In recent years, when Robert Smith worked under a criminal tax investigation, billionaire private equity executives fought hard against US tax authorities.
Smith, the founder of Vista Equity Partners, confirmed in this week’s settlement that he hid $ 200 million from offshore tax collectors and avoided about $ 43 million in taxes between 2005 and 2014.
However, between 2017 and 2019, Mr Smith requested a $ 182 million tax refund from the Internal Revenue Service. All of this is related to the same unpaid taxes he was charged with criminal charges.
The operation, when the Justice Department announced that Smith, the wealthiest black American with an estimated net worth of $ 5 billion, would pay $ 140 million but avoid prosecution for what he admitted. Was revealed on Thursday.
“You can think of it as a chutzpah or an aggressive defense strategy,” said Matthew Mueller, a former DoJ tax prosecutor currently in private practice at Wiand Guerra King, on a claim filed by Smith. ..
He said one of the key factors in prosecutors’ filing criminal tax evasion cases is whether the target can prove that it is borrowing government funds. Claiming a tax refund that exceeds your debt can be a useful defense.
Mr Smith gave up the claim as part of his deal with the Justice Department, which also demanded that he cooperate. “He may actually have the right to make those deductions, but it was clearly worth leaving them to avoid prosecution,” Mueller said.
The 57-year-old private equity executive has become well known for his philanthropic and business insights. Smith made a big headline in 2019 when he promised to repay the loan of a student who graduated from Morehouse College, Georgia’s historic black college.
In April, he was included in the White House’s list of “respected executives” and helped restore the US economy from the coronavirus pandemic.
He hasn’t publicly commented on the case yet, but told investors in a letter Thursday that “I shouldn’t have been in this situation.” Mr Smith apologized to investors “about the problems and concerns this might have caused you.”
“I’m relieved that this has been completely resolved and I’m behind me now,” he added. Smith and a Vista Equity spokesman declined to comment.
The announcement of his non-indictment agreement came on Thursday when prosecutors taxed Houston’s billionaire Robert Brockman, who began his private equity career in 2000.Mr. Brockman denies charges against him
Prosecutors have charged Brockman in the largest $ 2 billion personal tax evasion case in U.S. history, and Smith said he would not be charged even if he planned a tax evasion plan by hiding some of Vista Equity’s interests abroad. It was. In return, he agreed to continue working.
“He got a lot,” said Scott Schumacher, a professor at the University of Washington Law School and a criminal tax expert. He said the government usually called Mr Smith’s settlement “unusual to say the least” and rewarded his collaborators with their own criminal exposure by promising to seek generosity in the settlement. It was.
Mr Smith’s deal was in contrast to the treatment of Thai Warner, the toy entrepreneur who founded Beanie Babies. He paid a fine of $ 80 million.
When a judge in Mr. Warner’s case sentenced him to probation, the Justice Department appealed, claiming that “many individuals who avoided far less taxes were sent to jail for their crimes.” ..
Just last week, the Justice Department charged owners of three New York State Depin Donut stores with avoiding a $ 1 million tax.
On Thursday, San Francisco’s US attorney David Anderson argued that Mr Smith’s deal resulted from his cooperation with the government.
“This non-indictment agreement emphasizes the importance of cooperating with federal criminal investigations. That is the message we intend to send,” he said.
Richard Zuckerman, head of the Justice Department’s tax department, did not attend the press conference. A spokesman for the department, which played a key role in Mr Smith’s investigation, did not respond to repeated requests for comment.
Mr Smith’s tax evasion plan spans more than 15 years and began in 2000 with the Vista Equity Foundation.
According to Smith’s settlement fact statement, Brockman was the only investor in the first fund, offering $ 300 million.
As a result, half of Mr Smith’s carry was his own name, the rest was the name of Nevis LLC called Flash Holdings, and was owned by the Belize Foundation called Excelsior through bearer shares.
According to a statement of fact, Smith secretly controlled both entities through a Houston lawyer recommended by Brockman.
According to a statement of fact, according to the settlement document, Mr. Smith for services including “helping to create a false paper trail on the maintenance and operation of Excelsior and its affiliates” between 2000 and 2014. I paid the lawyer about $ 800,000.
“The decision made 20 years ago unfortunately led to this turmoil, putting undue stress and strain on many,” Smith said in a letter to investors Thursday.
Mr Brockman pleaded not guilty to the charges against him.
Smith has granted a settlement to use some of the real estate’s tax-exempt funds for personal use in the United States and France, and sometimes to fund philanthropy in the United States.
The plan began to be unraveled in late 2013 and early 2014, with Smith’s Swiss bank, Bank Bonhote, participating in a leniency program that required the U.S. government to be informed about U.S. citizens using the bank. He said he intends to do so. ..
Bonhôte advised the IRS to seek generosity under the voluntary disclosure program of the time for Americans with hidden offshore accounts. Mr Smith applied and was rejected.
The IRS typically rejects applicants if they already know the offshore account.
In December 2014, Smith donated all of his offshore revenue, about $ 200 million, to the Fund II Foundation, a charitable foundation he runs. The following May, he again sought generosity in the IRS.
He with a modified foreign bank account report through another program where taxpayers can prove that the mistake was accidental and pay a fine of 5% to correct the failure to report foreign assets. I have submitted my tax return to the IRS.
In a settlement, Smith admitted that these amended filings were also “intentionally” false. He did not disclose that he was a true beneficiary, but claimed only the authority to sign foreign bank accounts and knew that he was taxable, but he had a $ 200 million offshore partnership. Did not report income.
According to the settlement document, in 2017, Mr Smith filed a protection claim with the IRS for a refund of the amount paid when filing a tax return and a foreign bank account, which was amended in 2015 but is still false. ..
In 2018 and 2019, he filed a protection claim for a charitable deduction refund for donating his hidden assets to his foundation in 2014.
For those familiar with the matter, Smith said, “With the advice of an attorney to protect the claims he may ultimately have before a decision is made as to whether the property belongs to him.” He said he made a claim.
Mr Smith’s transaction with the Justice Department requires him to pay $ 139 million in taxes and fines. Half were paid immediately and the rest were paid in quarterly installments over 18 months.