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A Recent Conviction in Hawaii’s U.S. District Court Illustrates How the Use of Nominees Can Put You in the Crosshairs of the IRS and DOJ for Potential Tax Evasion Charges.
In essence, the term nominee, in the tax law world, describes a situation where an asset which belongs to one person (or entity) is placed into the name of a third party, but it is understood between the person and the third party that the third party does not have equitable ownership (i.e., control over its disposition or right to unfettered use). Use of a nominee is not always to commit a fraud (e.g., it can be done for legitimate business reasons), but it can be considered an affirmative act of evasion when done to avoid a known tax liability.
A recent press release illustrates on instance where the alleged use of nominees put a taxpayer and a CPA in the cross-hairs of the IRS.
Per the D.O.J. Press Release (here):
On Nov. 20, 2018, a jury convicted Higa of conspiracy to defraud the United States along with co-conspirator Wagdy Guirguis. In addition to the conspiracy conviction, Higa was also convicted of one count of assisting in the preparation of a false tax return. The convictions arose from a scheme to divert funds from Guirguis’ business entities for his own personal benefit and to avoid the payment of federal employment taxes, corporate and individual income taxes, and Internal Revenue Service (IRS) penalties.
According to the evidence presented at trial, Guirguis operated numerous engineering businesses. Higa, a CPA, was the controller of these businesses. Higa also served as a nominee officer of another entity controlled by Guirguis. When the IRS determined Guirguis’ businesses owed over $800,000 in federal employment taxes and assessed an $812,000 penalty, Guirguis and Higa took steps to place income and assets out of the reach of the IRS. For instance, Guirguis and Higa used a nominee entity to fraudulently convey a condominium to Guirguis’ wife. After an IRS revenue officer began questioning Mrs. Guirguis’ sole ownership of this condominium, Guirguis and Higa instructed a bookkeeper to alter the books and records in an attempt to conceal this transaction from the IRS.
From 2001 through 2012, Guirguis and Higa also used a nominee entity to divert approximately $1.3 million from Guirguis’ businesses for Guirguis’ personal use. As a result of their diversion and concealment efforts, Guirguis’ 2010 through 2012 returns omitted $553,000 in income, resulting in a tax deficiency of $165,000. In addition, Higa prepared a false corporate income tax return for one of Guirguis’ entities that failed to report over $1.3 million in gross receipts.
Guirguis was sentenced to 5 years prison five days earlier.
Posted on 07/11/2019 by Daniel W. Layton.