Sam Wyly Gets a $1.1 Billion Tax Bill
June 28 2016 - 4:40PM
Dow Jones News
A federal judge has ordered Texas entrepreneur Sam Wyly to pay
$1.1 billion in taxes and penalties for committing tax fraud using
offshore accounts, even though the former billionaire's net worth
has fallen to a fraction of that amount.
The payment demand from Judge Barbara Houser on Monday was made
for federal taxes due as far back as 1992. In a court opinion filed
last month, she admitted that the money "may now be more difficult
for the government to collect given the passage of time and the
dissipation of Sam's wealth."
Financial statements filed with the U.S. Bankruptcy Court in
Dallas in November 2014 declared that Mr. Wyly's assets were worth
$382.83 million. His spokesman didn't return requests for comment
on the order.
In a May 10 opinion, Judge Houser ruled that Mr. Wyly, 81 years
old, and his lawyers created a complex network of offshore accounts
to conceal trading profits and "amass tremendous untaxed
wealth."
Specifically, Judge Houser said Mr. Wyly transferred stock
options he earned, as compensation for serving as a director of
business for software maker Sterling Software Inc. and
arts-and-crafts chain Michaels Stores Inc., into the offshore
trusts in exchange for a private annuity.
The network enabled Mr. Wyly to "escape his obligation to pay
tax on the annuity income he was contractually entitled to
receive," wrote Judge Houser, who called the offshore system
"nothing short of mind-numbing…with identically named domestic and
foreign corporations, and layers upon layers of foreign
entities."
Mr. Wyly's lawyers, during a three-week trial, blamed his hired
financial professionals. Mr. Wyly testified that he hasn't prepared
his own tax returns since the 1960s.
Judge Houser was not convinced.
"To accept [his] explanation requires the court to be satisfied
that it is appropriate for extraordinarily wealthy individuals to
hire middlemen to do their bidding in order to insulate themselves
from wrongdoing so that, when the fraud is ultimately exposed, they
have plausible deniability," she wrote.
Judge Houser also found that Mr. Wyly's brother Charles, who
died in a 2011 car accident, was also part of the "deceptive and
fraudulent" scheme.
In her 459-page opinion, Judge Houser traced Mr. Wyly's transfer
strategy to a 1991 asset protection and tax deferral seminar held
in New Orleans by trust promoter David Tedder, who later visited
the Wylys at Sam Wyly's Malibu, Calif., home.
The Wyly family used offshore money to buy art and jewelry and
to build homes in Texas and Colorado in a way that Mr. Wyly
"believed prevented them from being taxed as gifts or other
distributions from offshore," the opinion said.
U.S. Securities and Exchange regulators later sued Mr. Wyly for
securities fraud, a dispute that led to a $198.1 million judgment.
He filed for chapter 11 protection in October 2014, saying he
couldn't afford such a steep penalty.
The payment breakdown in Monday's court order shows that roughly
$745 million is owed for penalties. Judge Houser ordered him to pay
about $135 million for federal taxes due from 1992 to 2013 and
about $227.1 million in interest.
In her opinion, Judge Houser pointed out that the tax bill
sharply escalated after Mr. Wyly, who learned of the Internal
Revenue Service's audit in early 2004, opted not to cooperate with
tax investigators. She added that Mr. Wyly was "uncooperative"
during the trial and "had to be impeached frequently to get him to
admit to fairly obvious facts."
He "simply waited for the IRS to come after him, all the while
continuing his offshore activities," she wrote. "Such a cavalier
attitude toward his reporting obligations for 20-plus years
reflects, at a minimum, reckless indifference."
Peg Brickley contributed to this article.
Write to Katy Stech at
katy.stech@wsj.com<mailto:katy.stech@wsj.com>
(END) Dow Jones Newswires
June 28, 2016 16:25 ET (20:25 GMT)
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