Two United States nationals and part-time Bahamas residents were found guilty last week by a US federal judge in Tampa Bay of running an offshore tax fraud scheme that involved companies in Anguilla, the Bahamas and Nevis.
Duane Crithfield, 70, and Stephen Donaldson Sr., 71, were each convicted of one count of conspiracy to defraud the US and two counts of wilfully aiding the submission of a “false and fraudulent” income tax return, according to the financial services news site OffshoreAlert.
Messrs. Crithfield and Donaldson allegedly offered “business protection plans” aimed at US taxpayers that in reality were fraudulent mechanisms to skirt the federal income tax, US District Judge Steven Merryday stated in his judgment, which was posted on OffshoreAlert.
“Facts prove beyond any doubt that Crithfield and Donaldson conspired, as partners, to design, promote, market, and implement a pre-packaged offshore tax shelter strategy,” Mr. Merryday stated, describing the scheme as “self-insurance and devoid of any economic substance.”
The pair’s scheme allegedly entailed having their clients submit tax returns to the Internal Revenue Service that included false business expense deductions based on sham insurance premium payments made to the two men’s offshore companies.
“These taxpayers purchased at a steep cost a set of fantastical and superfluous ‘insurance’ policies, and in return re-captured control of cash equal to about 85 percent of the premium paid for each policy,” Mr. Merryman stated. “In other words, the taxpayers accepted the notion that they could reduce the effective, maximum, marginal-income tax rate from about 40 percent to about 15 percent by signing a few papers and moving money from here to there, from there to who knows where, and then back again.”
While Mr. Merryday found Messrs. Crithfield and Donaldson guilty of the tax crimes, the judge said their clients were probably honest taxpayers who thought the two men were running a legitimate tax-planning enterprise.
The fact that such people were defrauded shows that the US tax code is in desperate need of simplification, the judge added.
“That these mostly honest, educated, and experienced taxpayers and their savvy advisers believed in, and committed money to, this criminal scam presents an irrefutable and deafening reminder of the extent of the public’s cynicism toward the federal income tax code — a bloated and opaque monstrosity,” he stated. “In other words, as the present episode evidences, almost no financial scheme is so suspicious or so implausible that a good salesman cannot convince an honest and vigilant taxpayer that the Internal Revenue Service is prepared to award tax relief to a participant.”
Messrs. Crithfield and Donaldson are scheduled to be sentenced on Sept. 26 and 27, respectively.