On June 3, Charles Bee, a CPA partner and vice-chair of BDO Seidman, joined co-conspirators Michael Kerekes and Adrian Dicker in copping a guilty plea to tax fraud charges in connection with promotion of tax shelters with defunct law firm Jenkens & Gilchrist, according to the U.S. Attorney for the Southern District of New York press release. Download Bee Charles Plea PR
Bee was a leader of the tax solutions group (TSG) at BDO Seidman, a group that designed and implemented (with the aid of accommodating foreign banks) tax shelters for wealthy clients. According to the Information in the Bee case, filed May 28, the accounting firm used alliances and relationships with other accounting and financial firms as referral sources for its tax shelter product sales, and had a bonus structure that "handsomely rewarded Accounting Firm personnel involved in the design, marketing and implementation of the TSG's transactions." The firm also "doled out additional bonuses from the profits earned as a result of the sale of the tax shelter products." Bee earned more than $13.1 million in profits from the sale of tax shelters, in addition to his regular partner compensation and bonuses. The firm used a "Tax $ells" logo for its "value added" product promotion. Partners were encouraged, that is, to go along to get along by the prospect of becoming millionaires by helping wealthy clients evade their tax obligations.
Bee's plea admitted to fraudulent tax shelters that generated about $1 billion in tax losses and saved Bee's clients about $200 million in tax liabilities. Bee's plea also admitted to false testimony in a deposition in connection with the Jade Trading tax shelter case (using options in partnerships to generate artificially high bases, and ultimately losses, by disregarding the obligation to repay a short position). These shelters were pitched to clients who otherwise expected to pay taxes on income from recent sales of appreciated stock.
Perhaps these cases will have some effect on the tax minimization norm that still dominates tax practice. After all, Bee agreed to forfeit four residences, a recreational vehicle and $20 million (representing fees earned in promoting tax shelters). But I suspect that these conspicuous guilty please and forfeitures won't be enough. What Congress needs to do is enact a standard for reporting and advising that tells taxpayers and tax advisers alike that they are expected to file returns in accordance with the position that they think is most likely the right answer--i.e., a more likely than not (MLTN) standard. The MLTN standard won't be a sufficient solution in and off itself (after all, the opinion letters provided by Jenkens & Gilchrist in these transactions claimed the transactions were MLTN to yield the tax consequences sought), but a MLTN standard for tax filing for taxpayers and tax advisers will make a help create a climate of conforming to the Code, rather than considering it appropriate to undertake aggressive transactions betting on the audit lottery. It can't hurt to charge taxpayers and tax advisers to think in terms of filing in accordance with a coherent interpretation of the Code.
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