Source: https://federaltaxcrimes.blogspot.com/2016/09/
Timestamp: 2019-04-24 20:40:49+00:00

Document:
This usually signals a change of plea to guilty to a more limited set of charges than in the indictment, but the prosecutors, as in the case of her husband, will likely want a plea to one or more counts that will permit the judge to impose a sentence consistent with the Sentencing Guidelines range driven principally by the tax loss. We just have to wait and see. As best I see it, she had little choice given what her husband admitted in his plea agreement and apparently would have testified to in the trial proceeding, which along with other evidence presumably available would have been quite damning. See Update on Judge Kroupa Prosecution - Her Husband Pleads Guilty (Federal Tax Crimes Blog 9/26/16; 9/27/16), here.
Sentencing has not yet occurred for Fackler and Kroupa and will likely not occur for either for several months as the Probation Officer prepares the Presentence Report ("PSR") presenting facts and analysis regarding potential sentencing options for the judge. The big unknown for both of them is what the judge will do after he gets the PSR plus such supplemental sentencing evidence and arguments as the parties present in response to the PSR. I speculate that the sentencing judge may perceive that a below Guidelines sentence, particularly in her case, may not be warranted without an incredible showing of some sort as yet unknown. Still, the sentencing judge has substantial discretion under Booker to vary downward from the Guidelines range.
According to information presented in court, between 1987 through 2011, Markus Hager, 68, utilized a series of undeclared foreign financial accounts to evade his individual income taxes by concealing assets and income from the IRS in those accounts. Between 1987 and 2008, Hager maintained several undeclared accounts at UBS, including two numbered accounts and an account held in the name of Contactus Partnership Associated S.A. (Contactus), a sham British Virgin Islands entity. By the close of 2004, the value of Hager’s undeclared accounts at UBS exceeded $7.3 million.
Hager closed the UBS accounts in 2008 and transferred the assets to a newly opened account at Clariden Leu, which he controlled and held in the name of Contactus. Shortly thereafter, Hager closed the Contactus account at Clariden Leu and transferred the assets to a newly opened account held in the name of the same sham entity at a different Swiss bank. Hager caused that Swiss bank to falsely record Hager’s Belgian cousin as the owner of the assets in the Contactus account. Approximately six months later, Hager closed the Contactus account at the Swiss bank and transferred the assets to an account at a bank in Israel that Hager caused to be opened in the name of a different Belgian cousin.
From 2005 to 2011, Hager also controlled an undeclared account at Bank Leumi in Israel, which he falsely held under the name of a relative who was not a U.S. person and who resided outside the United States. In February 2010, after obtaining an Israeli Identity Card, Hager opened an account in his own name at Bank Leumi in Israel but falsely reported that he lived in the United Kingdom and signed a document, under the penalties of perjury, on which he falsely claimed that he was not a U.S. citizen.
According to the information filed, Hager repatriated funds from his undeclared foreign financial accounts by having an attorney draft a sham loan agreement between himself and Contactus and wiring funds from some of his undeclared foreign financial accounts into his attorney’s escrow account.
According to the information filed, Hager filed false federal and New York State income tax returns on which he failed to report the income from his foreign financial accounts and failed to pay tax on that income. According to the information, Hager evaded approximately $652,580 in federal taxes for tax years 2003 through 2005 and 2007 through 2010. Hager also failed to report his ownership and control of his foreign financial accounts to the Department of the Treasury on a Report of Foreign Bank and Financial Account even though an accounting firm had informed Hager of his obligation to do so and advised him of the civil and criminal penalties he could suffer for the failure to do so.
Sentencing has been set for ­Jan. 4, 2017. Hager faces a statutory maximum sentence of five years in prison, as well as a term of supervised release and monetary penalties. According to the plea agreement, Hager agreed to pay restitution to the IRS.
15. The allegations contained in paragraphs one through 14 are realleged and incorporated as if fully set forth in this paragraph.
16. On or about and between January 1, 2003, and April 20, 2012, both dates being approximate and inclusive, within the Eastern District of New York and elsewhere, the defendant MARKUS HAGER did knowingly and willfully attempt to evade and defeat substantial income tax due and owing by him to the United States of America for the tax years 2003 through 2005 and 2007 through 2010, to wit: approximately $652,580, by various means, including, among others, concealing assets and income in foreign financial accounts, concealing assets and income in the names of nominees and sham corporations, filing and causing to be filed U.S. Individual Income Tax Returns, Forms 1040, for himself and his spouse with the IRS for the calendar years 2003 through 2005 and 2007 through 2010, that falsely and fraudulently omitted income generated by assets concealed in foreign financial accounts, and causing false statements to be made to an Internal Revenue Service Revenue Agent.
Note that Hager is subject to a single 5 year penalty that the multi-year charge of tax evasion was packed into a single count. Most often, when evasion charges are made for multiple years, each year is charged as a separate count. I have seen multi-year single counts of evasion, but there is usually a story behind that type of charge. One thing that strikes me is the statute of limitations. Are statute issues avoided by packing all years into a single count where some of the years might be outside the statute? More likely, his actions, such as false statements to a revenue agent, after the years that appear to be outside the 6-year statute of limitations (e.g., 2003) may have refreshed the statute of limitations so that all years would be within the statute of limitations. See United States v. Beacon Brass Co., Inc., 344 U.S. 43 (1952). Of course, the single five-year count will likely permit the judge sufficient leeway under the Sentencing Guidelines to impose an appropriate Guidelines sentence, whether or not a Booker variance is made.
2. There is no indication that the FBAR penalty has been resolved by the plea. (Caveat, I don't have the plea agreement; that plea agreement apparently is not available through Pacer, so I have made a request to the prosecutor for it; whether I will get it is another thing.) However, the press release does state one high amount of over $7.3 million, which would mean that the usual plea requirement of a 50% penalty would require a $3.65 penalty and that would be the penalty normally required for the willful FBAR penalty in audits pursuant to the recent guidance now contained in the IRM. But, that is the penalty normally applied and the IRS can go higher. His conduct is pretty egregious, but I think his lawyers would have pressed as a condition of the plea agreement that the penalty not exceed 50% of the high amount. I will also update this comment based on subsequent information.
This blog entry has been substantially revised and enhanced on 9/27/26 around 4:15pm because of my obtaining and analyzying the plea agreement, here. I have therefore eliminated some preliminary discussion, such as preliminary sentencing calculations, in the original draft because the plea agreement provides more detail that I discuss below.
I have blogged previously on the indictment of former U.S. Tax Court Judge Diane Kroupa and her husband. See Former US Tax Court Judge Kroupa Indicted (Federal Tax Crimes Blog 4/4/16; 4/5/16), here; and Former Tax Court Judge Kroupa Indictment - Part I - Conspiracy (Federal Tax Crimes Blog 4/5/16; 4/6/16), here. The change of plea minutes indicates that the husband has now pled guilty to Count 6 of the indictment which charges tax obstruction, § 7212(a), here. The plea agreement is here; the indictment is here.
I picked up this news item from the Tax Prof Blog entry, Husband Of Retired Tax Court Judge Pleads Guilty To Taking $1 Million In Fraudulent Deductions (Tax Prof Blog 9/26/16), here, which linked to a newspaper report, Paul Walsh, Twin Cities husband of ex-tax judge admits duping IRS; charges against her pending (Star Tribune 9/26/16), here.
The plea is solely to Count 6 of the indictment, which alleges tax obstruction, I don't have the plea colloquy so don't know what Fackler said other than guilty to the plea of tax obstruction, § 7212(a), here. Count 6. Often in plea agreements and colloquies, the defendant is required to or does admit his pattern of conduct which would include closely related offenses. In this case, there is a parallel between tax obstruction in § 7212(a) and the defraud / Klein conspiracy in 18 USC § 371, here. The defraud / Klein conspiracy is generally formulated as a conspiracy to impair or impede the lawful functions of the IRS, which is basically what tax obstruction is (and, for that reason, tax obstruction has been described as a one person defraud / Klein conspiracy). The key difference is that tax obstruction can be charged without regard to whether there was a conspiracy and has a 3-year maximum sentence rather than 5-years for the defraud / Klein conspiracy. As noted below, in the plea agreement, Fackler does admit to conspiratorial conduct with Kroupa. The conspiracy was charged, but he does not agree to plea to the conspiracy count.
Here are my excerpts from and comments on the plea agreement, here, which I have just obtained from Pacer.
FACKLER did not withhold or otherwise save any of the income he earned through Grassroots Consulting in 2002 to make tax payments to the Internal Revenue Service. As a result, in or about early 2003, when FACKLER and Kroupa began to organize their tax information, they did not have sufficient funds to pay their tax obligations for the previous year. When FACKLER and Kroupa discussed this problem, Kroupa told FACKLER that it was "his problem" and that FACKLER needed to fmd as many deductions as possible. FACKLER understood that Kroupa was instructing him to include personal expenses on Grassroots Consulting's Schedule C as business expenses in order to reduce their joint tax burden. FACKLER collected numerous personal expenses paid through his credit cards and Grassroots Consulting's bank account, and included them along with his legitimate business deductions on a spreadsheet that purported to summarize ·his Schedule C business expenses. Kroupa collected additional personal expenses from their joint bank account, and hand wrote them onto the spreadsheet FACKLER prepared. FACKLER and Kroupa then input the total expense figures-which included numerous personal expenses-onto a tax organizer that they provided to their tax preparer. FACKLER and Kroupa thereby significantly and fraudulently increased Grassroots Consulting's business expenses and reduced the amount of taxes they jointly owed to the IRS.
The method by which FACKLER and Kroupa compiled personal expenses to be inserted into Grassroots Consulting's Schedule C evolved as time went on. However, each year FACKLER generally reviewed business bank records, credit card records, and receipts to compile his business expenses, as well as numerous personal expenses, into a spreadsheet. The spreadsheet listed certain categories of expenses and the total amount of expenses purportedly incurred under each category. Kroupa typically prepared handwritten summaries of additional personal expenses from their joint personal bank account, and categorized them falsely according to Grassroots Consulting Schedule C's business expense categories. FACKLER either added the amoUnts from Kroupa's handwritten summaries to his spreadsheet and provided the totals to their tax preparer, or else provided the spreadsheet to Kroupa, who added personal expenses to the totals listed in FACKLER's spreadsheet and provided the combined amounts to their tax preparer. In some years, FACKLER and/or Kroupa wrote the inflated totals into a tax organizer that they then gave to their tax preparer, and in other years they simply provided the summary spreadsheet to the tax preparer. Neither FACKLER nor Kroupa revealed to the tax preparer that the amounts reflected in the spreadsheet and tax organizer included personal expenses disguised as business expenses.
In total, from 2004 through 2010, the defendants fraudulently deducted at least $500,000 of personal expenses as purported Schedule C business expenses. As a result, the defendants caused the amount of adjusted gross income, taxable income, and total tax shown on their income tax returns to be falsely and significantly understated.
As part of the conspiracy, FACKLER also purposely caused the gross receipts attributable to Grassroots Consulting to be falsely understated by fraudulently deducting purported business expenses, such as travel and meals, for which F ACK.LER had previously received reimbursement from his clients. In total, FACKLER understated Grassroots Consulting's gross receipts by approximately $450,000. As a result, the defendants caused the amount of adjusted gross income, taxable income, and total tax shown on their income tax returns to be falsely understated.
As a result, the defendants caused and attempted to cause the amount of taxable income and total tax shown on certain of their tax returns to be falsely understated.
In the plea agreement, Stern agrees to plead to Counts Five and Seven, two counts of aiding and assisting, § 7206(2), here. Aiding and assisting is a three-year maximum felony, so the maximum incarceration period permitted under the plea agreement is six-years.
I won't get into the details of how Stern committed the crime, but it appears that he and an associate in his firm took the key steps necessary to create a structure purporting to transfer energy tax credits otherwise unusuable by one corporation through a series of transactions to two trusts which claimed the credits on their tax return and allocated $5,337,103 in improper credits to persons investing in the scheme. Through those actions, defendant aided and assisted in the preparation and presentation of the trust tax returns that resulting in the claiming of credits by perhaps 55 taxpayers.
As to the two specific counts involved in the plea, only two taxpayers' false returns are involved -- Taxpayer RL whose return reportedly falsely claimed $150,718 in credits and Tapxayer JK whose return falsely reported $154,534 in credits. The aggregate falsely claimed credits for the two is thus $305,252.
i. The base offense level 1s 24 pursuant to Guidelines §§2T1.4(a)(1) and 2T4.1(J), because the intended tax loss, $5,337,103, was more than $3,500,000 and not more than $9,500,000.
ii. Pursuant to Guideline §2T1.4(b)(2), the offense level is increased two levels because the offense involved sophisticated means.
iii. Pursuant to Guideline §3Bl.l(c), the offense level is increased two levels because the defendant was a supervisor of a participant in the criminal activity.
iv. Defendant has clearly demonstrated a recognition and affirmative acceptance of personal responsibility for his criminal conduct. If the government does not receive additional evidence in conflict with this provision, and if defendant continues to accept responsibility for his actions within the meaning of Guideline §3El.1(a), including by furnishing the United States Attorney's Office and the Probation Office with all requested financial information relevant to his ability to satisfy any fine that may be imposed in this case, a two-level reduction in the offense level is appropriate.
v. In accord with Guideline §3El.1(b), defendant has timely notified the government of his intention to enter a plea of guilty, thereby permitting the government to avoid preparing for trial and permitting the Court to allocate its resources efficiently. Therefore, as provided by Guideline §3E1.1(b), if the Court determines the offense level to be 16 or greater prior to determining that defendant is entitled to a two-level reduction for acceptance of responsibility, the government will move for an additional one-level reduction in the offense level.
c. Criminal History Category. With regard to determining defendant's criminal history points and criminal history category, based on the facts now known to the government, defendant's criminal history points equal zero and defendant's criminal history category is I.
d. Anticipated Advisory Sentencing Guidelines Range. Therefore, based on the facts now known to the government, the anticipated offense level is 25, which, when combined with the anticipated criminal history category of I, results in an anticipated advisory sentencing guidelines range of 57 to 71 months' imprisonment, in addition to any supervised release and fine the Court may impose.

References: v. 
 § 7212
 § 7212
 § 7212
 § 371
 § 7206
 §2
 §3
 §3

v. 
 §3
 §3