Barely two months after being convicted of running a billion dollar illegal payday lending enterprise, professional racecar driver Scott Tucker was indicted today by a grand jury on federal charges of failing to report millions in income from that business. Also indicted today was Tucker’s accountant, who is charged with aiding in Tucker’s filing of a false tax return. The charges were filed in federal court in Kansas, where Tucker and his accountant reside.
The indictment alleges that in 2008 Tucker orchestrated a sham sale of his company CLK Management to a Native American tribe in Miami for $120,000. In fact, Tucker continued to control CLK and a new entity, AMG Services, Inc. After the sale, other people and entities were listed as owners of Tucker’s payday lending businesses. In fact, Tucker controlled the daily operations of those business, and he was alleged to be the source of funds being lent and he bore the risk of loans not being repaid.
W. Brett Chapin was a Certified Public Accountant who prepared Tucker’s tax returns for 2008, 2009, 2010, and 2011. The indictment alleges that on October 19, 2009, Tucker signed a 2008 tax return prepared by Chapin that failed to report more than $42.5 million in income from Tucker’s payday lending businesses. The indictment also alleges that on October 20, 2011, Tucker signed a 2010 tax return prepared by Chapin that failed to report more than $75 million in income from Tucker’s payday lending businesses.
In October, Tucker and a co-defendant were convicted after a five-week jury trial in federal court in Manhattan on all counts against them for operating a nationwide internet payday lending enterprise that systematically evaded state laws in order to charge illegal interest rates. “Payday loans” refer to small, short-term, high-interest, unsecured consumer loans, often made over the internet. The defendants had claimed that their $3.5 billion payday lending business was actually owned and operated by Native American tribes, and was thereby immune from state usury laws because of sovereign immunity, a legal doctrine which generally prevents states from enforcing their laws against Native American tribes. The defendants’ business made loans to more than 4.5 million individuals. Many of these loans were issued in states with laws that expressly forbid lending at the exorbitant interest rates charged.
Today’s indictment of Tucker on tax charges is notable for several reasons. First, based upon his conviction in the New York case on all counts – which include racketeering conspiracy, racketeering, wire fraud conspiracy, wire fraud, money laundering conspiracy, money laundering, and violating the Truth in Lending Act – Tucker faces an exorbitantly lengthy sentence. The RICO and money laundering counts provide for 20 year statutory maximum sentences, and given the government’s contention that Tucker ran a $3.5 billion payday lending business, he will likely face a sentence at the statutory cap. While some could argue that the government is “piling on” by bringing additional charges at this point, it is not unheard of for prosecutors to seek to indict defendants on tax charges separate and apart from a larger fraud case. In addition, Tucker will almost certainly appeal his payday lending conviction, and the tax charges (which are presumably easier to prove) will provide the government with additional leverage (and protection) in the event that Tucker’s payday lending conviction is reversed in whole or in part on appeal. On the tax charges, Tucker similarly faces significant sentencing exposure if convicted: with over $117 million in unreported income for 2009 and 2010, the tax loss will easily fall within the “greater than $25 million” and “less than $65 million” range in the tax table of the U.S. Sentencing Guidelines (2T1.1). With a tax loss in this range, the Sentencing Guidelines conservatively call for a sentence in the range of 78 to 97 months, without taking into account criminal history points and other adjustments which almost certainly will apply and serve to increase the sentencing range.
Second, the indictment in the New York case did not include any tax charges, because venue in tax cases is based upon where the tax return is filed. As a resident of Kansas, Tucker filed his federal income tax returns in that state, and therefore the tax charges had to be brought separately from the New York case in the District of Kansas. The government presumably waited to indict Tucker on tax charges until after the payday lending case was completed.
Third, the Kansas indictment includes charges against Tucker’s accountant pursuant to 26 U.S.C. § 7206(2), which allows the government to prosecute anyone who willfully aids and assists in the filing of a tax return that is false as a material matter. The indictment alleges that Chapin was aware that Tucker actually controlled the payday lending entities despite the purported sale to the Miami tribe, and that during an audit of Tucker’s tax returns, Chapin repeatedly misled the Internal Revenue Service as to the location of the Tucker’s books and records. The indictment further charges that Chapin prepared Tucker’s 2010 personal income tax return which failed to report a whopping $75 million in income from Tucker’s payday lending business. The indictment also alleges that Chapin prepared Tucker’s 2009 personal income tax return which failed to report $42.5 million in income, but the criminal six-year statute of limitations for this return has expired so neither Tucker nor Chapin were charged with respect to this particular return.
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