US taxmen look to Ireland as alleged scams are revealed

This is something that has gone largely under the radar of the Irish media establishment. Perhaps the hacks think that all that corruption is in the past. It is certainly not. Sean O’Driscoll had a good piece on this, an exception to the rule. Highlighted bits too.

United States federal prosecutors in New York are continuing to investigate the use of Irish companies following one of the alleged biggest tax scams ever recorded in US history.

It has emerged that a company called Sligo (2000) Co was allegedly used by accountants KPMG to shelter tens of millions of dollars for wealthy US investors.

The US attorney’s office in southern Manhattan has indicted two senior accountants and a lawyer attached to KPMG for setting up bogus currency trades through Sligo (2000) Co Inc, which allegedly ran a tax “sham” through a Dublin-based company called Epsolon Ltd.

One Dallas financier and his wife put $39 million into the scheme. The couple claimed they did not have to pay US taxes on an Irish company but then allegedly reimported the money to the US just six days later, claiming a net loss for tax purposes.

They are also alleged to have converted their Irish company, Epsolon, to an American partnership in the same week.

According to records in the Companies Office in Dublin, Epsolon was incorporated on November 6th, 2000, but was dissolved on October 29th, 2004. Two directors are listed: Franklin Montgomery of 25 West 54th Street in New York and Keith Tucker of Turtle Creek Boulevard in Dallas, Texas. The registered office in Dublin was 2 Argyle Square, Morehampton Road, Donnybrook.

The Irish Times has been shown e-mails from one lawyer indicted in the scheme in which he allegedly tried to have the Irish shelter approved by his law firm without properly assessing whether it was legal.

The Internal Revenue Service (IRS), the US equivalent of the Revenue Commissioners, now claims that the couple who benefited from the scheme, Mr Tucker, a Dallas-based financier, and his wife, Laura Bynum Tucker, owe $21.7 million in unpaid tax and penalties for involvement in the scheme.

KPMG, the fourth largest accounting firm in the US, has admitted that it was involved in setting up illegal schemes through which wealthy clients avoided over $11.2 billion in taxes.

The three indicted for using Irish companies in the scheme were at the very top of KPMG’s tax service, including the former vice-chairman of KPMG’s tax services, a KPMG tax partner and a partner at the New York legal giant Brown & Wood.

While federal prosecutors in New York prepare to bring the three to trial in New York in September, their clients have sought to distance themselves from any wrongdoing.

In a petition filed at the tax court in Washington DC, the Tuckers have sought to overturn the demand from the IRS for $15.5 million in unpaid taxes, plus $6.2 million in penalties.

The IRS has insisted that the Tuckers must paid the tax and fines after deducting over $39 million from their tax bill in 2000 based on what the IRS claimed in court documents was a “sham” in which the Tuckers claimed to have lost tens of millions on currency trading though the Dublin company, Epsolon, but which was really a front for a tax-avoidance scheme.

In its petition to the tax court in Washington DC, the Tuckers say Sligo (2000) bought 99 per cent of Epsolon Ltd from a company called Cumberland Investment Ltd on December 18th, 2000.

Three days later Epsolon bought $156 million of “multiple foreign currency options” from an investment company and sold them back to the same investment company on the same day.

The Tuckers’ petition argued that the sale of the foreign currency options resulted in Epsolon gaining $51.26 million, which they claimed was subject only to Irish tax law.

However, six days after that sale Epsolon was converted to a partnership in the US, liquidating its Irish assets and recording a $39.5 million tax-deductible loss. The IRS claims this was nothing but a “sham” to avoid paying US tax.

The lawyer who approved the scheme, R.J. Ruble, a former partner of KPMG’s legal advisors Brown & Wood law firm, was “centrally involved” in the preparation of the Dublin scheme, according to the indictment.

The US attorney’s office claims that in a letter on June 28th, 2001, Mr Ruble told the Tuckers that the Irish scheme was the best way for them to avoid tax. Prosecutors have also obtained an e-mail that Mr Ruble sent in which he said that he would “need to write opinions to Sligo (2000) Company Inc”. Mr Ruble has since been dismissed by the firm.

Others indicted for the Dublin scheme include Jeffrey Eischeid, who was head of KPMG’s “innovative strategies group”, and Jeffrey Stein, who was vice-chairman of KPMG tax services.

KPMG has admitted that it was involved in a massive illegal tax scheme for years. It agreed in August 2005 to pay $456 million to the US government to avoid criminal prosecution, and admitted that it set up illegal tax shelters which allowed wealthy investors avoid $11.2 billion in taxes.

Seventeen KPMG executives and two other people are under indictment, and are expected to go to trial in September.

Last month, it emerged that President Bush’s former Irish ambassador, Richard Egan, invested $62 million in a KPMG shelter that the IRS described as an “economic sham”.

Mr Egan, who strongly denies any wrongdoing, is suing the IRS to recover the $62 million that was taken from him, and has argued in court documents that he was working on the advice of an unnamed “international accounting firm”.

Mr Egan had hoped to avoid having his name linked to the KPMG lawsuit but a New Jersey judge last month ruled that the media could name 61 investors, including Mr Egan, who are taking a lawsuit against KPMG.

Mr Egan, the billionaire owner of the EMC computer company, invested the $62 million with KPMG as soon as he became Irish ambassador, according to the IRS.

Mr Egan, one of President Bush’s most successful fundraisers, was Irish ambassador for just 15 months before he resigned.

Ireland remains the ‘Wild West’ of corporate regulation. Oh and as far as I know KPMG are still the independent adjudicators of the National Lottery. Would you trust them?