When Robert Smith worked during a criminal tax investigation in recent years, the billionaire private equity director played hardball with the Internal Revenue Service.
Smith, the founder of Vista Equity Partners, had hidden $ 200 million. From the taxman offshore and avoided $ 43 million. In tax from 2005 to 2014, he admitted in a settlement this week.
But between 2017 and 2019, Mr. Smith filed a $ 182 million claim. In tax reimbursement from the IRS – all linked to the same unpaid tax that he faced criminal charges.
The maneuvers were revealed Thursday when the Justice Department announced that Mr. Smith, the richest black American with a net worth estimated at $ 5 billion, would pay $ 1
“You could look at it as chutzpah, or you could look at it as a proactive defense strategy,” Matthew Mueller, a former DoJ tax lawyer now in private practice with Wiand Guerra King, said of Mr Smith’s allegations.
He noted that one of the factors that prosecutors weigh in the placement of criminal tax evasion cases is whether they can prove that the case owes the government money. Tax refund claims in addition to any liabilities can be a useful defense.
Sir. Smith gave up the claims as part of his deal with the DoJ, which also requires him to cooperate. “He may actually be entitled to make these deductions, but it was clearly worth it to walk away from them to avoid prosecution,” Mr Mueller said.
The 57-year-old private equity director had become known for his philanthropy and business acumen. Sir. Smith made headlines in 2019 when he pledged to pay off the loans of students who graduated that year from Morehouse College, a historic black men’s college in Georgia.
In April, he was among a list of “respected leaders” announced by the White House who would help the administration revive the U.S. economy from the damage caused by the coronavirus pandemic.
He has not yet commented on the matter publicly, but told investors in a letter Thursday: “I should never have put myself in this situation.” Sir. Smith apologized to investors “for any issues or concerns this may have caused for you”.
“I am relieved that this has been fully resolved and is now behind me,” he added. A spokesman for Smith and Vista Equity declined to comment.
The announcement of his non-prosecution agreement on Thursday came as prosecutors filed tax charges against Robert Brockman, a Houston billionaire whose money launched Smith’s private equity career in 2000. Brockman denies the charge against him
When prosecutors charged Mr Brockman in a personal tax evasion case of 2 billion. Dollar, the largest of its kind in U.S. history, they said Mr Smith would not be charged any fee for his plan to evade taxes by hiding some of his Vista Equity profits offshore. In return, he had agreed to continue the collaboration.
“He got a great deal,” said Scott Schumacher, a professor at the University of Washington Law School and a criminal tax expert. He noted that the government typically rewarded collaborators with their own criminal exposure by promising to seek a reduction of fines by sentencing, calling Mr Smith’s solution “mildly unusual”.
Smith’s deal was at odds with the treatment of Ty Warner, the toy entrepreneur who created Beanie Babies, who in 2013 pleaded guilty to a criminal charge of evading $ 5.6 million. In federal taxes by storing millions of dollars in income offshore. He paid $ 80 million. In sanctions.
When the judge in Mr Warner’s case sentenced him to probation, the Justice Department appealed, arguing that “many individuals who have evaded far less tax have been sent to prison for their crimes.”
Just last week, the DoJ accused the owners of three Dippin Donuts stores in New York State of allegedly evading taxes of $ 1 million. $.
On Thursday, David Anderson, the U.S. attorney in San Francisco, insisted that Smith’s deal was the result of his collaboration with the government.
“This non-prosecution agreement underscores the importance of cooperating with a federal criminal investigation. That is the message we intend to send, ”he said.
Richard Zuckerman, head of the justice department’s tax department, was absent from the press conference. A spokeswoman for the division, who played a key role in the investigation of Mr. Smith, did not respond to repeated requests for comment.
Smith’s tax evasion scheme extended over 15 years, beginning with Vista Equity’s founding fund in 2000.
Sir. Brockman was the sole investor in the first fund and provided $ 300 million. According to the statement of facts in Smith’s settlement.
As a result, one half of Smith’s berry was in his own name, and the remainder was in the name of a Nevis LLC called Flash Holdings, which was owned through proprietor shares of a Belize fund called Excelsior.
Sir. Smith secretly controlled both units through a Houston attorney recommended by Mr. Brockman, according to the statement of facts.
The settlement document said Smith paid the attorney approx. $ 800,000 from 2000 to 2014 for services, including “assistance in creating a false paper trail, relating to the maintenance and operation of Excelsior and its related devices”, according to the statement of facts.
In his letter to investors on Thursday, Smith said: “Unfortunately, the decision taken twenty years ago has led to this unrest, which has added too much stress and burdens too much.”
Sir. Brockman has pleaded guilty to the charges against him.
Smith spent some of the untaxed funds on properties for personal use in the United States and France, and at times to fund his American charitable activities, he admitted in the settlement.
The scheme began to clear up in late 2013 and early 2014, when a Swiss bank, Mr Smith’s banker, Banque Bonhôte, told him it intended to take part in a relief program requiring it to was to tell the U.S. government about all U.S. citizens who knocked on it. .
Bonhôte advised him to seek relief with the IRS during a voluntary disclosure program at the time for Americans with hidden offshore accounts. Smith applied and was denied.
The IRS typically rejects applicants if it is already aware of their offshore accounts.
In December 2014, Smith donated all the revenue he had accumulated offshore, approx. $ 200 million, to a charitable foundation he runs, the Fund II Foundation. The following May, he again tried to seek remission from the IRS.
He filed amended foreign bank branch reports and tax returns with the IRS through another program that allows taxpayers to correct deficiencies in reporting foreign assets by certifying that any errors were unintentional and paying a 5 percent fine.
Sir. Smith admitted in the settlement that these amended archives were also “intentionally” false. He only claimed to sign authority over his foreign bank accounts instead of revealing that he was the real recipient, and did not report $ 200 million. Of offshore partnership income despite the fact that he knew it was taxable.
The settlement documents show that in 2017, Smith filed a protective claim with the IRS for a refund of the money he paid when he filed the amended but still false tax return and foreign bank account issues in 2015.
In 2018 and 2019, he filed protection claims for reimbursement of charity deductions to donate his hidden assets to his foundation in 2014.
A person familiar with the matter said Smith had made the allegations “on the advice of an adviser to protect any claims he may have before deciding whether the assets belonged to him”.
Smith’s deal with the Justice Department requires him to pay $ 139 million. In taxes and sanctions. Half was due immediately, while the rest was paid in quarterly installments over 18 months.