March 7, 2003
ORANGE COUNTY TAX SHELTER PROMOTER PLEADS
GUILTY TO TAX FRAUD CONSPIRACY AND TAX EVASION
TWO CLIENTS PREVIOUSLY SENTENCED ON TAX EVASION CHARGES
An Orange County tax shelter promoter has pleaded guilty to creating thousands of abusive trusts that helped hundreds of people hide their income and assets from the Internal Revenue Service.
Edward J. Lashlee, 54, of Mission Viejo, pleaded guilty Wednesday to conspiracy and tax evasion charges in United States District Court in Los Angeles.
Two of Lashlee’s clients, San Diego business owner Anthony Arnold Mitchell, 78, and his wife, Dorothy May Mitchell, 74, were sentenced on January 21 on tax evasion charges related to a long-running scheme in which they defrauded the Internal Revenue Service by diverting millions of dollars of corporate and personal income to offshore bank accounts and by concealing assets.
In his guilty plea, Lashlee admitted to creating thousands of trusts for clients that enabled them to avoid reporting a substantial portion of their taxable income to the IRS, as well as to conceal their ownership of major assets from the IRS. Lashlee provided clients with offshore bank accounts and Visa debit cards issued by Swiss American National Bank of Antigua. These cards enabled clients to secretly retrieve and spend in the U.S. funds that Lashlee had transferred for them into their offshore accounts. Lashlee also created trusts for business owners that improperly deducted the clients’ personal expenses, such as loan payments, rent and personal living costs, as expenses of the trust. Phony business expenses were also created for the trust, such as bogus debts, so that the trust tax returns would report little or no taxable income for the clients' businesses.
Lashlee promoted the trusts from his former home in San Juan Capistrano mainly through his company, Professional Trust Services, and an entity known as "The Genesis Fund". The trusts purported to be managed by an independent trustee, but in fact continued to be under the control of his clients.
By pleading guilty, Lashlee also admitted that he failed to report the income that he earned from promoting the abusive trusts. Lashlee earned approximately $3 million from 1992 through 2000 that he did not report to the IRS. He concealed his income by using numerous bank accounts maintained in the names of others. Lashlee also admitted that he used client funds to pay his family's living expenses, to purchase real estate and automobiles, and to defray unrelated business expenses.
Lashlee promoted trust investments into The Genesis Fund, which claimed to be an unregulated private investment fund based in Orange County, California, that engaged in foreign currency trading through offshore brokerage accounts maintained in Hong Kong, Macau, and elsewhere. Potential investors were told that Genesis was extremely profitable, that it did not operate under the jurisdiction of any federal or state agency in the U.S., and that it did not report its investors' accounts to the IRS. Lashlee admitted that he received and handled the transfer of approximately $24 million of Genesis investor funds to offshore bank accounts in Hong Kong and elsewhere.
Lashlee was also charged with assisting a San Diego business owner in diverting millions of dollars of corporate and personal income to offshore bank accounts through The Genesis Fund. Arnold A. Mitchell was sentenced on January 21 to eight months in prison and eight months home confinement after he pleaded guilty in May to charges that he used offshore accounts and committed various acts to conceal income from the IRS, including $3.7 million from the sale of his paint business, Pro-Line Paint Company. His wife, Dorothy Mitchell, was sentenced to six months home confinement and placed on three years probation for tax evasion.
On January 15, the IRS announced its "Offshore Voluntary Compliance Initiative" aimed at taxpayers who have used offshore payment cards or other offshore financial arrangements to hide their income. Eligible taxpayers who step forward by April 15, 2003 will not face civil fraud and information return penalties. However, taxpayers will still have to pay back taxes and interest.
Michael S. Kochmanski, Special Agent-in-Charge of the Los Angeles Field Office of IRS-Criminal Investigation, stated: "Lashlee sold and profited from illegal abusive trusts that duped many people into believing that they could avoid paying income taxes. Everyone must pay their fair share of income taxes, and IRS will combat the use of abusive trusts and offshore accounts to evade income taxes."
Lashlee faces a statutory maximum sentence of 10 years in prison and a $500,000 fine when he is sentenced on May 19.
The Mitchells have recently paid over $1million toward their tax liabilities.
This case was a result of an investigation by the Los Angeles Field Office of IRS-Criminal Investigation.
Release No. 03-40
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