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Attorney Grievance Commission v. Hoang

Court of Appeals of Maryland

August 19, 2013

ATTORNEY GRIEVANCE COMMISSION
v.
JOHN THANH HOANG

Circuit Court for Montgomery County Case No. 24224M.

Barbera, C.J. Harrell Battaglia Greene Adkins [*] Bell [*] Murphy, JJ.

PER CURIAM.

The Attorney Grievance Commission, acting through Bar Counsel, filed a petition for disciplinary action against John Thang Hoang for violation of the Maryland Lawyers Rules of Professional Conduct (MLRPC), alleging that Hoang violated the following provisions of MLRPC 8.4:

Rule 8.4. Misconduct.
It is professional misconduct for a lawyer to:
(b) commit a criminal act that reflects adversely on the lawyer's honesty, trustworthiness or fitness as a lawyer in other respects;
(c) engage in conduct involving dishonesty, fraud, deceit or misrepresentation;
(d) engage in conduct that is prejudicial to the administration of justice . . . .

The facts of the misconduct are not in dispute. Hoang, an attorney admitted to practice in Maryland on June 25, 1986, [1] was a registered partner in Tax-Smart Technology Services ("Tax-Smart"), a Florida partnership offering tax strategies and tax preparation services from its office in Alexandria, Virginia. A tax strategy that Tax-Smart and Hoang, a then-partner and certified public accountant of Tax-Smart, created and sold to their customers was the sale of websites, [2] which was used by Hoang and Tax- Smart to fabricate an elaborate fraudulent tax deduction scheme.

This scheme was carried out by Hoang, via Tax-Smart, in several stages. First, Respondent would charge customers a fraction of a website's sales price by credit card or by assignment of a portion of a future federal tax refund, as well as require a down payment of 1/6 or 1/7 of the stated website sales price. The customer paid the balance of the website's sales price with an interest-bearing promissory note in installments over a nine-year period. At the same time that a customer would enter into Tax-Smart's website sales agreement, the customer would enter into a licensing agreement with Tax-Smart that licensed the business to use the source code operating the just-purchased website for a nine-year term. In exchange for the license, Tax-Smart would pay the customer an annual licensing fee.[3] The licensing fee equaled the interest on a promissory note, given by the customer to Tax-Smart for the purchase of the website, and the principal at the end of the nine-year contractual period.[4]

As a result, Tax-Smart's strategies created illusory financial obligations for their customers: beyond their initial down payment when contracting with Tax-Smart to purchase a website, customers did not pay the actual market value of the websites because Tax-Smart sold the websites at stated prices vastly exceeding the value of a website's source code, domain name, and the value of the services necessary to operate the website. Customers earned greater returns when Hoang deducted 1/3 of the stated sale price of the website as a depreciative expense on Schedule C of customers' 1040 federal income tax returns for each of the first three years of Hoang's scheme. Hence, a customer was able to claim the entire listed website price as a business loss in the form of depreciation deductions over a threeyear period, thereby reducing his or her tax liabilities.

Hoang employed this tax deduction scheme in the preparation of at least 527 tax returns for customers between 2003 and 2006. Respondent would create Schedule C returns with fictitious gross receipts, which were offset by losses from the purchase of the websites. Customers for whom Hoang prepared tax returns had other income from wages, salaries, or other sources and offset this income with business losses from fictional ventures. Furthermore, Respondent was able to reclaim for his customers a full year's depreciation deduction for the purported year of sale of the website by back-dating several contracts to January 1 of the year before the sale occurred. This strategy was extended further by Hoang's sale to multiple customers of the same source code applied to the same domain name. Compensation for Hoang's services was taken from a percentage of the refunds generated by his preparation of the fraudulent tax returns. Respondent promised his customers that he would defend any customer audited by the IRS.

In November 2005, the Internal Revenue Service ("IRS") notified Hoang that it intended to investigate the sale of the tax deduction strategy employed by Tax-Smart, as well as the associated Schedule C deductions. Tax-Smart and Hoang continued to sell the "product, " and many of Tax-Smart customers' 2006 returns prepared by Hoang show he continued to make deductions using this strategy. None of the federal income tax returns examined by the IRS in which this strategy was used were determined to be correct. Hoang scheduled (and then canceled) appointments with the IRS concerning the audits of six customers, failed to provide requested documented, and refused to contact his audited ...


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