In the most recent case of government’s crackdown on offshore tax evasion, a Florida psychiatrist, who together with her husband founded two Caribbean medical schools, was found guilty of conspiring to defraud the Internal Revenue Service and filing false tax returns.
Dr. Patricia Lynn Hough, of Englewood, Florida, was convicted by a jury in the federal district court in Fort Myers, Fla., of conspiring to defraud the IRS by concealing millions of dollars in assets and income in offshore bank accounts at UBS AG and other foreign banks, and of filing false individual income tax returns for 2005 through 2008, which failed to report the existence of those foreign accounts or the income earned in those accounts.
Dr. Hough and her husband, Dr. David Frederick, founded and owned two Caribbean-based medical schools – The Saba University School of Medicine located in Saba, Netherlands Antilles, and The Medical University of the Americas located in Nevis, West Indies. The government claimed that Dr. Hough and her husband conspired to defraud the IRS by creating and using nominee entities, including a foundation, and undeclared accounts in their names and the names of nominee entities at UBS and other foreign banks. Both medical schools and associated real estate were sold by the doctors in 2007, for more than $35 million, and all the money was deposited into undeclared accounts in the name of the foundation. The majority of the sale proceeds were not reported to the IRS on their tax returns and no tax was paid.
Dr. Hough argued that she was merely a signer on the bank accounts for the foundation, which ran the medical school, in case something happened to her husband, and that she never believe that the money held at UBS belonged to her. The government presented evidence that the foundation was just a nominee of the individuals, and that the nominee companies served no business purpose other than to hide the taxpayers’ income. The prosecutors showed that Dr. Hough and her husband used the proceeds of the schhol sales to buy a $1.6 million airplane, two houses in North Carolina, and a condominium in Florida. The evidence at trial further proved that Dr. Hough and her co-conspirator used emails, telephone calls and in-person meetings to instruct Swiss bankers and asset managers to make investments and transfer funds from their undeclared accounts at UBS.
In addition to the conspiracy charges, Dr. Hough was also convicted of four counts of filing false tax returns for 2005, 2006, 2007 and 2008. The evidence at trial established that she filed false tax returns that substantially understated her total income because she failed to report substantial interest and investment income and failed to report on Schedule B of the tax returns that she had an interest in or signature or other authority over bank, securities or other financial accounts located in foreign countries. U.S. taxpayers have an obligation to report to the IRS on Schedule B of a U.S. Individual Income Tax Return, Form 1040, whether they have a financial interest in, or signature authority over, a financial account in a foreign country in a particular year by checking “Yes” or “No” in the appropriate box and identifying the country where the account is maintained. U.S. citizens and residents also have an obligation to report all income earned from foreign bank accounts on their tax returns.
The sentencing is scheduled for February 10, 2013. The conspiracy count carries a maximum potential penalty of five years in prison and a $250,000 fine. The false return counts each carry a maximum potential penalty of three years in prison and a $250,000 fine.