WASHINGTON – Dr. Patricia Lynn Hough, of Englewood, Florida, was sentenced today to serve two years in prison and three years supervised release by U.S. District Court Judge John Steele in Fort Myers, Florida, for conspiring to defraud the Internal Revenue Service (IRS) by concealing millions of dollars in assets and income in offshore bank accounts at UBS and other foreign banks, and for filing false individual income tax returns which failed to report the existence of those foreign accounts or the income earned in those accounts, the Justice Department and the IRS announced. Hough was also ordered to pay $15,518,382 in restitution and $42,732.27 for the costs of prosecution. Hough was convicted by a jury on Oct. 24, 2013.
According to court documents and court proceedings, Hough owned two Caribbean-based medical schools, Saba University School of Medicine located in Saba, Netherlands Antilles, and Medical University of the Americas located in Nevis, West Indies. Hough conspired to defraud the IRS with her husband, Dr. David Fredrick, who is awaiting trial. They carried out the conspiracy by creating and using nominee entities, including a foundation, and by using undeclared accounts in their names and the names of nominee entities at UBS and other foreign banks to conceal assets and income from the IRS. Both schools and the associated real estate were sold on April 3, 2007, for more than $35 million, all of which was deposited into undeclared accounts in the names of the nominee entities. The majority of the proceeds from the sale were not reported to the IRS on their tax returns and no tax was paid. In total, between 2003 and 2008, Hough and Fredrick failed to pay more than $15 million in taxes.
The evidence at trial further proved that Hough and Fredrick used emails, telephone calls and in-person meetings to instruct Swiss bankers and asset managers to make investments and transfer funds from their undeclared accounts at UBS. The evidence also established that Hough and Fredrick caused funds from the undeclared accounts in the names of the medical schools to be transferred to undeclared accounts in their individual names or in the names of nominee entities. Hough and her husband then used the funds in their undeclared accounts to purchase an airplane, two homes in North Carolina and a condominium in Sarasota, Florida.
Hough was also convicted of three counts of filing false tax returns for 2005, 2007 and 2008. The evidence at trial showed that Hough filed false tax returns that substantially understated her total income because she failed to report substantial interest and investment income and because she failed to report her half of the proceeds from the sale of the medical schools in 2007. In addition, Hough failed to report that she had an interest in, or signature or other authority over, bank, securities or other financial accounts located in foreign countries.
U.S. citizens who have an interest in, or signature or other authority over, a financial account in a foreign country with assets in excess of $10,000 are required to disclose the existence of such accounts on Schedule B, Part III, of their individual income tax returns. Additionally, U.S. citizens must file a Report of Foreign Bank and Financial Accounts (FBAR) with the U.S. Treasury disclosing any financial account in a foreign country with assets in excess of $10,000 in which they have a financial interest, or over which they have signature or other authority.
"The Justice Department is committed to investigating and prosecuting those who continue to evade taxes by hiding income and assets in undisclosed offshore bank accounts," said Assistant Attorney General Kathryn Keneally for the Tax Division. "As this sentence shows, those who fail to come into compliance risk high penalties and jail."
"Those who use nominee entities to conceal their assets and income in offshore accounts should realize by now that no bank offering such services will be a safe haven from the IRS," said Chief of IRS-Criminal Investigation Richard Weber. "Regardless of wealth, everyone must pay taxes on all of their income, not just the amount they choose to report. It is more important that the American people feel confident that everyone is playing by the same rules and paying their taxes. Today, Dr. Hough has been held accountable for using an intricate network of financial transactions to evade her tax obligation."
This case was prosecuted by Trial Attorneys Caryn Finley and Leigh Kessler of the Tax Division and was investigated by IRS – Criminal Investigation. Assistant Attorney General Keneally thanks them for their work, and also thanks the U.S. Attorney's Office for the Middle District of Florida, Fort Myers Division, for their assistance and support in the prosecution.
Additional information about the Tax Division and its enforcement efforts may be found at the division website.