Local Businessman Sentenced For Avoiding Income Taxes On $1 Million Severance
HOUSTON – Robert Edward Cone has been sentenced for using a foreign account in the Channel Islands to corruptly obstruct and impede the Internal Revenue Service (IRS) in the collection of approximately $282,871 in federal income taxes, United States Attorney Kenneth Magidson announced today along with Lucy Cruz, special agent in charge of IRS - Criminal Investigation (CI). Cone pleaded guilty on Feb. 10, 2012.
Today, U.S. District Judge Sim Lake sentenced Cone to a term of 12 months and one day in prison to be followed by a one-year-term of supervised release. He was further ordered to pay a fine of $50,000 and has already made full restitution of the unpaid taxes plus penalties and interest altogether totaling $939,917. He is also subject to possible additional civil assessments by the IRS as a result of this offense.
“At this time of year, when hard-working citizens are sitting down to prepare their tax returns, it is especially disappointing to see the overt steps some individuals will take to hide their taxable funds from the government," said Cruz. “We are determined at the IRS and Department of Justice to halt international tax evasion, and today’s sentence sends a strong message to those who attempt to hide their income in foreign accounts."
According to the plea agreement filed of record in the case, Cone was employed as president of Industrial Holdings Inc. (IHI), a manufacturing company in Houston, during 2001. Under his employment agreement with IHI, Cone was entitled to receive a severance payment equal to four times his annual salary of $250,000. This $1 million severance payment came due in December 2001 when IHI negotiated a merger with another company.
In anticipation of receiving the $1 million severance payment, Cone emailed a trust company in the Channel Islands seeking advice on establishing an offshore business to help with his U.S. taxes. Cone directed the Foreign Trust Company to form a British Virgin Islands company called Jomach Limited and establish an account under Jomach Limited with the Royal Bank of Canada (Jersey Islands) Limited. Cone directed IHI to wire the $1 million severance payment into the foreign Jomach Limited account.
A few weeks later, Cone concealed the severance payment and the foreign account from his tax return preparer, not reporting either to the IRS on his tax return. Cone then signed and filed that tax return with the IRS. By concealing the $1 million severance payment, Cone corruptly obstructed and impeded the administration of IRS laws and the collection of federal income taxes totaling approximately $282,871 for tax year 2001.
Between January 2002 and October 2006, Cone directed the Foreign Trust Company to disburse funds from the Jomach Account to vendors of goods and services that he had purchased in the U.S. and to U.S. bank accounts that he controlled and from which he disbursed funds for his personal use, benefit and consumption. Cone later concealed his interest in the foreign account from another professional tax return preparer, who prepared a 2005 tax return for Cone, that falsely stated he had no interest in any foreign account. However, Cone had, in fact, caused two transfers of $5,000 each to be made to his personal benefit from the Jomach Account during that year. Cone also signed and filed that tax return with the IRS in 2006, further corruptly obstructing and impeding the IRS in the administration of IRS laws.
Cone was permitted to remain on bond and voluntarily surrender to a U.S. Bureau of Prisons facility to be determined in the near future.
The investigation was conducted by IRS-CI and was prosecuted by Assistant United States Attorney Jimmy Sledge Jr.