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Law360, Washington (August 1, 2016, 7:16 PM ET) — A former attorney still has to face the music for unpaid tax bills tied to an admitted scheme to bilk millions of dollars from a client’s estate, after he already paid criminal restitution to the IRS, the U.S. Tax Court ruled Monday.
Monday’s decision caps a five-year case brought by former attorney Robert L. Schwartz challenging an IRS tax bill that totaled more than $500,000 from allegedly unreported income and fraud penalties tied to his 2007 taxes. Schwartz had pled guilty to mail fraud in 2009 for an alleged scheme to defraud the beneficiary of client Beverly Hersh’s estate, Hadassah Hospital, of more than $2 million, and to under-reporting his own income by more than $800,000, according to court documents.
Tax Court Judge Robert Paul Ruwe held Monday that Schwartz’s 2009 guilty plea, for which he was sentenced to four years in prison, offered ample evidence to both establish his underpayment of taxes in 2007 and his intent to defraud the IRS. The judge wrote that the ex-lawyer from Ohio submitted briefs that were “conclusory, improbable, vague, and contradictory to the statement of facts underlying his voluntary plea agreement.”
“Petitioner’s intentional filing of a false tax return for the taxable year 2007, reporting an amount of income which he knew to be false, is a strong indication of fraudulent intent,” the decision said. “Petitioner offered no credible evidence to show that his filing of a false return should not be considered indicative of fraud.”
Further, Judge Ruwe noted that the plea agreement released only the U.S. Attorney for the Southern District of Ohio, and not the IRS, from pursuing additional civil or criminal penalties. Schwartz also did not present evidence that he had paid off his court-ordered $900,000 in restitution to the IRS, despite claims that he has paid off $1.3 million of the $3 million total restitution to the hospital and IRS.
Schwartz had pled guilty in 2009 to mail fraud and preparing a false tax return connected to 2007 disbursements and misrepresentations about Hersh’s estate. Although Hersh designated more than $2.5 million to go to the Hadassah Hospital, Schwartz laid out only $210,000 — $200,000 of which occurred after investigators looked into his conduct, according to court records.
Schwartz admitted he defrauded Hadassah and made disbursements to himself, to pay for treatment for his mother and other purchases that he did not document, according to court records. In addition, Schwartz pled guilty to not reporting other income tied to his clients’ personal injury settlements. In all, that year Schwartz received more than $900,000 in income but reported only $100,000 of it, according to court records.
Judge Ruwe noted Monday that while his guilty plea could not on its face support the fraud penalty from the IRS, the combination with Schwartz’s lack of record keeping and efforts to hide his affairs factored in favor of the penalty.
“Numerous badges of fraud are present in this case and demonstrate that petitioner intentionally evaded the payment of tax that he knew to be owed,” the judge wrote.
In 2010, an Ohio federal judge had sentenced Schwartz to 48 months in prison, where he was when notified of the more than $500,000 IRS deficiency in 2011. He launched his Tax Court case from his cell in June 2011 and fought it through and after his release in 2014.
An Ohio Supreme Court decision in 2012 revoked his license to practice in the state following the conviction, according to court records.
Schwartz could not be immediately reached for comment Monday. The IRS does not comment on tax cases.
Schwartz is representing himself.
The government is represented by Louis H. Hill and Gary R. Shuler Jr.
The case is Schwartz v. Commissioner of Internal Revenue, case number 13153-11, in the U.S. Tax Court.
–Editing by Edrienne Su.
Weisberg Kainen Mark, PL
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