Tax Advisors Sentenced To Prison for Assisting in Tax Reduction

Lawfuel.com reported on Sept. 5, 2008, that three tax advisors were convicted of tax fraud and sentenced to prison for their part in a $20 million offshore tax fraud scheme. The advisors admitted to assisting clients in concealing portions of their clients' income from the IRS for the purpose of reducing their clients' taxes. One of the advisors, Stephen F. Petersen of Coalville, Utah, admitted that he had been paid a fee that was typically equal to 30% of the tax evaded by the client.

The judge ordered prison time for each of the three, and Petersen had to forfeit more than one million dollars in ill gotten fees.

According to the article, a representative for the IRS stated, "Most tax advisors are honest and knowledgeable, but these individuals took creative tax planning to another level. This sentencing shows two things: no one is above the law; and the authorities and the courts will find the promoters, expose their illegal schemes and hold them accountable for their actions.

U.S. Attorney Brett L. Tolman stated, "These sentences send a firm message to tax professionals, especially accountants and CPAs, that if you assist your clients in defrauding the Internal Revenue Service, you will be punished to the fullest extent of the law, including extended jail time."

Federally authorized tax practitioners ("FATP") may mistakenly feel that such communications with clients are cloaked under IRC Section 7525, the FATP client privilege. Nothing could be further from the truth. The relatively new privilege specifically exempts communications involving tax shelters and requires FATPs to keep a list of clients who purchase potentially abusive tax shelters ("PATS") to be furnished to the IRS on request. Section 7525, like most variants of accountant client privilege, is riddled with exceptions. Prudent accountants will not rely on it without first seeking knowledgeable legal advice.