Former attorney Robert J. Powell, who had served an 18-month prison sentence for his role in the “Kids for Cash” scandal, appeared in federal district court Wednesday and pled guilty to a one-count criminal information charging him with tax evasion for calendar year 2016, law enforcement officials said.
The announcement from the U.S. Attorney’s Office for the Middle District of Pennsylvania and the Department of Justice’s Tax Division said the tax evasion was tied to substantial legal fees Powell earned while he was associated with The Powell Law Group, P.C. based in Luzerne County.
Powell, 65, of Palm Beach, Fla., was released on an unsecured bond while awaiting his sentencing.
According to the release based on court documents and statements made in court:
Powell sought to evade a substantial tax that was due and owed to the Internal Revenue Service for 2016 by using nominee bank accounts, causing an accountant to file a request for a filing extension that falsely reported zero estimated tax liability for 2016 and making false statements during an IRS audit in 2019.
Following the 2009 suspension of his law license and 2015 disbarment, Powell relinquished his ownership of The Powell Law Group in 2009. However, he retained the right to collect 90% of the of the remainder of any future fees collected by the firm, after the payment of firm expenses.
The Powell Law Group represented thousands of plaintiffs in a mass tort litigation that settled for approximately $5. 15 billion in 2015, and The Powell Law Group was expected to receive approximately $120 million in attorney’s fees from that settlement.
Prior to the attorneys’ fees disbursement, The Powell Law Group and its co-counsel used those future legal fees as collateral to obtain a series of loans totaling over $125 million. Instead of depositing the loan proceeds into The Powell Law Group’s bank accounts and using them to pay firm expenses, Powell instead directed the loans to nominee bank accounts that were under his control. He then used the loan proceeds for his personal debts and expenses and for his former law partner’s personal benefit.
In June 2016, most of the attorneys’ fees were disbursed, and the loans were repaid.
However, Powell did not file a personal income tax return and pay taxes on the fee receipt that year.
After the initial disbursement and through October 2019, an additional $12 million in attorneys’ fees was distributed, and The Powell Law Group’s share continued to be directed into nominee bank accounts that Powell controlled. Powell personally received an additional $3.6 million of the fees during that time.
“Indeed for the full period of tax years 2010 through 2022, Powell did not file income tax returns for those years despite receiving and spending other personal income. Rather he willfully attempted to evade taxes due and owing by him to the United States,” it said.
When the IRS commenced an audit of his tax liabilities in 2019, Powell made false statements to the interviewing revenue agents to conceal his income and expenditures for tax years 2014 through 2016.
Specifically, Powell falsely stated that his only source of funds were loan advances, that he and his spouse did not have signature authority or control over other bank accounts and that he had no ownership in any corporations.
As alleged by the government, Powell received millions in income resulting in substantial taxes that were due but not paid to the United States over the relevant time period.
In the plea agreement filed with the court, Powell agreed to pay full restitution to the IRS in an amount to be determined by the court at a later date.
“For over a decade Robert Powell failed to file personal income tax returns and executed a sophisticated scheme to evade paying substantial taxes that were due and owing the IRS from massive legal fees his firm earned, said U.S. Attorney Gerard M. Karam. “The brazenness of his conduct included using nominee bank accounts, reporting zero estimated tax liability for the years in question, and repeatedly lying to IRS auditors attempting to unravel the scheme. I want to thank all the IRS agents, prosecutors, and support staff for their hard work that will allow justice to be finally served in this important case.”
Denise Leuenberger, Acting Special Agent in Charge at the IRS Criminal Investigation’s Philadelphia Field Office, said federal income tax compliance “should be equally shared among all Americans,” the release said.
“Defrauding the government with an elaborate scheme to under-report taxable income is unlawful. Mr. Powell’s plea today serves as an important reminder that IRS-CI is committed to bringing to justice those who evade their federal income tax responsibilities,” Leuenberger said.
Stuart M. Goldberg, the Acting Deputy Assistant Attorney General of the Justice Department’s Tax Division, said Powell “engaged in a lengthy scheme to hide his income and not pay taxes.”
“And when audited by the IRS, rather than step up, acknowledge his illegal conduct and pay what he owed, he chose to double down and lie to the revenue agents who interviewed him,” Goldberg said.
The maximum penalty under federal law is five years of imprisonment, a term of supervised release following imprisonment, a fine and restitution. A sentence following a finding of guilt is imposed by the judge after consideration of the applicable federal sentencing statutes and the federal sentencing guidelines.
Powell served a prison sentence for failing to report the $2.8 million “Kids for Cash” kickback scheme, which involved former county judges Michael Conahan and Mark Ciavarella and two juvenile detention centers Powell had co-owned.
The legal settlement referenced in the current tax evasion case stemmed from environmental litigation involving the former Kerr-McGee Corp. railroad tie manufacturing facility in Avoca.