Yearly Archives: 2018

According to Law360 “Jersey Shore” star Michael “The Situation” Sorrentino and his brother Marc Sorrentino have agreed to plead guilty in their criminal case over tax-related charges instead of going to trial next month, according to a government letter on January 17, 2018 to a New Jersey federal judge.

The parties told the court Tuesday that the Sorrentinos had agreed to plead guilty, and U.S. District Judge Susan D. Wigenton scheduled a hearing for Friday for the defendants to enter their guilty pleas, according to a one-page letter prosecutors sent the judge Wednesday. The parties thus asked Judge Wigenton in the letter to stay a Wednesday deadline outlined in parts of a scheduling order entered in connection with the brothers' upcoming trial.

The terms of the proposed plea deals were not immediately available.

The anticipated guilty pleas come after both brothers told Judge Wigenton during a Jan. 9 hearing that each had declined a written plea deal dated Dec. 19 without stating the specific terms of the proposed agreement.

Jury selection in the matter had been scheduled for Feb. 8, and opening statements were expected to occur the following week. The trial was slated to last about three weeks.

In September 2014, Michael and Marc Sorrentino were indicted on one count each of conspiracy to defraud the United States, and three and two counts, respectively, of filing false tax returns for 2010 through 2012. Michael Sorrentino was also charged with allegedly failing to file a tax return for 2011.

A superseding indictment, handed down in April, added charges of tax evasion and structuring funds to evade currency transaction reports against Michael Sorrentino and a charge of falsifying records to obstruct a grand jury investigation against Marc Sorrentino.

The Sorrentinos allegedly created businesses, such as MPS Entertainment LLC and Situation Nation Inc., and failed to pay all of the federal income tax owed on about $8.9 million that Michael Sorrentino earned between 2010 and 2012, according to the superseding indictment. Those businesses earned money from setting up promotional appearances, selling merchandise and arranging book and video deals.

The brothers allegedly filed false tax returns with the Internal Revenue Service that understated gross receipts, claimed fraudulent business deductions, disguised income payments made to them and others, and underreported net business income, authorities said. They also allegedly commingled their business and personal funds and used the money from the business bank accounts to pay for personal items, such as expensive luxury cars and clothing, authorities said.

Michael Sorrentino is accused of evading his 2011 income taxes by failing to file a personal return, filing a false corporate return for Situation Nation and concealing his cash income, authorities said.

According to the superseding indictment, he made multiple cash deposits on the same day in amounts less than $10,000 into different bank accounts, a practice known as structuring, in an effort to evade the banks’ reporting requirements, authorities said.

Authorities also assert that after being served with grand jury subpoenas seeking books and records of MPS and Situation Nation, but prior to producing them to the grand jury, Marc Sorrentino falsified those documents by altering and reclassifying taxable payments to himself as nontaxable payments and as legitimate business deductions.

The brothers' former accountant, Gregg Mark, has admitted to filing false tax returns on their behalf. Mark pled guilty in December 2015 to one count of conspiracy to defraud the United States, admitting that he prepared fraudulent tax returns for the Sorrentinos for tax years 2010 and 2011. He is awaiting sentencing.

The case is U.S. v. Sorrentino et al., case number 2:14-cr-00558, in the U.S. District Court for the District of New Jersey.

  

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According to taxproToday, Companies that stockpiled trillions of dollars offshore free of U.S. income tax may get one last break before paying up, provided their fiscal years don’t follow the calendar year.

A timing quirk in the tax overhaul that President Donald Trump signed last month may be good news for companies such as Apple Inc., Microsoft Corp. and Cisco Systems Inc., all of which began their fiscal years before Jan. 1. Firms including Alphabet Inc., Amgen Inc. and General Electric Co., with fiscal years that began on Jan. 1, appear to be shut out of the benefit.

Apple alone, which disclosed an offshore cash hoard of $252 billion as of Sept. 30, may be able to lop more than $4 billion off a future tax bill, according to Stephen Shay, a tax and business law professor at Harvard Law School who wrote about what he called the “potential loophole” last month. He characterized the boon as a side effect of the speed with which congressional Republicans passed their tax bill.

“This bill was passed on a speed train schedule with no time to think,” said Shay, who was a senior Treasury Department official during the administrations of former presidents Barack Obama and Ronald Reagan. It’s up to Treasury and the Internal Revenue Service to create rules to prevent companies from taking advantage, he said.

In passing the most extensive tax-code revisions since 1986, Congress scrapped the previous international tax system for corporations, an unusual arrangement that allowed companies to defer U.S. income taxes on foreign earnings until they returned the income to the U.S. That “deferral” provision led companies to stockpile an estimated $3.1 trillion offshore.

In switching to a new system that’s designed to focus on domestic economic activity, congressional tax writers also imposed a two-tiered levy on all that accumulated foreign income: Cash will be taxed at 15.5 percent, less liquid assets at 8 percent. Companies can pay over eight years.

The timing issue that Shay surfaced stems from a provision that, in effect, gives a company until the end of its fiscal year to measure what’s cash and what isn’t for tax purposes. Consequently, companies that began new fiscal years before Jan. 1 get an extra chance to reduce foreign cash they’ll accumulate this year, which they can do by distributing cash dividends to their U.S. parents before tallying up what’s left to be taxed, Shay wrote.

The law actually specifies two dates that companies should use in tallying their offshore cash piles, and they have to pay the 15.5 percent rate on whichever tally is larger. The options: The two-year average of foreign cash as of Nov. 2, the date the House introduced its tax bill; or the end of the firm’s current fiscal year, if it began before Jan. 1.

Here’s how Shay said it could work for Apple, which began its fiscal year on Oct. 1: Under the Nov. 2 formula, the company’s two-year average offshore cash stash was $234 billion. Shay said Apple’s historical earnings suggest that figure could grow to $289 billion by Sept. 30, when its year ends.

Therefore, Shay said, if Apple’s foreign subsidiaries operate on the same fiscal year, they could distribute as much as $55 billion to their parent, taking the overseas cash total down to match the Nov. 2 number. And because there’s a 7.5 percentage-point difference in the two tax rates, the company’s tax savings thanks to the distribution could amount to $4.1 billion, he said.

The IRS didn’t respond to a request for comment. One line in the tax bill says that if federal officials determine that a company has shifted cash or cash equivalents into other assets with “a principal purpose” of trying to reduce their tax bills, the transaction will be disregarded. But Shay said that line isn’t enough to prevent abuse, and the IRS should produce detailed, concrete guidance for companies.
As it stands now, if companies use the strategy to try to reduce their tax bills, it would be up to the IRS to challenge the move—and then see whether its position holds up in court, said Eric Solomon, a co-director of the national tax practice at Ernst & Young LLP.

Contact the Tax Lawyers at 

Marini & Associates, P.A.