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July 26, 2016

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Bankruptcy court rules in long-running Wyly case

Litigated cases – involving tax or any other subject – can take a long time to unfold.

In this post, we will update you on a long-running Texas case involving tax fraud allegations. The case grew out of a federal investigation into offshore tax shelters set up by two brothers, Charles and Sam Wyly.

The Wyly brothers made lots of money with a chain of arts-and-crafts stores called Michael’s, as well as other businesses. But in 2010, the U.S. Securities and Exchange Commission brought suit against them for alleged using a fraudulent set of offshore trusts to evade taxes.
The following year, Charles Wyly died in a car crash. But the SEC then went after his estate.

In 2014, we used the Wyly case to discuss the question of how far back in time the IRS can go to investigate tax evasion. There was some question about why the SEC, but not the IRS, pursued the charges.

Last year, in our November 20 post, we took note of the government’s efforts to collect big tax penalties from Charles Wyly’s widow, Dee. Dee successfully sought bankruptcy protection; the bankruptcy judge found that Dee did not know about the fraudulent offshore scheme.

The latest development in the case came last month when a bankruptcy court judge issued an order directing Sam Wyly to pay more than a billion dollars to the federal government. Of the total amount of $1.11 billion, more than $570 million is tax penalties. Another $402 million is interest.

Tax Evasion