An Indian-American financial planner from Cleveland has pleaded guilty to conspiracy to defraud the US government in addition to aiding and abetting the filing of a false tax return.
Rao Garuda, President and Chief Executive Officer of Associated Concepts Agency (ACA), was accused by federal prosecutors last month of providing a tax shelter for wealthy clients by making it look like they contributed to a charity.
According to court documents and statements made in court, Garuda engaged in a scheme — Advanced Legacy Plan or the Ultimate Tax Plan — to assist high-income individuals in unlawfully reducing their taxes using a plan organised, marketed and sold by a co-conspirator.
ACA’s former Chief Operating Officer previously pleaded guilty to conspiracy to defraud the US on September 26, 2022.
To accomplish the scheme, Garuda, his co-conspirators, and other accomplices instructed clients to transfer assets to an LLC in exchange for 100 per cent ownership interest in the LLC; assign the ownership interest to a charity controlled by co-conspirators, and claim a charitable contribution tax deduction for the purported donation.
Garuda and others marketed the scheme as a way for clients to receive the tax deduction without relinquishing control over the LLC or its assets, a Department of Justice release stated.
After executing the scheme, clients could access the assets inside the LLCs through tax-free loans.
Garuda marketed the scheme despite being warned by several attorneys over the years that the scheme was illegal, such as one attorney describing the scheme as “clearly fraudulent”.
Garuda and the co-conspirator also assisted clients in claiming charitable contribution tax deductions after the close of the tax year by backdating documents to make it look as if clients executed the scheme in a prior year.
To do so, Garuda and others directed clients to use pre-existing LLCs (sometimes referred to as “Shelf LLCs”) that his co-conspirator had created and formed at the end of the prior year and backdate documents to make it appear as if the clients owned and assigned ownership interests in the Shelf LLCs in the prior year.
For his role in the scheme, Garuda caused or intended to cause a tax loss of more than $2.7 million, which he agreed to pay back as restitution to the US.
The Department of Justice filed a civil lawsuit against his co-conspirator in 2018 to stop him from organising, marketing, and selling the scheme.
Following this, Garuda, his co-conspirator and other accomplices sought to obstruct the case by providing clients with false, backdated documents to turn over to the government in response to civil subpoenas.
Garuda is scheduled to be sentenced on November 14, 2023, and faces a maximum penalty of five years in prison for conspiracy to defraud the United States and three years in prison for the false return count.
He also faces a period of supervised release, restitution, and monetary penalties.
A federal district court judge will determine any sentence after considering the US Sentencing Guidelines and other statutory factors.