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Federal judge finds Sam Wyly knew system of tax shelters was improper

The latest chapter in a years-long legal saga between the IRS, the SEC, and once-prominent businessman Sam Wyly (and the estate of his late brother Charles) came this week in the form of a 459-page verdict from U.S. Bankruptcy Judge Barbara Houser. The Court found that there is "clear and convincing evidence" that Sam and Charles Wyly knew that their extremely complex and convoluted system of offshore trusts and shell corporations was designed for the sole purpose of hiding profits and other business transactions from the IRS to avoid paying taxes.

Court denies Wyly's claims of relying on advisers

Wyly claimed that his network of trusts and corporate tax shelters was vetted by professional tax preparers, attorneys and advisers, and he relied upon their assessment that it was aggressive but not illegal. Judge Houser specifically addressed and denied this argument as part of her lengthy decision. Given the Wyly brothers' business acumen, shrewdness and skill - they are self-made billionaires who are well-known for their interests in such huge companies as Bonanza Steakhouse, Michael's Crafts stores and Sterling Software - she rejects arguments that they were unaware of the possible tax implications of such a complex and convoluted system of tax havens.

Houser goes on to acknowledge that this tax fraud case has possible precedential value, stating that, to accept Wyly's arguments of reliance upon the advice of others would grant "plausible deniability" to businesspeople seeking to evade the law by "hiring middlemen to do their bidding in order to insulate themselves from wrongdoing." Houser did, however, find that Charles Wyly's widow (a homemaker for the entirety of her decades-long marriage) wasn't complicit in the scheme; Dee Wyly was essentially found to be an "innocent spouse" in the eyes of the law.

Experts agree that, given Houser's verdict, it is likely that the Wylys will now be responsible for a good chunk of the over $2 billion in back taxes, interest and penalties sought by the IRS and at least a portion of the nearly $300 million sought by the SEC. The Court's decision directs the parties to reach a compromise on the amount of payments to be made within 30 days, or, failing an agreement, to submit proposals within 45 days on how best to resolve the matter.

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