With the Holiday Season behind us and tax season bearing down on all of us, selecting the proper tax advice and from whom you take it can be one of the most important decisions a business or individual can make to start out the decade right.
A story in the Jan. 4 issue of the Los Angeles Business Journal illustrates that point. Local billionaire Haim Saban and his trusted financial and legal adviser, Matthew Krane, were involved in one of the most publicized cases in recent memory, and illustrates the importance of due diligence when selecting a tax attorney or advisor – especially when the IRS is involved.
“Before he [Saban] sold his first cartoon, we met and he said, ‘I’m going into the international distribution business in television. Can we set this up in a way that is tax efficient?’ ” Krane said in his L.A. Business Journal interview. “And I said, ‘Yeah, we can.’ And we did.”
Krane, 55, was released last month from a federal holding facility after being there for 16 months, where he was also fitted for a new ankle bracelet. He’s still awaiting his sentence after pleading guilty for not reporting nearly $40 million in income linked to a tax shelter he put about $750 million of Saban’s money into. The case has been called one of the largest tax fraud cases in American history.
“It is important to note that Mr. Saban has not been charged and himself was victimized by Krane’s fraud,” said KMFM partner Andy Morrow. “Krane not only invested Saban’s money in the improper shelter, to the detriment of his client, but he also took a commission on that investment in breach of his fiduciary duties to Saban and then failed to declare that income to the IRS,” Morrow added.
Saban told the U.S. Senate he only followed Krane’s advice in using the shelter and portrays Krane’s work for him as “flagrant lies and deceit.”
The key issue is a shelter Krane used to allow Saban, who was responsible for more than half of Krane’s business, to avoid capital gains on some of the $1.5 billion Saban netted after selling his interest in a Fox TV channel to Disney.
According to the U.S. Senate part of an elaborate tax shelter set up by Krane worked through a series of trades that used non-existent transactions to create losses “and offset real taxable capital gains of U.S. taxpayers so they could avoid paying taxes.”
Krane is to be sentenced in March and faces up to five years in prison. When his house was raided nearly two years ago, investigators said they also found false passport documents, crystal meth, a date rape drug and horse tranquilizers. Krane did not discuss the drugs or passport issues, but did say when all the dust settles and this is behind him, he plans on writing a book.
“I’ve got some good stories to tell,” he told the Business Journal.
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