Two Executives Found Guilty Of Promoting A Fraudulent Offshore Tax Shelter Scheme

Tampa, Florida – U.S. District Judge Steven D. Merryday has found Duane Crithfield (70, Asheville, North Carolina) and Stephen P. Donaldson, Sr. (71, Tampa) guilty of one count of conspiracy to defraud the United States and two counts of willfully aiding the submission of a false and fraudulent income tax return. Crithfield’s and Donaldson’s sentencing hearings are scheduled for September 27 and 28, 2017, respectively. Each faces a maximum penalty of 11 years in federal prison.

Crithfield and Donaldson were initially indicted on May 2, 2013, for conspiracy to defraud the United States. A superseding indictment was returned on July 25, 2013, adding two substantive charges.

As alleged in the superseding indictment, from 2001 to at least March 2008, Crithfield, Donaldson, and others, through Foster & Dunhill, Offshore Trust Service, Fidelity Insurance Company (FIC), and Citadel Insurance Company (CIC) promoted, marketed, and implemented a fraudulent offshore tax strategy known as the Business Protection Plan (BPP). The fraudulent BPP strategy enabled the defendants' affluent clients to claim business expense deductions based on sham “BPP insurance premium” payments made to offshore entities FIC and CIC in amounts intended primarily to substantially reduce the clients' taxable income for a particular year.

According to the trial judge’s Order and evidence admitted during the bench trial, Crithfield and Donaldson conspired together, and with others, to create and promote the offshore BPP tax shelter strategy. The strategy, however, was nothing more than self-insurance and was devoid of any economic substance and the so‑called “BPP insurance premiums” were not based on actual business risks. After obtaining the benefit of a tax deduction on the client's corporate income tax return, the client would later receive approximately 83‑85% of the premium back. Thus, the premium amounts were not ordinary and necessary business expenses that were entitled to deductions under Section 162(a) of the Internal Revenue Code. Rather, they were merely sham expenditures and not properly deductible for U.S. income tax purposes on the respective businesses’ tax returns.

This case was investigated by the Internal Revenue Service – Criminal Investigation. It is being prosecuted by Assistant United States Attorneys Jay G. Trezevant and Megan K. Kistler.