A Chicago businessman has pleaded guilty to tax fraud conspiracy charges stemming from an agreement with a Chicago-based banker and tax shelter promoter to fraudulently obtain referral fees relating to tax shelter transactions.
Douglas Steger, former owner of American Financial Capital Corp., pleaded guilty in Manhattan federal court to the charges. The tax shelter promoter had worked for a bank in its Innovative Strategies Group. Members of the group were engaged in the design, marketing, and implementation of tax shelter transactions, including a transaction known as Hedge Option Monetization of Economic Remainder.
In 2001, the tax shelter promoter, together with other members of ISG, attorneys at the law firm Jenkens & Gilchrist, and a foreign bank with U.S. headquarters in New York, implemented 36 HOMER tax shelter transactions for high-net-worth clients of the first bank and J&G. Members of ISG and J&G agreed to pay referral fees to third parties who referred a client or clients that ultimately entered into a HOMER transaction. Generally, the referral fees were paid after the third-party referral sources sent invoices to J&G, leading J&G to pay the fees to the third parties based on the amounts stated in the invoices.
Steger, together with the tax shelter promoter, prepared and submitted false invoices to J&G representing that third-party referral services had been provided in connection with certain of the bank's HOMER transactions, even though no genuine referral services had been provided, according to prosecutors.
After receiving referral fee income as a result of the submission of the bogus invoices, Steger and others shared the fees with the tax shelter promoter. Rather than reporting to the IRS their receipt of the fee income, they also allegedly conspired to defraud the IRS by failing to accurately report and pay taxes on the receipt of these funds.
Steger faces up to eight years in prison and a fine of $500,000 on tax fraud conspiracy and false tax return charges, but he is now cooperating in the investigation.
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