Tax Evasion
We have previously explored The Ultimate Tax Plan. This particular tax fraud was accomplished by the involved taxpayers donating the interests in their operating businesses to tax-exempt charities so that the tax liabilities for those entities could by absorbed by the charities. After several years of dodging taxes in this fashion, the taxpayers could then repurchase these interests for a song and thus regain ownership of their businesses. There is thus no reality to the purported donation as it is all just a paper sham to evade taxes.
The promoters of The Ultimate Tax Plan and the guilty pleas of the several promoters or facilitators of the scheme were discussed in my article, Ultimate Tax Plan Promoters Mike Meyer And Rao Garuda Sentenced (May 5, 2024),where the primary wrongdoer, Michael L. Meyer, was sentenced to eight years in federal prison and his cohort Rao Garuda of Ohio received a 20-month sentence. But what of their clients, being the taxpayers who participated in this scheme?
As to at least one participant in The Ultimate Tax Plan, we find the answer in the Criminal Information in U.S. v. Jana, S.D.Fla. Case No. 24-CR-60206 Doc. 1 (Oct. 21, 2024), and the Stipulated Factual Basis in U.S. v. Jana, S.D.Fla. Case No. 24-CR-60206 Doc. 15 (Nov. 18, 2024). More information is found in the DOJ Press Release entitled, Client of Fraudulent Tax Shelter Scheme Pleads Guilty to Obstruction (Nov. 13, 2024).
This participant was Dr. Suman Jana, an Ohio doctor. Together with his wife, Dr. Jana contributed 100% their interests in an LLC to a Meyer-controlled charity called Indiana Endowment Fund. This particular LLC had been created by Meyer for the use of another client in 2012, but Dr. Jana and his wife signed documents in 2013 to make it look like they owned and donated the LLCs interests in 2012 so that they could take a 2012 deduction. This was the first instance of Dr. Jana backdating documents.
Over the tax years 2012-2015, the LLC was used by Dr. Jana and his wife to claim $764,350 in bogus deductions. The couple also used a little over $92,000 from the LLC to pay for their personal expenses, including purchasing vehicles, although by this time the LLC was ostensibly owned by the Indiana Endowment Fund. Later, in 2017, Dr. Jana and his wife repurchased the LLC from the Indiana Endowment Fund for $10,000.
But even after the buyback of the LLC, Dr. Jana continued to commit tax fraud as described in the DOJ Press Release:
“On April 3, 2018, the Justice Department filed a civil complaint for permanent injunction against Meyer in U.S. district court. On May 24, 2018, the Justice Department served a civil subpoena on Dr. Jana requesting that he produce records in connection with the Ultimate Tax Plan. In response to the subpoena, Meyer and Garuda instructed Dr. Jana to pretend that the buyback did not occur. Meyer prepared backdated transaction documents, written acknowledgements and promissory notes for Dr. Jana to sign and submit in response to the civil subpoena. The false documents were created to make it look as if Dr. Jana signed the promissory notes at the time that he and his wife paid personal expenses out of the purported charity.
“In June 2018, Dr. Jana signed the false documents and sent them to the Justice Department in response to the civil subpoena.”
This was the second instance of backdating by Dr. Jana. Why did he do it? According to the Criminal Information:
“On or about June 27, 2018, JANA sent an e-mail to Fischel stating: ‘We are kind of confused about this LLC. It was close [sic] last year and now open etc. As well as recently I have singed [sic] lot of documents back dated as well as for [my wife], I don’t feel good about it. However, we want [Meyer] to come out of this mess. So, tried to help as much as we can.’ “
In the end, of course, Meyer did not come out his self-created mess and Dr. Jana now faces a maximum of three years in federal prison, plus of course he will have to pay the taxes that he tried to avoid plus penalties and the cost of his criminal defense counsel.
Note that all this could theoretically have been avoided had Dr. Jana sought the advice of independent tax counsel as to The Ultimate Tax Plan. That presumes, however, that Dr. Jana desired to know the truth about Meyer’s scheme, which does not seem particularly plausible since Dr. Jana was twice involved in the backdating of documents to try to hide the scheme.
There’s an old saying that “a doctor will not walk across the street to get a good deal, but will crawl on his belly for a mile over broken glass to get to a bad one.” While this is usually applied to investment deals, it also holds true for abusive tax shelters. Case after case we see doctors falling for tax shelters, whether it is hinky deals like The Ultimate Tax Plan, syndicated conservation easements, 831(b) microcaptives, VEBAs, and pretty much every other abusive tax shelter that comes along. In all these cases, we see that doctors, like Dr. Jana here, could have sought a second opinion that would have spared them the later severe consequences but they did not bother to do so ― largely because they didn’t want to know that the deal didn’t work. Desirous of the benefits, even if illusory, doctors are like moths to the flame for these deals. I’ll leave to other to speculate why this is so with doctors, but I’ve watched it first-hand for 35 years now and harkening back to my first days out of law school digging doctors out of bad oil & gas tax shelters.
Rarely are the participants in tax shelters, as opposed to the promoters, criminally prosecuted. Sometimes they are seen as victims and other times the prosecutors feel that the steep civil penalties they end up paying to the IRS is punishment enough. What makes this case different is that Dr. Jana not only used The Ultimate Plan to try to avoid taxes, but he was also twice involved in backdating documents: First, in 2013 backdating documents to 2012 so that he could take deductions for 2012; and, second, backdating documents in 2018 as essentially part of a cover-up of how he bought back his LLC interests from the charity.
Backdating documents is never acceptable and demonstrates a criminal intent. Also, in a criminal tax prosecution, the eyes of the jurors may gloss over when being presented with days of a technical violation of the rules for exempt charities, but the average juror can easily grasp that backdating is wrong. When somebody is caught in backdating documents, they almost always do as Dr. Jana did here which is to plead out.
If you are ever told by any promoter or adviser to backdate documents, just don’t do it. If the situation is confusing where it seems like it might be OK, well then find another independent adviser and let them tell you that it is not OK at all and you’ll probably end up in jail.
Like Dr. Jana here.
Read the full article here