Jeffrey Chernick, a toy salesman out of New York, was sentenced on Friday to three months in prison for hiding millions of dollars from the IRS. Upon his release, Chernick will serve six months’ house arrest and six months’ probation. The judge did not impose an additional fine as Chernick is already subject to more than $4.5 million in civil penalties for filing a false tax return.
Chernick becomes the second UBS client to be sentenced in the scandal. Earlier in the week, Steven Michael Rubinstein was sentenced to three years’ probation, one year of house arrest and a$40,000 fine.
I noted at the Rubinstein sentencing that I felt that the punishment was light. US District Judge James Cohn apparently felt similarly, noting with respect to these specific cases, “The concept that tax evaders can get probation sends the wrong message… Some amount of incarceration is warranted.”
Chernick cooperated with authorities, which may have lessened his sentence: he had faced up to three years in prison. But even prosecutors sought leniency for Chernick, suggesting that his cooperation played a “significant and early step” in the UBS investigations, offering information about other taxpayers and banks.
In addition to pleading guilty to tax evasion, Chernick also admitted to paying a bribe, arranged by attorney Matthias Rickenbach and Swiss banker Hansruedi Schumacher, to a Swiss government official for information about which UBS accounts would be given to US authorities. That investigation is ongoing and it will be interesting to see the reach of the bribery scheme.
Chernick began setting up offshore accounts as early as 1981 in order to hide commissions on toy sales from the IRS. Over the years, he moved money from account to account and otherwise attempted to conceal his assets.
Interestingly, Chernick made an effort to sign up for the IRS’ voluntary disclosure program but did not qualify. Taxpayers who were under investigation or already facing charges did not qualify for the program.
Expect more high profile disclosures over the next few weeks. Clearly, the IRS hopes to send a message. The real question is: who’s getting it?
It amazes me that people would use a Swiss bank account in this day and time to evade income taxes. With technology changing on a daily basis and the internet, folks could hide any amount of money they needed to from government authorities. Another reason for the Fair Tax.