TRUST SCHEME PROMOTER SENTENCED TO THREE YEARS IN PRISON
Tacoma Man Pleaded Guilty in midst of Trial with Co-defendant
Tax fraud promoter MICHAEL JOSEPH SHANAHAN, 59, of Everett, Washington, was sentenced today in Tacoma, Washington, to 36 months in prison and three years of supervised release for conspiring to defraud the United States and failing to file an income tax return for 1999. Judge Ronald B. Leighton, finding that the tax loss to the Federal Treasury was more than $8.5 million, ordered SHANAHAN to pay $8,560,199 in restitution to the IRS.
At the beginning of the second week of trial in February 2006, SHANAHAN pleaded guilty to conspiring to defraud the United States. Earlier, on the first day of trial, he pleaded guilty to failing to file an income tax return for 1999. Following the two-week trial, a jury convicted SHANAHAN’s associate in the conspiracy, David Carroll 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. In May 2006, Stephenson was sentenced to 96 months in prison and ordered to pay $8.5 million in restitution to the IRS.
According to the indictment and evidence introduced during trial, between 1994 and 2000, SHANAHAN and his co-conspirator Stephenson assisted hundreds of taxpayers in forming and operating “pure equity trusts.” SHANAHAN 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.
Two months after his convictions, on April 26, 2006, SHANAHAN consented to a permanent injunction that forbids him from promoting the scheme.
“When a significant [number of people] adopt the position that they will not pay taxes, organized society ceases,” Judge Leighton stated. “When not all of us have our oars in the water pulling, it places the existence of this great society in danger.”
The case was investigated by Internal Revenue Service Criminal Investigations (IRS-CI). Assistant United States Attorney Arlen R. Storm and Tax Division Trial Attorney Charles E. Pell prosecuted the case.
For additional information please contact Emily Langlie, Public Affairs Officer for the United States Attorney’s Office, at (206)553-4110.