Third Circuit Court of Appeals Affirms Conviction for Tax Offenses
On March 8, 2012, Judge Fisher for the U.S. Court of Appeals for the Third Circuit issued an opinion in the case of United States of America v. Lawrence Murray affirming the judgment of conviction but remanding for resentencing.
The facts are as follows:
On January 7, 2000, a federal grand jury returned a nineteen-count indictment charging Lawrence Murray (“Murray”) with conspiracy to defraud the Internal Revenue Service (“IRS”), in violation of 18 U.S.C. § 371 (Count 1); aiding, assisting and counseling the filing of false tax returns, in violation of 26 U.S.C. § 7206(2) (Counts 2-14); bank fraud, in violation of 18 U.S.C. § 1344 (Count 15); wire fraud and aiding and abetting wire fraud, in violation of 18 U.S.C. §§ 1343, 1349, and 2 (Count 16); making false statements to U.S. Citizenship and Immigration Services (“CIS”), in violation of 18 U.S.C. § 1001 (Count 17); and filing false tax returns, in violation of 26 U.S.C. § 7206(1) (Counts 18 and 19).
Between 2005 and 2010, Murray operated a tax consulting business known as the Tax Doctor Corporation (“TDC”). According to testimony of TDC clients and employees, Murray advised high-income taxpayers how to fraudulently structure personal and business finances to maximize tax deductions and minimize tax burdens. Among other services, TDC would form shell corporations for its clients, and Murray would advise clients in deducting personal living expenses as business expenses of these corporations and in moving money between shell corporations in order to fabricate “expenses” for “contracted services” or “management fees.” Murray also advised clients in the creation of false corporate board minutes for the shell corporations. Murrays goal for his clients was to reduce their taxable income to zero, and he charged his clients between 20 and 35 percent of the tax savings they could expect to realize in the first year. He used the same techniques to reduce his own tax burden.
Murray also aided clients who, because their tax returns showed zero income, encountered difficulties in obtaining loans. For two clients, Murray created false tax returns showing higher income than the returns filed with the IRS so that they could use the false returns in applying for mortgage and business loans. Though Murray prepared and sent these returns to his clients, the clients never used them in their loan applications.
Ultimately, Murray was convicted and sentenced to 170 months imprisonment and five years of supervised release. The District Court also ordered Murray to pay restitution of $3,331,825.53.
The Third Circuit affirmed Murrays conviction, but agreed with Murray that his sentence was at least partially entered in error:
[The] 2T1.1(b)(1) enhancement for criminally derived income was erroneously applied in this case. A two-level enhancement under § 2T1.1(b)(1) is called for “[i]f the defendant failed to report or to correctly identify the source of income exceeding $10,000 in any year from criminal activity . . . .” (emphasis added). This enhancement compensates for offenses where the amount of criminally derived income is “difficult to establish” and “substantially understated.” U.S.S.G. § 2T1.1 background. The PSR applied the enhancement because the TDC tax returns “include deductions totaling $428,521 and $792,439,” and therefore, did not correctly identify the income generated by TDC. However, as the Government observes, although Murray filed false tax returns, he did not fail to identify TDC as the source of criminally derived income. Rather, he claimed improper deductions under “contracting services” to reduce taxable income, which protected the income from taxation, but did not make it difficult to ascertain. Accordingly, the enhancement was not applicable.
A full copy of the decision can be found here.
The case of Lawrence Murray can teach high net worth individuals, return preparers, investment advisors, lawyers and CPAs a host of lessons. As it relates to his criminal prosecution, the case should serve as a reminder that in criminal tax litigation, a defendant needs to engage a trial team that can navigate both criminal law and tax law. Having one without the other can place the defendant in a position where critical issues are not identified, and potential opportunities to minimize (or eliminate) criminal exposure are lost.
The attorneys are Fuerst Ittleman have extensive substantive tax and criminal law experience. The firm regularly handles matters involving civil tax litigation, criminal defense, and criminal tax defense (at the trial and appellate levels, include U.S. Supreme Court litigation). You can contact an attorney via telephone by calling us at 305.350.5690 or via email at contact@fidjlaw.com.