Analysis of the Robert Brockman Tax Fraud Case

Analysis of the Robert Brockman Tax Fraud Case

Overview

Tax evasion is one of the most prevalent forms of tax fraud. A person or business engaging in tax evasion employs unlawful methods to evade paying taxes. Usually, this is achieved by purposefully lying to the Internal Revenue Service about their income. In the United States, tax evasion is so widespread that, according to the government, about $345 billion was lost to this kind of fraud in 2007(Tax evasion n.d). Nonetheless, a federal grand jury decided in October 2020 to indict Robert T. Brockman in what is regarded as the biggest tax fraud case in history. Notably, this case study will review the Brockman case by providing a summary of the case, issues that led to the fraud case, a CPA’s culpability in fraud cases by clients, and ways through which a tax preparer can detect signs of tax fraud.

Summary of the Robert Brockman Tax Fraud Case

The tax fraud case of Robert Brockman is a tax evasion case that was filed against the C.E.O. of Reynolds and Reynolds Plc in a San Francisco jury on 15^th October 2020. The case is one of the most prominent tax evasion cases witnessed in the United States (Kemsley et al., 2023). The case entails Brockman hiding his income from I.R.S. with the aid of Robert F. Smith to avoid taxes using offshore accounts situated in Nevis and Bermuda. To conceal information related to the offshore accounts, Brockman encrypted all communications with a co-conspirator. Brockman also engaged in another fraudulent scheme, gaining over $67.8 million. In the scheme, Smith, the accomplice of Brockman, associated with government institutions to the extent of paying $139 million to settle the probe into the tax in a non-prosecution deal. Over the time of investigation, Smith asserted to have applied the Flash holding and Excelsior to hide earned income from the U.S. Treasury Department and I.R.S.

Smith had earned $67.8 million from the 2010 and 2008 fraud scheme of the organization’s debt safety software. The scheme was successful because there was a constriction for Brockman to purchase securities of the software company without giving any notice as the C.E.O. (D’avino, 2023). The case entails an accusation that Brockman’s accomplishment helped him acquire the securities, avoid the tasks as a third party, and eventually hide important information from the seller that could influence investment decisions. The investigation revealed that Brockman conspired with a third party to tamper with and change computer and paper evidence, making it impossible to undertake a judicial investigation.

Issues that Led to the Tax Fraud

Various issues contributed to tax fraud. Firstly, the accusation of conspiracy resulted in a violation of 18 U.S.C, evidence destruction and tampering violated 18 U.S.C, two accounts of money concealment laundering that violates 18 U.S.C, accounts of violating 18 U.S.C through wire fraud influencing a financial institution, six counts of failing to file a report regarding foreign bank accounts, and seven accounts that violated the 26 U.S.C. entailing tax evasion.

C.P.A.’s Culpability in Cases of Tax Fraud by Clients

A CPA needs to be aware of fraud accusations and taxpayer exposure. Widiyati et al. (2021) state that a person culpable of committing such crimes faces severe consequences, including penalties and imprisonment. Therefore, CPAS must offer informative advice to clients to avoid leading them into trouble with the law. For instance, a C.P.A. must advise clients on I.R.S. administrative procedures and tax liabilities. The C.P.A. should be objective in advising the client to ensure no illegalities are committed. In a case where a client’s actions seem to have led to a violation or several irregularities, the C.P.A. should send the client to an attorney with enough experience regarding tax fraud cases. Also, the C.P.A. should avoid engaging in legal matters if they are not attorneys.

Ways a Tax Preparer Can Detect Signs of Tax Fraud

Various ways can be used to identify cases of tax fraud. One way entails a case where personal expenses are reported as company or business expenses. Notably, this is a common aspect identified in tax fraud cases. Another way tax fraud can be detected is the concealment of money in various bank accounts, including foreign accounts, such as the case described above. Tax preparers are useful in pointing out the possibility of tax fraud when such activities are noticed. Another way is by identifying non-submission or inconsistent details on tax returns. Widiyati et al. (2021) say this may involve unverified income, overestimated expense or deduction, or doubtful dependents. They also should be suspicious of big round-number deductions, which do not have enough documented support. Charitable contributions or business expenses, which are far out of proportion with a given taxpayer’s income, may also be fraudulent. Other signs that should warrant attention include fluctuating financial changes from one year to another or changes in the client’s filing status. Further, even if a taxpayer becomes defensive and is not willing to disclose information or documents, there must be evidence of something being wrong. Tax preparers must also be aware of other types of identity theft, such as where a return has been filed using a client’s details without them knowing. Analyzing all the returns and being aware of the indicators pointing to the fraudulent activity greatly contributes to tax preparers in fighting tax fraud.

References

D’avino, C. (2023). Counteracting offshore tax evasion: Evidence from the foreign account tax compliance act. International Review of Law and Economics, 73, p.106126. https://doi.org/10.1016/j.irle.2023.106126

https://doi.org/10.52970/grar.v1i2.77

Kemsley, D., Kemsley, S.A. and Morgan, F.T., (2023). Tax evasion on lawful income: is it a form of money laundering? Journal of Financial Crime. https://doi.org/10.1108/JFC-11-2022-0268

Legal Information Institute. (n.d.-a). Tax evasion. Legal Information Institute. https://www.law.cornell.edu/wex/tax_evasion

Widiyati, D., Valdiansyah, R.H., Meidijati, M. and Hendra, H. (2021). The Role of Public Accountants in Fraud Prevention and Detection in the Taxation Sector during Covid-19. Golden Ratio of Auditing Research, 1(2), pp.70-82.

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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.

Analysis of the Robert Brockman Tax Fraud Case

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 knew about the fraud.
Evaluate ways a tax preparer can detect signs of tax fraud in order to prevent future tax fraud.