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Florida Doctor Using Nominee Entities Convicted of Federal Tax Crimes

Nominee entities are vehicles used where an individual designates securities or other resources which are documented and retained within a custodial agreement by the genuine titleholder who is in actual fact the beneficial owner. These types of provisions are used where the beneficial owner is overseas, desires to disguise their identity, or to aid a trade or assortment of revenue from a number of securities. Brokerage houses, banks, and trust companies are typically selected as the registered titleholders. Use of these vehicles, nevertheless, doesn't revise the station of the beneficial owner with respect to any tax liabilities and the requirements of reporting income gained.

According to her lawyers, Dr. Patricia Lynn Hough, is an altruistic psychiatrist from Florida. According to the government, Dr. Hough maintained off-shore bank accounts that hid more than $30 Million in cash in addition to income from interest earned from the funds in those accounts when Caribbean-based medical schools were sold in 2007.

The government claimed that Dr. Hough and her husband conspired with Beda Singenberger, a resident and citizen of Switzerland, along with a UBS banker to defraud the Internal Revenue Service by creating and using the aforesaid nominee entities, including a foundation, and undeclared accounts in the married doctors' names and the names of nominee entities at UBS AG (UBSN), the largest Swiss bank, as well as other foreign banks. Singenberger is under indictment in the Southern District of New York.

The two Caribbean-based medical schools that were established and owned by the married couple were The Medical University of the Americas located in Nevis, West Indies and The Saba University School of Medicine located in Saba, Netherlands Antilles.

Late last month, Hough was found guilty by a jury in federal district court in Fort Myers, Florida for her part in the scheme that was perpetrated by her and Dr. David Leon Fredrick, her husband. The Indictment charged that Hough and Fredrick used the proceeds of the sale of the two medical schools to purchase two houses in North Carolina, an airplane, and a condominium in Sarasota, Florida. The Justice Department furthermore alleged that Fredrick conveyed more than $1 million to some of his relatives. The agency charged that "The majority of the sale proceeds were not reported to the IRS on their tax returns and no tax was paid." After the indictment was made public, Fredrick disappeared, leaving his wife to solely stand trial. U.S. District Judge John Steele had declared Fredrick a fugitive at the time.

During court proceedings, Dr. Hough contended that she was only a signer on the accounts representing the foundation, which ran the operations of the school, in the event anything happened to Fredrick. She also testified that on no occasion had she the belief that the funds that were deposited into the UBS accounts were hers personally. In contradiction of her testimony, the government offered evidence which showed that the foundation was only a nominee of the married couple, as well as maintaining that the nominee companies had no function of business other than to conceal the couples' tangible income. Further evidence presented substantiated that Dr. Hough and her co-collaborator used telephone calls, emails and meetings that took place in-person to give instruction to asset managers and the Swiss bankers how and when to transfer funds from their undeclared accounts as well as constructing new investments.

Dr. Hough was also convicted of four counts of filing false tax returns for the four years beginning in 2005, through 2008, in addition to the conspiracy charges.  It was also established that she fabricated tax returns by substantially devaluing her complete income, failing to report investment income and substantial interest accrued. She also failed to provide information on Schedule B of the returns that would have shown that she had an interest in, signatory authority, or other authorities over the bank, the securities, or any other monetary accounts located in overseas nations as evidenced and proved during the trial.

It is obligatory for U.S. taxpayers to report to the IRS on Schedule B of a U.S. Individual Income Tax Return, Form 1040, whether they have a financial interest in, or of any of the above mentioned matters during each specific year by checking the appropriate box marked as Yes or No, as well as pinpointing the country where the account(s) is maintained. U.S. residents and citizens are also required to report all income, including interest received from any foreign bank accounts on their tax returns.

The charge of conspiracy carries a maximum penalty of up to five years of incarceration and a fine of $250,000. The charges for the fabricated returns for the four years mentioned carry a maximum potential penalty of three years in prison each and also a $250,000 fine. U.S. District Court Judge John Steele has scheduled sentencing for Feb. 10.

The ongoing case is being prosecuted by Caryn Finley of the Department of Justice's Tax Division and has been investigated by the IRS Criminal Investigation Division.