News and Press Releases

WASHINGTON STATE TRUST SCHEME PROMOTER SENTENCED TO 8 YEARS IN PRISON

FOR IMMEDIATE RELEASE
May 18, 2006

 

WASHINGTON, D.C. — Tax fraud promoter David Carroll Stephenson, 50, of Tacoma, Washington was sentenced today in Tacoma to the statutory maximum of 96 months in prison, the Justice Department and Internal Revenue Service (IRS) announced. The judge, finding that the tax loss to the Federal Treasury was more than $8.5 million, ordered Stephenson to pay that sum in restitution to the IRS. At sentencing Judge Ronald B. Leighton called Stephenson a “predator” saying he “wreaked havoc with the financial lives of the people he called clients.”

“People who encourage and enable others to evade taxes can expect to be prosecuted, convicted, and sentenced to substantial time in prison,” said Eileen J. O’Connor, Assistant Attorney General for the Justice Department’s Tax Division. “All law-abiding taxpayers can be confident that the Department of Justice is working vigorously to protect the integrity of the federal tax system.”

“Mr. Stephenson’s sentence should serve as a warning that taxpayers should be wary of tax planning arrangements that claim to drastically reduce or eliminate their tax liability while still allowing them unlimited access to their money,” said John H. Imhoff, Jr., Acting IRS Chief, Criminal Investigation. “Quite simply, these arrangements are illegal.”

“Stephenson harmed his clients as well as the government,” said U.S. Attorney John McKay, for the Western District of Washington. “The Department of Justice did not allow Stephenson’s use of frivolous lawsuits and harassment of IRS agents to derail this important prosecution.”

In February 2006, following a two-week trial, a jury convicted Stephenson of conspiring to defraud the United States and on three counts of failing to file income tax returns for tax years 1998, 1999, and 2000. Stephenson’s associate in the conspiracy, Michael Joseph Shanahan, pleaded guilty to conspiring to defraud the United States and failing to file an income tax return for 1999. Shanahan’s sentencing is scheduled for June 2, 2006, at 1:30 PM PDT.

According to the indictment and evidence introduced during trial, between 1994 and 2000, Stephenson assisted hundreds of taxpayers in forming and operating “pure equity trusts.” Stephenson falsely advised customers that they could avoid paying income taxes if they placed their income and assets into the trusts, even though they continued to control the use of the income and assets placed in the trusts. According to evidence introduced at trial, Stephenson and Shanahan received more than $2 million in revenue from the sales of more than 400 of these trust packages.

The evidence presented at trial also proved that Stephenson failed to file income tax returns for 1998, 1999, and 2000, even though he was required to file because of the amount of income he received from the sales of the trust packages.

On July 30, 2004, a federal court granted a default permanent injunction ordering Stephenson to stop promoting the scheme. Information about the injunction can be found at http://www.usdoj.gov/tax/taxpress2004.htm.

Assistant Attorney General O’Connor and U.S. Attorney McKay thanked Assistant United States Attorney Arlen R. Storm and Tax Division Trial Attorney Charles E. Pell, who prosecuted the case. They also thanked Criminal Investigation Special Agents Carrie Breed and Cathy Cowley, whose assistance was essential to the successful investigation and prosecution of the case.

More information about the Justice Department’s efforts against tax-scam promoters can be found at http://www.usdoj.gov/tax/taxpress2006.htm.

Information about the Justice Department’s Tax Division can be found at http://www.usdoj.gov/index.html.

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