When confessed tax fraud promoter Jerome Schneider handed the Internal Revenue Service a list of his clients, there was at least one well-known name on the roster: actress Sandra Bullock.
Bullock, the vivacious star of “Miss Congeniality” and other films, paid Schneider for advice on how to buy an offshore bank, said her attorney, E. Howell Crosby. But, he said, she never cheated on her taxes by moving money overseas.
“We knew this guy was the Music Man from Day One,” Crosby said, referring to the
charming swindler in a Broadway musical. “She lost some money taking a look at it, but she never put money offshore.”
The IRS, which has strict confidentiality rules under federal law, declined to comment.
Crosby said other lawyers representing Bullock explained her limited involvement with Schneider to the IRS and haven’t had further discussions with the agency.
“Sandra is very conservative in everything,” said Crosby, a partner at the New Orleans-based firm of Chaffe, McCall, Phillips, Toler & Sarpy. “In our opinion, this deal was speculative and risky. We didn’t believe it would be accepted by the IRS.”
The actress’ fleeting dealings with Schneider illustrate the appeal of tax shelters to people who have lots of money and little time to oversee their investments.
“In the first round of tax shelters back in the 1970s, doctors were the big suckers,” said Mark Luscombe, principal tax analyst with CCH Inc., a Riverwoods, Ill.-based publisher of tax information. “A lot of actors and athletes seem to be getting taken in these days.”
The IRS has launched an aggressive crackdown on tax shelters over the last three years. Agency officials say client lists surrendered by tax promoters are littered with the rich and famous but decline to name names.
People who agree to out-of-court settlements are not publicly identified by the IRS.
Schneider disclosed his association with Bullock in an interview with the Los Angeles Times.
The Vancouver, British Columbia, businessman, who once had offices in Manhattan Beach, Calif., and San Francisco, was indicted by a federal grand jury in 2002 in connection with a scheme that touted the use of offshore banks in places such as the Cayman Islands to avoid taxes.
Schneider, who is awaiting sentencing in federal court next month, gave the IRS a client roster as part of a plea deal.
Bullock paid $100,000 for tax and legal advice for the purchase of an offshore bank, Schneider told the Times. Crosby confirmed that a payment to Schneider was made but said he couldn’t recall the amount.
Crosby said Bullock’s father, John, saw an advertisement promoting Schneider’s tax shelter advice in an in-flight airline magazine in 1996. Intrigued, the Bullocks paid to have Schneider fly from Vancouver to New Orleans to meet Crosby and explain how his system worked, Crosby said.
The gist of Schneider’s claim was this: People could buy an offshore “shell” bank — one without any real depositors or business activity — and have it “owned” on paper by a foreign person or entity.
The U.S. investor could then use the bank to accumulate investment income without having to pay U.S. taxes on the money.
During the visit, Crosby said he asked Schneider whether he could cite any court precedents or legal opinions that would establish the shelter as legitimate.
Schneider referred Crosby to a Los Angeles lawyer, who charged a fee for an opinion letter that was supposed to detail how the offshore arrangement would stand up in tax court.
The letter was riddled with caveats, Crosby said, so he sent it back to the lawyer with questions and revisions. He said the attorney never addressed the issues he raised.
Meanwhile, Crosby said, Schneider was pushing him and John Bullock to persuade Sandra Bullock to buy United International Bank Inc., a shell bank in the Cayman Islands, where the tax laws are as accommodating as the sun.
Crosby said he didn’t remember whether the purchase was completed. Schneider said it was. In any event, Crosby said, Bullock never put any money into the bank.
He said the only money that went into the deal was to pay legal fees and to complete paperwork. The various discussions and negotiations took place over six months in 1996-97, he said.
Crosby said Sandra Bullock never dealt with Schneider directly, but only through her father or her lawyers.
“Things like this were floating around, Crosby said. “You’d hear about them and check it out. But this one never passed the smell test. Sandra would never do anything to tarnish her reputation. I am personally angry at Mr. Schneider for dragging her name into this, when we saw through it from the beginning.”