A widespread admission of schools to allow cheating not only enabled wealthy parents to get their children to sought-after schools, but to write off the bribes on their taxes, the federal authorities say.
Now some parents who may already be in prison with extra criminal charges and severe financial penalties can be beaten, experts say.
And a lot of others who have contributed to the basis that an admission consultant used to mask the bribes, but who have not been charged with the scam, will certainly face IRS criticism.
The IRS has “been the successor to the money public since the days of Al Capone, so they will follow those lists and that money very carefully,” said Mark Matthews, a former deputy commissioner of the firm who is now a lawyer at Caplin & Drysdale in Washington.
Counselor Rick Singer led millions of dollars from parents through his tax-exempt organization and then used it to pay buses and other insiders to designate candidates as athletic recruits or cheat on entrance exams, prosecutors claim.
Among the 33 prominent parents being charged in the case are Hollywood stars Lori Loughlin and Felicity Huffman, who have not responded publicly to the case. The actresses and others are scheduled to make their first appearances this week in the federal court of Boston.
The parents’ bribes were disguised as “donations” to the Key Worldwide Foundation, which claimed “to provide education that is not normally feasible for underprivileged students, not only feasible but also realistic.”
Singer’s foundation sent letters to the parents thanking them for the donation that “no goods or services were exchanged”, which allowed many of them to deduct the payments from their taxes as charitable contributions, prosecutors say.
After Singer began collaborating with investigators in September in the hope of getting a milder sentence, the FBI had him call the parents and claim that his foundation was checked by the IRS in an effort to get them to acknowledge that they were involved in the scheme .
“So I want to make sure that you and I are both on the same page, because what I am going to tell them is that you have made a 50K donation to my foundation for children with insufficient facilities and not that (the proctor) the test for (your daughter) … “Singer told a parent, according to legal documents.
“Guy, dude, what do you think, I’m an idiot?” Agustin Huneeus, Jr. replied. a Napa Valley, California, winegrower. E-mail was sent to Huneeus’ lawyer on Monday.
The IRS, which together with the FBI investigated the criminal case, said it is investigating the payments made by the parents.
Although prosecutors outlined the tax deduction scheme when the parents were arrested last month, none of them are charged with tax evasion. Some experts suspect that civil servants, among other things, bear the extra costs of the parents in an attempt to convince them to admit guilt quickly.
To convict them for tax crimes, prosecutors would have to prove that they not only intentionally underpaid, but knew they were breaking the law when they did. Perhaps a difficult sale, but parents might try to claim that their statements about the phone calls do not prove that they knew the deductions were illegal.
“Ignorance is not an excuse for breaking the law, but for tax purposes,” said Philip Hackney, who worked in the office of the lead lawyer of the IRS and now teaches at the University of Pittsburg School of Law.
But parents are sure to pay severe penalties to the IRS, experts say.
In addition to paying back the taxes they owe, parents can at least be hit with a 20% fine for demanding a deduction if they should not do so, said Lloyd Hitoshi Mayer, a professor at the University of Notre Dame Dame Law School. Some could hook up for a civil tax fraud fine equal to 75% of the underused amount, Mayer said.
“Certainly, the exchanges that (Singer) had with those parents are enough to support fraud against fraud,” he said.
Some parents are accused of paying Singer’s charity through their own family foundations, who could bear their own civil penalties and lose their tax-free status, experts say.
Key Worldwide Foundation should have reported all contributions over a certain threshold to the IRS, said Meghan Biss, who spent a decade with the IRS before joining Caplin & Drysdale.
That means that the IRS will not only reclaim taxes from the parents who have been charged, but will search those names to determine if the other donations were legitimate, she said.
“Are there more people who may have criminal charges or just have civil fines?” She asked.