Manhattan Energy Investor Sentenced For Evading Over $45 Million Of Income And Sales Taxes

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https://www.justice.gov/usao-sdny/pr/manhattan-energy-investor-sentenced-70-months-prison-evading-over-45-million-income-and

Department of Justice
U.S. Attorney’s Office
Southern District of New York

FOR IMMEDIATE RELEASE
Tuesday, March 21, 2017

Manhattan Energy Investor Sentenced To 70 Months In Prison For Evading Over $45 Million Of Income And Sales Taxes

Defendant Hid From the IRS the $130 Million Sale Of a Company He Owned; Manufactured Millions of Dollars of False Deductions; And Provided False Information To IRS During Audits

Joon H. Kim, the Acting United States Attorney for the Southern District of New York, announced that MORRIS ZUKERMAN, a Manhattan businessman who owns companies involved in energy investments, was sentenced today to 70 months in prison for engaging in multi-year tax fraud schemes pursuant to which he evaded over $45 million in income taxes and other taxes. ZUKERMAN pled guilty on June 3, 2016, before United States District Judge Analisa Torres, who imposed today’s sentence.
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ZUKERMAN, the principal of M.E. Zukerman & Co. (“MEZCO”), an investment firm located in Manhattan, schemed to evade taxes based on income received from the January 2008 sale of a petroleum products company (the “Oil Company”) he co-owned (through a MEZCO subsidiary) with a public company. ZUKERMAN schemed to evade the reporting of the sale – which resulted in the receipt by the MEZCO subsidiary of $130 million in gross sales proceeds – by falsely telling his accountants in mid-2008 that he had transferred ownership of the MEZCO subsidiary to a family trust in early 2007. In support of the false story he gave to the accountants, ZUKERMAN created backdated documents such as promissory notes and a board resolution purporting to show the transfer of the subsidiary to his family trust in 2007. The false documents allowed ZUKERMAN to remove the MEZCO subsidiary from the consolidated tax reporting being handled by the accountants for MEZCO and thereby evade the reporting to the IRS of the sale of the Oil Company, as well as the payment of over $33 million in corporate income taxes.

Following the sale of the Oil Company, ZUKERMAN transferred the proceeds of the sale from the MEZCO subsidiary to his family trust, his personal bank accounts, and various corporations he controlled, including a company called Zukerman Investments. Between 2008 and 2013, ZUKERMAN directed that over $50 million of the funds transferred to Zukerman Investments be used to purchase paintings by European artists from the 15th through the 19th centuries (the “Old Master paintings”), which ZUKERMAN used to decorate his Upper East Side apartment and the apartments of two family members – Family Member-1 and Family Member-2.

In connection with the purchase of the Old Master paintings, ZUKERMAN schemed to defraud New York State of over $4.5 million of sales and use taxes by directing that the paintings, which were frequently purchased from galleries located blocks from ZUKERMAN’s Manhattan residence, be shipped by the galleries to ZUKERMAN’s corporate addresses located in Delaware and New Jersey, and transported immediately thereafter (sometimes within minutes), by ZUKERMAN and others, back to ZUKERMAN’s residence in New York – all without the payment to New York State of sales or use taxes.

ZUKERMAN also schemed to evade personal income taxes and to obstruct the IRS by (i) causing various tax return preparers to prepare U.S. Individual Income Tax Returns, Forms 1040, for ZUKERMAN and his wife, and for Family Member-1, Family Member-2, and Family Member-3, that claimed, in the aggregate, millions of dollars of false and fraudulent deductions and expenses, such as phony charitable contributions and investment interest expenses; (ii) diverting, for personal use, corporate assets from MEZCO and other corporate entities ZUKERMAN controlled by directing that hundreds of thousands of dollars of fees be paid between 2007 and 2013 to Family Member-1, Family Member-2, and Family Member-3, for which the family members performed little or no work; (iii) directing that corporate funds be used to pay compensation to, and health care insurance for, a household employee of ZUKERMAN, whom ZUKERMAN also caused to be falsely identified as a MEZCO employee to ZUKERMAN’s corporate health care provider when, in truth and fact, the household employee worked exclusively out of ZUKERMAN’s homes in New York City and Maine as a domestic employee; (iv) falsely under-reporting employment taxes through the payment of hundreds of thousands of dollars of cash and other wages to ZUKERMAN’s domestic employees; and (v) providing false information to the IRS during audits in an attempt to fraudulently convince IRS auditors and other IRS employees that the fraudulent claims made on his previously filed tax returns were accurate when, in truth, they were not.

The False Charitable Contribution Deductions for the 2009 & 2011 Tax Years

ZUKERMAN’s fraudulent charitable contribution deductions – totaling $1 million – arose out of a real estate transaction in 2009 and 2010, pursuant to which ZUKERMAN purchased approximately 240 acres of property on Black Island, a small island located off the coast of Maine, close to ZUKERMAN’s home on a nearby island. ZUKERMAN was enlisted to purchase the Black Island property by the Maine Coast Heritage Trust (“MCHT”), a Maine-based land conservation entity that was seeking to orchestrate the purchase, for conservation purposes. After considering making a charitable contribution to the MCHT to allow MCHT to purchase the property, ZUKERMAN decided instead to purchase the land as the outright owner for the benefit of himself and his family for $1 million through a newly formed limited liability company he solely owned. ZUKERMAN, however, falsely told his tax return preparer that the $1 million he paid for the property should be declared on his personal income tax returns as a charitable contribution to MCHT during the 2008 and 2010 tax years. ZUKERMAN subsequently signed the false 2008 and 2010 tax returns and caused them to be filed with the IRS.

The Audit Fraud

ZUKERMAN sought to defraud the IRS during three separate audits. In audits of his personal returns and that of a family member, ZUKERMAN provided his accountants with false documents and false information in an attempt to provide support for false items previously placed on individual tax returns by him. During an IRS audit of one of ZUKERMAN’s companies, ZUKERMAN attempted to obstruct the audit by utilizing two attorneys from a law firm in Washington, D.C., to convey a false factual narrative to an IRS Appeals Officer.
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[nitpicker]

1. Link to Bloomberg

https://www.bloomberg.com/news/articles/2017-03-21/oil-financier-zukerman-gets-70-months-for-tax-evasion