Feds in SF announce tax enforcement actions against two billionaires

Federal authorities in San Francisco on Thursday announced tax enforcement actions against two American billionaires — Robert F. Smith and...

Federal authorities in San Francisco on Thursday announced tax enforcement actions against two American billionaires — Robert F. Smith and Robert T. Brockman.

“The allegations outlined here … should disgust every American taxpayer … because the law applies to all of us when it comes to tax and paying our fair share,” Jim Lee, chief of Internal Revenue Service Criminal Investigation said at a news conference where he was joined by David Anderson, U.S. Attorney for the Northern District of California.

The first of the actions was a “non-prosecution agreement” with Smith, a private equity investor and No. 125 on Forbes Magazine’s 2020 list of wealthiest Americans, with a fortune estimated at $5.2 billion. Smith is frequently identified as the wealthiest Black American.

Under the agreement, Smith admitted the factual allegations of the government and agreed to pay back taxes and penalties of $139 million and to forgo a refund claim of $182 million. Smith agreed to cooperate with the government over a five-year period. If he does not breach that agreement, he will not be prosecuted for his activities, according to Anderson.

The second enforcement action was the filing of a 39-count indictment in what Lee described as “the largest individual tax case in the U.S. ever,” alleging that Brockman, 79, a Houston billionaire and chief executive officer of Reynolds and Reynolds Co., hid more than $2 billion from the IRS over a 20-year period.

According to Lee, the indictment “involves 20 years of knowingly evading tax responsibilities” and “sophisticated measures taken to hide, move money offshore and evade those responsibilities.” It describes a complex scheme in which Brockman used secret offshore accounts in Switzerland and Bermuda to “hide his untaxed income and launder the proceeds of his investor fraud,” Lee said.

Brockman was charged with conspiracy, tax evasion, wire fraud, and money laundering.

Robert F. Smith Smith in 2000 founded Vista Equity Partners, a private equity firm with offices in San Francisco, Oakland and three other U.S. cities. Vista invests primarily in software companies.

A statement on Vista’s website says that “With more than $58 billion in capital commitments and 20 years of investing exclusively in enterprise software, we believe the transformative power of technology is the key to an even better future — a healthier planet, a smarter economy, a diverse and inclusive community, and a broader path to prosperity.”

Vista was not a party to the non-prosecution agreement and was not charged in the indictment. When asked if Vista was being investigated, Anderson said, “we don’t make statements about persons other than those persons who were charged.”

Anderson said that “Smith used a nominee, trustee and a nominee corporate manager to hide his control of foreign entities in Belize and Nevis … Smith used his untaxed income to buy a vacation home in Sonoma, California, to buy ski properties in the French Alps and to fund charitable activities, including the maintenance of a home in Colorado for inner city children and wounded veterans.”

Smith has been an active philanthropist, famously promising in 2019 during a commencement speech at Morehouse College to pay off the student loans of the entire graduating class.

In 2017 he signed the “Giving Pledge,” a philanthropic commitment made by a group of wealthy individuals and families around the world. Smith promised “to invest half my net worth-during my lifetime — to causes that support equality of opportunity for African Americans, as well as causes that cultivate ecological protection to ensure a livable planet for future generations.”

Smith announced his pledge stating, “I will never forget that my path was paved by my parents, grandparents and generations of African-Americans whose names I will never know. Their struggles, their courage, and their progress allowed me to strive and achieve. My story would only be possible in America, and it is incumbent on all of us to pay this inheritance forward.”

Smith is also known for a $20 million pledge to the National Museum of African American History and Culture. Smith was named to Time Magazine’s list of “The 100 Most Influential People of 2020” where he was described as “perhaps the savviest investor in America today.”

Anderson was asked what role Smith’s “political connections and charitable donations” played in to allowing Smith “to get off this without pleading guilty to a crime,” but said those matters played “no role in our decision making.” The decision was based on the “the need to seek cooperation in an investigation and the unavailability of other means by which to gain the information that we think we can obtain by cooperation,” he said.

Brockman is the chairman and CEO of Reynolds and Reynolds, a Dayton, Ohio based company with 5,000 employees and annual sales in excess of $1.4 billion, according to his biography on the website of the Brockman Foundation.

Reynolds and Reynolds is “a leading provider of software, business forms, and professional services for automotive retailers. We offer sophisticated web technologies and the only Retail Management System for the automotive industry,” according to the company’s website.

The indictment alleges, among other things, that Brockman, through affiliated companies, invested a billion dollars in the first private equity fund organized by Vista Partners, and through an elaborate scheme of offshore activity conspired to conceal from IRS the capital gains he earned from those investments.

Brockman serves as a trustee of Centre College, a 1,400-student college in Kentucky. Brockman attracted attention in July 2013, when the school announced that the A. Eugene Brockman Charitable Trust had donated $250 million to the small school.

The gift was rescinded six weeks later because of an unspecified “significant capital market event,” according to a statement from the school.

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