Analyzing the Robert Brockman Tax Fraud Case- A $2 Billion Scheme Unveiled

Analyzing the Robert Brockman Tax Fraud Case- A $2 Billion Scheme Unveiled

Introduction

Tax evasion is a common practice among companies and individuals in the US and globally. These entities defraud tax authorities of significant remittances by taking advantage of the existing loopholes in tax reporting. Some tricks used to evade tax include stashing money in overseas accounts and extending discounted loans to secret foreign bank accounts to avoid taxes on profits.

Case Summary

A Washington Post by Paiser (2020) elucidates how Robert Brockman was charged with a tax evasion charge, whereby he is alleged to have defrauded the Internal Revenue Service (IRS) up to $2 billion in tax proceeds. Among other charges, Brockman was charged with tax fraud, money laundering, wire fraud, and evidence tampering. Other than directly defrauding the IRS of $2 billion, Brockman is also accused of using secretive foreign companies to acquire discounted loans from his USA-based Reynolds and Reynolds Company. That means he essentially sent untaxed profits to foreign accounts. Brockman was the CEO of Reynolds and Reynolds Company, a software-making company based in Ohio, USA.

Brockman started by sending most of his money overseas to cover his tracks. During the trial, the judges also found out that the accused used a myriad of tricks to conceal his activities. For instance, he encouraged his handler to avoid paper transactions and instead use encrypted documents. He also backdated his documents to avoid suspicion in case tax authorities intercepted them. Such tricks helped him evade tax authorities for over 20 years.

The case was also strengthened by evidence obtained from his conspirator, Robert Smith. Smith raised an eyebrow when he promised to repay student loans for an all-male-historically black college in Atlanta. Smith helped Brockman hide his proceeds abroad through Smith’s Vista Equity Partners, where Brockman was the sole listed investor. Smith pleaded guilty to all charges labelled against him. He was accused of defrauding the IRS for $43 million and accepted to pay $140 million, including penalties (Paiser, 2020). The admission by Smith complicated matters for Brockman, leading to his eventual indictment.

Issues Raised in the Tax Fraud Case

Brockman’s indictment brings to light the maneuvers used by big businesses to evade tax. One such trick is the possession of foreign subsidiaries. Businesses transfer profits on the pretext that they serve other purposes, such as paying salaries, hence exempted from taxation (Evertsson, 2016). Instead, they end up directing the monies into private accounts. Brockman transferred his proceeds to Bermuda and Nevis through Vista Equity Partners, which had accounts in Switzerland.

Another issue that probably attracted the feds to the case is Brockman’s attempt to hide everything from the government. From the outset, the billionaire maintained a low demeanour, hiding his proceeds from the government. At some point, he instructed his assistant to avoid paperwork as much as possible. He also stocked backdated documents to record future financial transactions. Hiding documents from the IRS is a worse crime itself, even more than tax evasion.

Moreover, it is clear from the case that Brockman engaged preferred to keep his money in tax havens. Profits kept in tax havens like Switzerland are taxed a paltry 8% when being remitted to the US (Evertsson, 2016). Such actions significantly reduce taxes, as was the case in Brockman’s fraud.

CPA’s culpability in cases of tax fraud by clients

A CPA should pay attention to the client’s potential exposure to tax fraud and criminal conduct. Failure to do this may land their clients in criminal misconduct and tax fraud investigations. Aware that indictment for tax fraud leads to heavy monetary penalties and possible jail time, CPAs should advise their clients accordingly (Meldman, 1962). However, CPAs bear zero responsibility if clients engage in criminal matters without the knowledge of their CPAs.

To prevent potential fraud by a new client, CPAs apply the acceptance policy. Here, the client is screened for possible tax-related criminal culpability. Such scrutiny involves examining both personal and business activities. In case CPAs discover suspicious activities, they advise clients to seek legal counsel before engaging them. If a client is unwilling to be scrutinized, CPAs should reconsider whether engaging in such a relationship is worth the risk.

How Tax Preparers Detect Tax Fraud

Tax preparers should adopt professional scepticism To detect potential tax fraud by clients. A tax preparer should be critical of a client’s tax standing regardless of the past positive experience. This will help a tax preparer dig deeper into the client’s dealings to detect fraud. Preparers should also look into an organization’s areas of vulnerability. For instance, if an entity is experiencing financial struggles, that should be a warning flag as such an organization may engage in tax fraud to recover some money.

Conclusion

Robert Brockman’s tax evasion case is the largest in US history, but not the only one. The case shows how companies and individuals take advantage of existing loopholes to defraud the IRS of tax remittances. IRS and tax preparers should thoroughly scrutinize taxpayers’ personal and business dealings to prevent tax fraud.

References

Evertsson, N. (2016). Corporate tax avoidance: a crime of globalization. Crime, Law and Social Change, 66(2), 199–216. https://doi.org/10.1007/s10611-016-9620-z

Paiser, J. (2020, October 16). A Texas billionaire evaded $2 billion in taxes, feds say. Now he’s charged in the “largest-ever” tax fraud case.. Washington Post. https://www.washingtonpost.com/nation/2020/10/16/billionaire-robert-brockman-tax-evasion/

Meldman, L. L. (1962). The Legal Responsibilities of the Person Preparing the Tax Returns and Furnishing Tax Advice and Reliance Upon Advice of Counsel. Marq. L. Rev., 46, 313.

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Federal prosecutors have charged Texas billionaire Robert Brockman with a $2 billion tax fraud scheme in what they say is the largest such case against an American. Before attempting this assignment, review the case, CEO of Multibillion-Dollar Software Company Indicted for Largest-Ever Tax Evasion as Private Equity CEO Makes NPA to Cooperate in the Case.

Analyzing the Robert Brockman Tax Fraud Case- A $2 Billion Scheme Unveiled

Instructions
Write a 2–3 page paper about this tax fraud case, in which you:

Summarize the Robert Brockman tax fraud case.
Evaluate the issues that led to the tax fraud.
Analyze a CPA’s culpability in cases of tax fraud by clients, regardless of whether they had knowledge of the fraud.
Evaluate ways a tax preparer can detect signs of tax fraud in order to prevent future tax fraud.
Use three sources to support your writing. Choose sources that are credible, relevant, and appropriate. Cite each source listed on your source page at least one time within your assignment. For help with research, writing, and citation, access the library or review library guides