Couple Convicted in Tax Shelter Scheme
A married couple was convicted of running an elaborate tax shelter scheme for over a decade in which they marketed tax trusts to clients, filed lawsuits against IRS employees, and prepared a $108 million tax lien against former Treasury Secretary John Snow.
Oregon attorney Micaela Renee Dutson, 48, and her husband Tony Dutson, 53, were convicted of nine counts for various criminal tax violations, defrauding the U.S. government out of approximately $7 million.
The couple were convicted of conspiring to defraud the IRS, obstructing the IRS, causing clients to use bogus financial instruments in an attempt to pay their taxes, failing to file tax returns, and aiding and advising a client to file a false tax return. The couple used Micaela Dutsons law office in Tigard, Ore., to promote and sell tax trusts for several years before moving to Arizona in 2003. The couple made over $1 million from the scheme and paid no income tax.
The investigation was launched after the Internal Revenue Service discovered that multiple taxpayers who had followed advice from the Dutsons were being audited for failure to file tax returns despite a prior history of filing and paying their taxes. The IRS initiated an audit of Micaela Dutson after it received notice from the State of Oregon that she had been paid out-of-state funds to provide indigent legal services but had never filed a tax return reporting that income.
Micaela Dutson resigned from the Oregon State Bar in 2002. For several years, the IRS tried unsuccessfully to stop the Dutsons from selling abusive tax shelters before eventually referring the matter to IRS Criminal Investigation. In 2006, at the request of the IRS, a federal court in Phoenix ordered the Dutsons to cease their activities. After the investigation revealed extensive fraudulent activity, the case was referred to the U.S. Attorneys Office for prosecution.
Over the course of the eight-day trial, the jury heard from nine former clients who had followed the Dutsons advice to their detriment. They bought pure trust packages and corporations from the Dutsons after the Dutsons told them their income would be tax-free if placed in trust.
The Dutsons then set up bank accounts and corporations in an effort to deceive the IRS by making it difficult to trace their clients income and assets. The Dutsons continued to sell the trust packages for years, ignoring several warning letters from the IRS, articles in the Oregonian newspaper warning the public against tax shelter scams, and a complaint filed by the Justice Department on behalf of the IRS in an effort to stop them from selling their tax shelters.
After the IRS began auditing the Dutsons clients, and notified them that the trusts they were using to conceal their income from the IRS were shams, the Dutsons began a campaign to obstruct the IRSs audits and investigation, and to harass and intimidate the individual IRS employees who were auditing or investigating them. First, they created and presented dozens of fictitious financial instruments to the IRS purporting to pay off back taxes for themselves and a number of their clients.
Even though they knew the bogus instruments had no financial value and had never been accepted by a creditor, they continued to sell them to their clients with false promises they would pay off their tax liability. The Dutsons also advised clients to use them to pay off commercial debts, including mortgages and court-ordered obligations. Together, the Dutsons and their clients presented over $44 million worth of these bogus financial instruments over a four-and-a-half-year period.
To further obstruct the IRS, and harass and intimidate its employees, the Dutsons advised clients to file frivolous lawsuits against the IRS employees. The Dutsons charged their clients $3,500 each to prepare court documents and help their clients file them. They continued to advise clients to file these lawsuits even after a federal court had dismissed the first of these suits as frivolous and without merit without telling their clients about the dismissal.
After the Justice Department filed the complaint for a permanent injunction, and IRS special agents had notified the Dutsons in person that they were under criminal investigation, the Dutsons filed a $1 trillion lien in California against several IRS employees who had attempted to audit or investigate the Dutsons, as well as the DOJ attorneys who filed the complaint. A federal court later ruled that the lien was null, void and without legal basis, but one week later, the Dutsons prepared a $108 million lien for a client against John Snow, who was then Secretary of the Treasury.
The defendants also filed approximately 30 bogus tax returns, attempting to claim fraudulent refunds from the IRS totaling over $185 million. Along with those returns, they filed multiple Forms 1099-OID to falsely report to the IRS that the IRS employees who were investigating the Dutsons had received $10 million from the Dutsons in an attempt to harass the IRS employees who did not declare that income on their own tax returns.
Assistant U.S. Attorneys Craig Gabriel and Hannah Horsley tried the case before U.S. District Judge Anna J. Brown. The evidence at trial included testimony from former clients who lived in Oregon, Washington, California, Arizona, Alaska and Hawaii. The Dutsons had approximately 150 clients throughout the United States. The defendants both testified, and offered multiple additional witnesses. The jury deliberated for approximately two-and-a-half hours before reaching a unanimous guilty verdict on all nine counts in the indictment.
Sentencing is scheduled for Sept. 20, 2010.