Former BDO Seidman vice chairman Charles W. Bee Jr., has pleaded guilty to tax fraud charges stemming from tax shelters marketed to the firm’s wealthy clients.
Between 1998 and October 2000, Bee, a 63-year-old CPA, was one of the leaders of the firm’s Tax Solutions Group, which was devoted to designing, marketing and implementing high-fee tax strategies, including tax shelters, to upper-income clients. The firm’s CEO and New York-based partner Adrian Dicker, who has previously pleaded guilty to tax fraud charges, were also part of the group. Prosecutors contended that the scheme caused clients to report over $1 billion in fraudulent tax losses, resulting in the evasion of over $200 million in taxes.
They marketed and implemented two different types of tax shelters with the Chicago office of the law firm Jenkens & Gilchrist and with an international bank in New York. According to prosecutors, Bee knew that the tax shelter transactions would be allowed by the IRS only if there was a reasonable possibility of a profit and that, given the costs and fees to the clients, and the nature and duration of the transactions, the tax shelters had no reasonable possibility of resulting in a profit.
To make it appear that the tax shelter clients had the requisite business purpose and that there was a possibility of profit, Bee and the other partners involved in the group reviewed and approved the use of a legal opinion letter issued by Jenkens & Gilchrist that contained representations purportedly made by the clients about their motivations for entering into the transactions. Bee and the other TSG members also developed a consulting agreement containing fraudulent statements to disguise the fact that the fees clients would be charged by BDO Seidman were solely for the tax shelters, according to prosecutors. Finally, Bee and the others caused the clients to file false and fraudulent tax returns incorporating the supposed tax shelter benefits.
“Mr. Bee is a former BDO Seidman partner,” said a statement from BDO. “He was a member of a group of partners within the firm that marketed tax shelter products. That group was dissolved by BDO several years ago. BDO Seidman has cooperated fully with the government’s tax shelter investigation and will continue to do so. The firm does not intend to comment further on this matter.”
Bee admitted criminal responsibility based on the sale by BDO of a tax shelter known as the "short option" transaction to one client, who was charged fees of approximately $133,000 by BDO Seidman and $201,000 by J&G. The short option tax shelter purportedly generated losses sufficient to offset the taxes due on $6.7 million the client had received from a stock sale. In fact, the short option transaction had the reasonable possibility only to net a profit of $67,000, thus resulting in no potential profit to the client.
The client nonetheless filed tax returns with the IRS reporting false and fraudulent losses purportedly generated from the short options shelter, thereby evading a substantial amount of taxes.
Finally, Bee admitted that in February 2005, while under oath during a deposition in Jade Trading v. United States, a Court of Federal Claims case involving a tax shelter sold by BDO and another promoter, he knowingly made false material statements concerning BDO's tax shelter practice.
As part of his plea agreement, Bee agreed to forfeit $20 million, representing the money BDO Seidman paid to Bee from tax shelter fees. He also agreed to forfeit four residences in Florida and New Jersey, along with a 40-foot Coachman Legend recreational vehicle.
Bee, who resides in Fredericksburg, Va., and Boca Raton, Fla., pleaded guilty to one count of conspiracy to defraud the IRS, one count of tax evasion and one count of perjury. He faces a maximum sentence of five years in prison on each of the three counts, along with a maximum fine of $250,000 or twice the gross gain or gross loss from the offense. A sentencing date has not yet been set.
Bee is the third member of the group to plead guilty in the case. Michael Kerekes, a principal of BDO Seidman and also a former member of BDO’s TSG and Tax Opinion Committee, pleaded guilty on Feb. 13, 2009, to related conspiracy and tax evasion charges. Adrian Dicker, another former vice chairman of BDO Seidman and TSG member, pleaded guilty on March 17, 2009, to conspiracy and evasion charges as well.
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