SAN FRANCISCO – A federal grand jury returned an indictment today charging Houston-based tax attorney Carlos E. Kepke with conspiring with the Chairman and Chief Executive Officer of a private equity firm, to defraud the Internal Revenue Service (IRS), announced Acting United States Attorney Stephanie M. Hinds; Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division; and Jim Lee, Chief of the Internal Revenue Service, Criminal Investigations (IRS-CI). The grand jury further charged Kepke with three counts of aiding and assisting in the preparation of the CEO’s false income tax returns for the years 2012 through 2014.
According to the indictment, from 1999 to 2014, Kepke helped Robert F. Smith create and maintain a structure of offshore entities and foreign bank accounts that were used to conceal from the IRS approximately $225 million of capital gains income that Smith had earned. In approximately March 2000, Kepke allegedly created a Nevisian limited liability company (Flash Holdings) and a Belizean trust (Excelsior Trust) to serve as the tax evasion vehicles. When Smith earned capital gains income from his private equity funds, a portion was allegedly deposited into Flash’s bank accounts in the British Virgin Islands and Switzerland. As alleged, Smith was able to hide this income because Excelsior, and not Smith, was the nominal owner of Flash. Smith then allegedly failed to timely and fully report his income to the IRS. Kepke allegedly assisted in the preparation of Smith’s false 2012 to 2014 returns.
The indictment alleges that since 2007 Smith paid Kepke more than $1,000,000 for his services. These fees, as charged, included an annual payment for Kepke to purge or “securitize” his records related to Smith, Excelsior, and Flash.
An indictment contains only allegations and the defendants is presumed innocent until proven guilty beyond a reasonable doubt in a court of law.
Kepke’s initial federal court appearance on the charges is scheduled for April 22 before U.S. Magistrate Judge Jacqueline Scott Corley. If convicted, Kepke faces a maximum term of up to five years in prison on the conspiracy count and three years in prison for each count of assisting in the preparation of a false return. The court also may order an additional term of supervised release, restitution, and additional fines, if appropriate. However, any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.
Assistant United States Attorney Michael G. Pitman and Department of Justice Senior Litigation Counsel Corey Smith and Trial Attorneys Lee Langston and Christopher Magnani of the Tax Division are prosecuting the case. This case is the result of an investigation by IRS-CI.