An international tax advisor has been re-arrested and charged for his role in a conspiracy to engage in tax fraud for over seven years. Frank Butselaar, a citizen of the Netherlands, was charged with one count of conspiracy to defraud the U.S. and five counts of aiding and abetting the filing of false tax returns.
Butselaar had been arrested earlier this year following a request from the U.S. to Italy for provisional arrest for purposes of extradition and was returned to custody this week in Italy following a favorable ruling on the extradition request.
The Charges
According to court documents, Butselaar was an advisor to high-net-worth DJs and fashion industry clients. Two of Butselaar’s clients involved in the investigation are not named in the indictment and are referred to as Client-1 and Client-2. Both are described as “internationally renowned DJs” specializing in electronic dance music, or EDM, who earn money worldwide. Both clients are also described as having spent enough time in the U.S. to be required to file a U.S. tax return.
The indictment alleges that Client-1 and Client-2 established offshore entities at the advice of Butselaar and others which was used to hide income from the IRS. At all times relevant to the charges, Butselaar and his co-conspirators, who are also not named in the indictment, knew about the entities and worked to create a complicated strategy to keep them a secret. As part of the scheme, the entities were held by trusts. The feds charge that Client-1 and Client-2 were removed from their positions as beneficiaries of the trusts and replaced by nominee beneficiaries to avoid detection.
Butselaar and his co-conspirators devised and implemented similar fraudulent schemes for fashion industry clients. In those arrangements, fashion industry clients transferred their overseas companies to family members, knowing, according to the indictment, that those clients would maintain beneficial ownership of the overseas companies—and the resulting income.
As a result of these schemes, Butselaar and his co-conspirators caused to be filed Forms 1040 for these high net worth clients that fraudulently omitted over $100 million in worldwide income.
U.S. Attorney Damian Williams said, about the arrest, “As alleged, this defendant and his co-conspirators devised strategies to file false and fraudulent returns with the IRS for U.S. taxpayers of incredible means. Butselaar, as a tax advisor to many wealthy clients, knew intimately the responsibility his clients had to pay U.S. taxes on their income but ignored this obligation, opting instead to deceptively hide this income from the IRS. Our Office will continue to pursue those who use their expertise to unlawfully conceal income.”
IRS-CI Involvement
Williams also praised the outstanding investigative work of the IRS-CI and the Joint Chiefs of Global Tax Enforcement, sometimes called the J5. The J5, which includes the Australian Taxation Office, the Canadian Revenue Agency, the Dutch Fiscal Intelligence and Investigation Service, His Majesty’s Revenue and Customs from the United Kingdom, and the IRS-CI from the U.S., works together to gather information, share intelligence, and conduct coordinated operations against transnational financial crimes.
IRS-CI Special Agent in Charge Thomas Fattorusso said: “Butselaar thought he was above the law. It’s alleged he operated this international fraud scheme to conceal millions of dollars in income earned by his high-profile clients around the world. This wasn’t just a get rich quick scheme, but rather Butselaar sought to play the long game and used a variety of sophisticated techniques to perpetuate this tax fraud over the course of several years. IRS-CI has a global reach, and we thank our J5 collaborators for their valuable partnership on this case. For Butselaar, it’s time to pay the tab.”
Potential Sentence
If found guilty, Butselaar faces up to five years in prison on the conspiracy charge, and up to three years in prison for each of the five counts of aiding and abetting the filing of false tax returns.
High-Income Tax Evaders
The announcement comes as IRS Commissioner Danny Werfel announced that the IRS was taking “swift and aggressive action” to ensure high-income filers pay the taxes they owe. Werfel says that more than a decade of budget cuts has prevented IRS from keeping pace with the increasingly complicated set of tools that the wealthiest taxpayers use to hide their income and evade paying their share. But, relying on funds from the Inflation Reduction Act—which I refuse to call the IRA—that is changing.
Werfel noted that the IRS closed about 175 delinquent tax cases for millionaires in just the last few months, generating $38 million in recoveries. “This is just the start,” he promised. While again echoing his commitment not to increase audit rates for families making less than $400,000, he said that the IRS “will continue to go after delinquent millionaires as we ramp up enforcement capabilities through the IRA.”
Werfel also reported that the IRS-Criminal Investigation (IRS-CI) team had closed a lengthy list of cases where wealthy taxpayers have been sentenced for tax evasion, money laundering, and filing false tax returns. Instead of paying taxes, these evaders spent money owed to the government on gambling at casinos, vacations, and the purchase of luxury goods. For example, in one case, the person was ordered to pay more than $6 million in restitution.
The IRS also recently identified about 100 high-income individuals claiming tax benefits in Puerto Rico without meeting the residence and source rules involving U.S. possessions. These wealthy individuals are attempting to avoid U.S. taxation on U.S. source income, and Werfel expects many of these cases to proceed to IRS-CI.
In June, the IRS and Treasury issued proposed rules defining Maltese personal retirement schemes that avoided U.S. taxes as listed transactions. The IRS says it is already working to identify taxpayers who improperly use Malta-U.S. Treaty rules to claim exemptions. Werfel says that the Inflation Reduction Act funds will enable the IRS to forcefully find tax avoiders who leverage these offshore schemes.
Finally, Werfel stressed that the IRS continues to intensify work around wealthy individuals who do not file tax returns. These are cases, he says, where instead of filing and paying taxes, “these people used the money to make lavish purchases.” In one recently closed case, he noted that an individual used funds owed to the government to buy a Maserati and a Bentley. He vowed, “We will continue to work with our law enforcement partners to hold these individuals accountable.”
Werfel recently wrapped his fourth month as IRS Commissioner. He has made the fair enforcement of tax laws a central theme of his administration. That includes, he says, strengthening enforcement against high-income individuals who do not pay taxes owed.
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