The U.S. Attorney’s Office will continue to help the Internal Revenue Service to enforce our nation’s tax laws and stop fraud and abuse.”
Special Agent in Charge Michael Yasofsky, Jr. stated, “Those who participate in or encourage taxpayers to use sham entities for the purpose of evading taxes are engaging in criminal activity. We will vigorously investigate those individuals who use abusive trust arrangements to evade their tax obligation.”
Ratfield faces a maximum potential sentence for each violation of preparing false returns and corruptly impeding the tax laws of three years in prison followed by up to one year of supervised release, a $250,000 fine, and liability for the costs of prosecution. Ratfield could also face a term of imprisonment, a fine, or both, for the criminal contempt charges, the length and amounts of which will be determined in the discretion of the court. Judge Hurley remanded the defendant to the custody of the U.S. Marshal following his conviction.
The case was prosecuted by Assistant U.S. Attorney Ellen Cohen and Trial Attorneys Tracy Gostyla and Stephanie Evans of the Tax Division and was investigated by special agents of the Internal Revenue Service whose assistance was essential.
Further details about these and other tax enforcement cases are available on the Tax Division’s Web site http://www.usdoj.gov/tax/, on the IRS’s Web site http://www.irs.gov/, and on the IRS Criminal Division’s Web site http://www.ustreas.gov/irs/ci/.