Back in 2019, I wrote about the prolific Florida tax shelter promoter Mike Meyer in my article Mike Meyer’s ‘Ultimate Tax Plan’ Involving Charitable LLCs And LPs Hit With DOJ Permanent Injunction (April 29, 2019). Today, we revisit Mike Meyer to find that he now faces the ultimate penalty for selling tax abusive tax shelters: He has been indicted. This information comes to us compliments of a July 21, 2023, press release by the U.S. Department of Justice entitled Florida Attorney Charged in Fraudulent Charitable Contribution Tax Scheme and the Indictment dated June 29, 2023. It is all extremely interesting. Standard word of caution, of course, that an indictment is not a conviction, and allegations in an indictment are not factual findings.
The indictment outlines that Meyer first set up several tax-exempt charities to facilitate his Ultimate Tax Plan, including National Endowment Association, Inc., Grace Heritage Corporation, and Indiana Endowment Fund, Inc., which were all formed with the officers being (at least initially) Meyer and his parents. Later, Meyer set up Indiana Endowment Foundation, Inc., Compassion Beyond Borders, Inc., and “Charity A” (as described in the indictment) with other outside persons serving as the officers.
Meyer wasn’t the only one indicted, but also indicted were Rao Garuda as the President and CEO of Associated Concepts Agency, Inc. (“ACA”), which was an Ohio financial planning firm, and Cullen Fischel, who worked at ACA for a number of years. Garuda, Fischel and ACA marketed the Ultimate Tax Plan to clients, and sometimes served as officers of one or more of the aforementioned charities. Also referenced in the indictment are Individuals A, B and C, as basically unindicted co-conspirators who worked for various of the charities.
One could write a story just on Rao Garuda alone, who held himself out to be a top financial planner and wealth advisor, speaking a large financial planning events, and publishing his book The Meaning of Money: Creating Not Just Wealth on Your Balance Sheet But Significance in Your Life (July 30, 2014). That significance for Garuda will likely now be reduced to corndogs on Tuesdays and kicking around the prison yard looking for interesting rocks: Garuda plead guilty to conspiracy to defraud the United States and assisting on the filing of a false income tax return on or about July 11, 2023, and is awaiting sentencing. Cullen Fischel also admitted guilt and plead out.
According to the indictment, the way the Ultimate Tax Plan ultimately worked was this: Meyer would first form an LLC for a client. The client would then transfer cash and other assets into the LLC and take 100% ownership of it. Using paperwork drafted by Meyer, the client would then “donate” either 99% or 100% of the LLC to one of the Meyer-controlled charities, with Meyer signing an IRS Form 8283 as the appraiser to vouch for the value of the LLC. Thus, at the end of the day, the Meyer-controlled charities owned — at least on paper — either 99% or 100% of the client’s LLC and the client would get a charitable donation against income on the client’s personal income tax return. Any income generated by the LLC would flow up to the charity, which being tax-exempt did not pay any taxes on that income. So, the client would get a double benefit: (1) a charitable deduction for client’s donation of the LLC interest to the charity, and (2) avoid the taxable income generated by the LLC that the client would ordinarily have to pay.
If the charity actually obtained value from the LLC, and enjoyed the income flowing from the LLC, there would have been nothing wrong with all this in theory. But that’s not actually what happened, and so far we have only seen the tip of the Meyer’s iceberg. Now, let’s look below the surface.
The indictment states that although the client had purportedly donated the LLC to the charity, in fact the client remained in control of the LLC and retained all of its benefits. Thus:
“27. MEYER, working with Garuda and Fischel, structured, marketed, and implemented the Ultimate Tax Plan to make it appear as if the clients made charitable donations on paper, but in reality, clients retained dominion and control over their ‘donated’ Entities and assets. The Ultimate Tax Plan did not alter clients’ access to their assets that were purportedly donated. Clients handled their business and property interests in substantially the same way both before and after the purported donations to the Charity.”
A client could get back the assets of the LLC two ways: First, the client could take a tax-free loan from the LLC; and, second, Meyer, Garuda and Fischel came up with an “exit strategy” that allowed the client to buy back the LLC from the charity at a significantly reduce price from what they had initially donated it. To try to give the Ultimate Tax Plan at least a slight air of legitimacy, Meyer advised clients to actually donate to a real charity 1% of the LLC’s assets, but of course this seems to have actually occurred only rarely. Sometimes, Meyer and the others required clients to also sign promissory notes to establish the basis for their donations.
The bottom line was that the donations of the LLCs to the charities were a sham, and the clients who engaged in the Ultimate Tax Plan filed false tax returns when they claimed these charitable donations.
So who was Meyer anyway? The indictment states that Meyer was a resident of Evansville, Indiana, until 2015 and then he moved to Southwest Ranches, Florida near Miami. Meyer was licensed to practice law in Indiana and Kentucky, and represented that he was a CPA, held an MBA, and was a certified valuation appraiser. Yet, the indictment states that Meyer “falsely reported on Appraisal Forms 8283 that he was a qualified appraiser.”
Beginning in 2012 and through 2015, the IRS started to shut down some of the Meyer-controlled charities, and Meyer signed so-called closing agreements that provided that the charities had promoted tax planning strategies using charitable donations and that the charities did not qualify for tax exempt status. Finally, as related in my previous article, in 2018 the DOJ sued Meyer to make him stop selling his scheme, and the U.S. District Court for the Southern District of Florida entered a permanent injunction to that effect on April 26, 2019. You would think that would finally cause Meyer to stop selling the Ultimate Tax Plan. If so, you would be wrong.
All this brings us to the indictment dated June 29, 2023, and which has 34 counts. I’ll spare you going through each one of them, but will just focus on what I consider to be the most interesting charges.
Count One is for a conspiracy to defraud the United States. This count alleges that Meyer, Garuda, Fischel and others engaged in a conspiracy to commit tax fraud by way of the Ultimate Tax Plan. Among the allegations are that Meyer and the other conspirators illegally backdated transaction and other documents and prepared false Form 8283 appraisal forms knowing that taxpayers would use those forms to file their personal returns. Supposedly, after the DOJ filed its injunction lawsuit and started sending out subpoenas and document requests, Meyer and the other conspirators “prepared backdated documents, including issuance documents, assignment documents, promissory notes, and written acknowledgements, and directed ACA and clients to submit them to the United States in response to the civil subpoenas.” Even after the permanent injunction was issued in the DOJ case, Meyer and the other conspirators “directed clients to transfer their ownership interests in their Entities to Charity A and informed them they could continue to operate the Ultimate Tax Plan.”
Meyer charged his clients in the Ultimate Tax Plan a percentage fee of the value of the LLCs transferred to the charities (though Meyer could not then give a valuation because he was also acting as the appraiser for the Form 8283). Thus,
“52. Since 2013, MEYER and his co-conspirators earned more than $10 million from the execution of the Ultimate Tax Plan. MEYER spent that income on personal expenses, including to purchase a multi-million-dollar residential estate and a luxury vehicle collection, which included Lamborghinis, Rolls Royces, Mercedes Benzes, a Bentley, and a Ferrari.”
Count One continues that Meyer told Garuda that Garuda should “not get into the LLCs or our plan” when dealing with the IRS. In 2016, Meyer and Garuda filed a false IRS Form 1023 for recognition of Compassion Beyond Borders, Inc., as an exempt 501(c)(3) charity. The allegations of Count One then outline the activities of Meyer and the other co-conspirators in relation to ten different clients.
For Client 1, the threesome of Meyer, Garuda and Fischel did a Ultimate Tax Plan for a client in 2017, but backdated the documents so that it appeared the plan was done in 2016 so that the client could falsely claim a $400,500 deduction for 2016. These were basically the same facts, including the backdating, for Clients 2 and 3 with $881,100 and $640,800 deduction (plus a bogus deduction for Client 3 in 2017 for $320,400).
Client 4 did the Ultimate Tax Plan in 2016, but Meyer backdated the documents to make it appear as if the transaction were done in 2015 and resulted in a deduction of $400,000. But further, Meyer, Garuda and Fischel directed Client 4 and his wife to open a financial account for their LLC which had been donated, after which Client 4 and his wife withdrew over $1 million to variously construct a ranch, build a swimming pool, and purchase ATVs. In 2016 and 2017, Client 4 and his wife claimed another $320,400 in bogus charitable deductions for each year. Client 5 was similar for a backdated $200,500 deduction taken for tax year 2016 for an Ultimate Tax Plan transaction done in 2017 and Client 6 was similar for a backdated $391,500 transaction done in 2013 with the charitable deduction taken in 2012.
Client 7 was at least smart enough to take the Ultimate Tax Plan to his attorney to review. Thus,
“96. In or about February 2017, after Attorney 1 advised that “the transaction is clearly fraudulent and will not withstand scrutiny from the IRS for a whole host of reasons,” MEYER falsely represented in a telephone call with Garuda, Fischel, Client 7, Attorney 1 and others that the IRS did not question his plan.”
Red Flag #1. But Client 7 went forward anyway (greed is a powerful motivator). Nonetheless, when it came time for Client 7 to file his tax returns, Client 7’s accountants refused to sign the tax return claiming the charitable deduction. Red Flag #2. So, Meyer himself signed the tax return as Client 7’s preparer, thus giving Client 7 a $360,450 deduction. Later, at the direction of Meyer, Garuda and Fischel, Client 7 spend most of the funds purportedly donated to charity on retirement annuities.
Client 8 was another backdated Ultimate Tax Plan, done in 2014 but made to look like it was done in 2013. This resulted in a 274,050 deduction. Of interest here is that somehow a conference call with Client 8, Meyer and Garuda was preserved:
“[W]e are great with buyouts …. The charity is basically controlled by us. So we understand how this works and we understand what we need to do in order to make that work …. The buyouts have come back around $0.10 on the dollar. That’s really what it usually comes down to. So if you got $1 million in there and you want to buy it back, it’s going to cost you $100,000. Now, you’ll probably save yourself $300,000 or $400,000 in income tax when you put the $1 million in there, right, because you got the tax deduction.
“So it’s always a win-win, you know, for you and our charity at the same point in time.”
Moving along, Client 9 really liked the Ultimate Tax Plan and did it for all years between 2012 and 2017 for total charitable deductions of $3,790,630. On April 20, 2019, the very day after Meyer signed the stipulation for entry of the permanent injunction in the DOJ case, Meyer executed Client 9’s exit strategy and Client 9 got their assets back for $225,000. Two days after that, Client 9 paid the $225,000 to Meyer’s company and Meyer’s deposited $224,000 into his personal bank account.
Finally, Client 10 did the Ultimate Tax Plan for every year between 2012 and 2015 for $764,350 in total charitable deductions, and after all that bought the LLC back in 2017 for $10,000 with the assistance of Meyer, Garuda and Fischel.
We’re still just on Count One if you were wondering, but it is by far the largest of the counts and many of the other counts just sort of tag along to this one. So Count One now continues with what happened after the DOJ filed its injunction lawsuit.
When the DOJ filed its injunction lawsuit, Meyer, Garuda and Fischel started to clean up the transactions that were under scrutiny, which means that they started to create and backdate transactional documents. When Client 10 received a subpoena requesting documents, the three prepared backdated promissory notes, a backdated attorney engagement agreement, various other backdated documents such as written acknowledgments, issuance and assignment documents, which the three then instructed Client 10 to provide in response to the subpoena. Ditto Clients 11 and 12. Meyer eventually created in August, 2018, an alternative e-mail address to be used to send these backdated documents to clients.
This concludes the allegations of Count One. Moving on to Count Two, that count alleges a mail and wire fraud conspiracy by Meyer and the others for sending stuff (including the backdated documents) through the U.S. Mails and electronically (wires) to Ultimate Tax Plan clients.
Counts Three through Twenty-Eight against Meyer are for aiding and assisting in the preparation of false tax returns for 14 clients. Count Twenty-Nine against Meyer was for a corrupt endeavor to obstruct or impede the administration of the Internal Revenue Code, and this count centered around the backdating of documents to Client 15 and Meyer providing false responses to the IRS in regard to Client 15’s activities. Count Thirty was basically the same for Client 16.
Count Thirty-One involved Client 17, and was similar to the previous two counts, except that it also included the following allegation:
“176. On or about June 18, 2018, MEYER filed a Protest Letter to challenge the results of the audit. In that letter, MEYER made misrepresentations, including stating that ‘Meyer had no control over Grace and IEF’, that ‘the charity stands to receive a staggering amount of money when this LLC dissolves upon the death of the taxpayer,’ and that ‘[t]he Taxpayers have not benefitted personally from these assets.’ MEYER also falsely stated that he was a qualified appraiser. MEYER misrepresented Client 17’s intent in entering the Ultimate Tax Plan.”
Count Thirty-Two alleged a conspiracy to obstruct justice by Meyer, mostly relating to the backdated documents. Similarly, County Thirty-Three alleged that Meyer tampered with documents for use in an official proceeding, also relating to the backdating of documents.
County Thirty-Four alleged criminal contempt by Meyer, for basically continuing to market, sell, implement and receive fees for the Ultimate Tax Plan even after the permanent injunction had been entered in the DOJ case. Further, the injunction required Meyer to unwind the Ultimate Tax Plan by having his charities return the LLC interests to the clients, and having the charities disclaim any interest in the LLCs, but apparently that didn’t happen. This was the last count of the indictment.
The indictment also seeks the forfeiture by Meyer of, basically, the proceeds of his gains from selling the Ultimate Tax Plan to the extent those proceeds — or the assets purchased with them — can be identified. This finally concludes the indictment.
ANALYSIS
Assuming there is evidence supporting the allegations in the indictment, Meyer is cooked. Normally, criminal tax cases pose difficult problems for prosecutors. The tax code is indecipherable to mere humans, folks don’t like the IRS generally, and it difficult to prove that somebody had the specific intent to do something illegal. Thus, a defendant in a criminal tax case will often have a decent chance of beating the rap.
Where backdating can be proven, however, all this gets turned on its head. A jury of twelve registered voters might never understand the nuances of section 501 of the Tax Code, but they can easily understand backdating. Juries can also easily understand that one cannot take a deduction for 2016 for something that didn’t happen until 2017. Finally, backdating carries an implicit admission of guilt by the person doing it — backdating is as good as an outright admission that the person doing the backdating knew that they were in the wrong and were trying to cover it up. If the DOJ can prove that Meyer participated in all the backdating alleged in the indictment, then a guilty verdict becomes little more than a formality.
Another thing to understand about the prosecution of conspiracy cases, such as here, is that prosecutors start from the outside and work their way in to the main perpetrator. The DOJ probably got a goodly number of Meyer’s clients to turn state’s evidence against him, and this caused Garuda and Fischel to plead out. Presumably, they will also be available to testify against Meyer so as to reduce their own sentences. Thus, Meyer may be left without anybody except himself testifying as to his innocence, and that is if he even takes the stand (which is usually a mistake for criminal defendants).
Cooked.
Moving on to the Ultimate Tax Plan itself, there are a few lessons to be learned. Among these is something that I’ve commented upon before, which is that if a tax strategy has a name, then it probably doesn’t work. The only reason one would give a name to a tax strategy would be for marketing purposes, and if a tax strategy is being marketed then it is probably a tax shelter. Further, the more something is marketed, the higher the likelihood that the IRS will take an interest in it and try to stop it as an abusive tax shelter. So, if somebody comes to you with a proposal for something that sounds like the Ultimate Tax Plan, or — worse — has been given an acronym, then you should run.
I’ve also commented before of the high desirability of getting a second, and maybe a third, opinion about a tax transaction from an independent tax professional, meaning somebody not related to or referred by the promoter. If a tax strategy works, then all the involved tax professionals will agree that it works; if not, then it is probably an abusive transaction that will not stand scrutiny. Here, Client 7 was told by his attorney that the Ultimate Tax Plan was bogus, and his accounts refused to sign the returns. That’s two bright red flags, but Client 7 persisted anyway. Under these facts, Client 7 could himself have very easily been indicted for tax fraud since he knew (or should have known) something was amiss, but went forward with Meyer. There is no other way to characterize that decision than anything other than stupidity.
That somebody wants to avoid paying taxes does not mean that they can abandon common sense. Everybody knows that you can’t take a deduction for a previous year for something that didn’t happen until this year, but most of the clients referenced in the indictment did exactly that. Had the DOJ decided to prosecute them as well, those would also have been slam-dunk convictions. Yet, pretty much every time we see a tax shelter blow up, there was always a point where the participant had to suspend common sense to do the transaction. Promoters are slick and can talk Eskimos into buying bags of ice, because that’s what they are really good at. Yet, even a minimal application of common sense can reveal the hucksters. If you have common sense, use it, and if you don’t, then ask for advice from somebody that does.
Anything that involves backdating is bad. Really bad. Stinks to high heaven. It seems silly to even have to say this, but there it is. Meyer and his co-conspirators put backdated documents in front of the clients of the Ultimate Tax Plan, and they were foolish enough to sign them. Again, these folks are themselves very lucky that they too were not prosecuted. Frankly, they should have been. No sympathy for them at all.
Finally, we get to an old truism: If it seems too good to be true, it probably is. That somebody can take a deduction for donating assets to a charity and yet still have the personal benefit of those assets is something that is simply too good to be true. And it was.
Anyway, I expect that the next we will hear about Meyer will be his plead bargain. Stay tuned.
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