TRUST SCHEME PROMOTER SENTENCED TO 3 YEARS IN PRISON

Tacoma Man Participated in $8.5 Million Tax Fraud Scam

WASHINGTON, D.C. - Tax fraud promoter Michael Joseph Shanahan of Everett, Washington, was sentenced today in Tacoma, Wash., to 36 months in prison, the Justice Department and Internal Revenue Service (IRS) announced. Judge Ronald B. Leighton, finding that the tax loss to the federal Treasury was more than $8.5 million, ordered Shanahan to pay that sum in restitution to the IRS.

“People who promote and facilitate tax evasion can expect to be prosecuted, convicted, and sentenced to substantial time in federal prison,” said Eileen J. O’Connor, Assistant Attorney General for the Justice Department’s Tax Division. “The Department of Justice is working diligently with the Internal Revenue Service to shut down tax fraud programs that cheat all honest taxpayers.”

Shanahan pleaded guilty to conspiring to defraud the United States in February 2006. He also pleaded guilty to failing to file an income tax return for 1999. Following a two-week trial, a jury convicted Shanahan’s associate in the conspiracy, David Carroll Stephenson, of conspiring to defraud the United States and failing to file income tax returns for tax years 1998, 1999 and 2000. In May 2006, Stephenson was sentenced to 96 months in prison and ordered to pay $8.5 million in restitution to the IRS.

According to the indictment and evidence introduced during trial, between 1994 and 2000, Shanahan and his co-conspirator Stephenson assisted hundreds of taxpayers in forming and operating “pure equity trusts.” Shanahan falsely advised customers that they could avoid paying income taxes if they placed their income and assets into the trusts, even though they continued to control the use of the income and assets placed in the trusts. According to evidence introduced at trial, Stephenson and Shanahan received more than $2 million in revenue from the sales of more than 400 of these trust packages.

“Promoting abusive trust arrangements for the purpose of committing tax evasion isn’t tax planning; it’s criminal activity,” said Nancy Jardini, Chief, IRS Criminal Investigations. “We will continue to shut down fraudulent tax schemes and hold the promoters of these schemes accountable for their actions.”

Two months after his convictions, on April 26, 2006, Shanahan consented to a permanent injunction that forbids him from promoting the scheme. Information about the injunction can be found at http://www.usdoj.gov/tax/Shanahan_PermInj.pdf.

More information about the Justice Department’s efforts against tax-scam promoters can be found at http://www.usdoj.gov/tax/taxpress2006.htm.

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