While represented by prior counsel, a husband and wife were convicted of tax fraud and bank fraud, and the husband was sentenced to serve a term of imprisonment. Mr. Scharf filed a motion to vacate the husband’s sentence on grounds that his Sentencing Guidelines were determined erroneously due to an incorrect tax loss computation. The Court resentenced the husband to a lesser term.
While the motion to vacate sentencing in the preceding case was pending, the same clients were being investigated by the I.R.S., the F.B.I. and the Los Angeles United States Attorney’s Office for committing an unrelated alleged $10 million securities fraud, for laundering the proceeds thereof, and for evading the income taxes thereon. The government threatened the couple with twenty-year sentences based on their prior convictions and the amount of monetary loss to the alleged victims. As lead counsel, Mr. Scharf engaged in lengthy meetings with the Los Angeles United States Attorney’s Office, the I.R.S. and the F.B.I. and made extensive written submissions. No charges were filed against Mr. Scharf’s clients.
· A businessman who was accused of assisting his corporation understate gross receipts by $1,000,000 went to trial. The jury deadlocked 6 to 6. The businessman was not retried, and the indictment was dismissed.
· While represented by prior counsel, a lawyer was convicted of multiple counts of conspiracy, mail fraud, willfully aiding and assisting in the preparation of other persons’ materially false income tax returns, and willfully subscribing his and his wife’s materially false income tax returns. Subsequently, he and his wife retained Mr. Scharf to represent them in the civil tax fraud proceedings that follow most criminal tax cases. In the civil tax case, the government claimed that the clients owed $1,000,000 in taxes and fraud penalties. The government filed a motion contending that the criminal conviction prevents the taxpayers from denying fraud in the civil tax case. Mr. Scharf opposed the motion. He argued that aspects of the multiple count conviction made it impossible to conclude that the fraud charged in the civil case was implicit from the guilty verdict in the criminal case. The Court agreed with Mr. Scharf, and denied the government’s motion to use the tax fraud criminal conviction to prove civil tax fraud. Mr. Scharf then persuaded the I.R.S. lawyers that they could not prove fraud without the conviction. The I.R.S. lawyers agreed to a settlement in which the IRS conceded that there was no fraud despite the criminal conviction, that the client had no unreported income, and that the client’s wife was an innocent spouse. As a result, no taxes or penalties were collected.
· A couple was accused of civil tax fraud for failing to report substantial income. At trial, Mr. Scharf successfully opposed the IRS’ effort to prove fraud. Mr. Scharf then persuaded the court that a shorter statute of limitations applied because the IRS failed to prove fraud. Since the IRS failed to act within the shorter statute of limitations, the couple won a windfall and did not have to pay income taxes on their unreported income.
· While represented by prior counsel, a businessman and his wife were convicted of over 100 counts of racketeering, mail fraud, and income tax evasion. The businessman was sentenced to prison and to pay a large fine and a large RICO forfeiture. After he served his jail sentence, he and his wife retained Mr. Scharf to represent them in the subsequent civil tax fraud case. While preparing for the tax case, Mr. Scharf determined that the criminal forfeiture and the fine were computed erroneously and that the clients overpaid the forfeiture and fine by more than $150,000. Mr. Scharf persuaded the court to order the government to refund the overpayments. However, before the government made the refund payments, the IRS assessed taxes, interest and penalties, amounting to more than $5,000,000, and levied against the refund. When negotiations failed, Mr. Scharf filed a separate lawsuit seeking to have the assessments and levies declared illegal. Only after that action was filed did the government agree that the tax assessments and levies were erroneous. Mr. Scharf then filed a motion for costs and attorney’s fees. The Court awarded Mr. Scharf’s clients costs and attorney’s fees based on a determination that the position of the United States in making the assessments and levies was not substantially justified. The clients then received the refund of the overpaid fine and RICO forfeiture, as well as their costs and attorney’s fees.
The IRS then brought a new civil tax case against the above clients for the $5,000,000 of taxes, interest and penalties. Mr. Scharf successfully resisted the IRS’ argument that the taxpayers’ convictions in the earlier criminal case, including tax evasion, prevent them from denying fraud in the civil case. This enabled Mr. Scharf to obtain a settlement in which the IRS stipulated that the wife, who had substantial assets, is an innocent spouse and that she owed no taxes, notwithstanding her criminal conviction. The husband was judgment proof. No taxes or penalties were collected.