NY Court OKs Fed. Settlement On Tax Dodger’s $300M Liability

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LAW*Tax Authority
Vidya Kauri • October 15, 2018, 9:14 PM EDT

A New York federal court has approved the U.S. government’s settlement over more than $300 million in taxes owed by a convicted tax dodger, while signing off on the distribution of assets from his mother’s estate.

According to a court document filed Friday, $1.1 million from the estate of Mildred Ash is to be divided between the U.S. Attorney’s Office for the Southern District of New York and a trust established for Ash’s son, Jon Edelman, a businessman who once sailed the South Pacific on a yacht named the Elusive to escape a five-year tax fraud sentence.

The estate has 14 days to disburse trust taxes owed, including interest and penalties, to the U.S.Attorney’s Office on behalf of the Internal Revenue Service. The IRS had determined that the Edelman Trust owed more than $565,000 in federal taxes for the 2016 tax year on amounts previously disbursed by the Ash estate.

Eric Olsen, an attorney for the trustee of the Edelman Trust, told Law360 that his clients are “happy to have reached a settlement” and that government’s portion would count toward Edelman’s tax liability “in excess of $300 million.”

A Nevada federal judge had ruled in March 2016 that the primary income stream for the Edelman trust was illegally transferred to a new trust to put it out of reach of the government’s hands.

Peter Lazare, trustee of the Edelman Trust; Ian Williams, an independent trustee of the Aurora Borealis Trust, to which the fraudulent transfer had been made; and Premier Trust Inc., the administrative trust for the Aurora Borealis Trust, were then barred from requesting, obtaining or disbursing a $1.57 million deposit that Williams had made in July 2015 from the Aurora Borealis Trust.

That deposit, in the Nevada district court’s registry, should be paid out to the U.S. government, the Nevada court ruled.

Lazare had appealed the judgment but agreed to drop the appeal in Friday’s settlement.

Erin Kormann, an attorney for Asher Edelman, the estate’s executor, said her client had “requested that the court give him some direction on the distributions of the estate and that the settlement is in line with that.”

Representatives of the government could not be reached for comment.

According to court documents, Edelman “made a lot of money in the tax shelter business and lived an extravagant lifestyle,” including owning a 55-foot yacht and a 30-acre property in Taos, New Mexico.

But in 1991, he was convicted of tax fraud, sentenced to five years in prison and ordered to pay the government $334.8 million.

He escaped from prison after two months and spent more than two years on his yacht with his wife and children. They lived off a $5 million trust, called the Delos Trust, that he funded before reporting to prison.

He was captured in 1995. While he was back in prison, his mother established the Edelman Trust, naming Edelman and his three minor children as beneficiaries. Later, Edelman funneled money from the Delos Trust to the Edelman Trust to buy back his Taos residence, which had been sold in foreclosure.

The government filed suit in July 2014 against Lazare after he and Edelman settled the Aurora Borealis Trust and transferred an income stream to it when it seemed that the government might be able to seize assets from the Edelman Trust, according to court documents.

The government alleged that the transfer violated Nevada’s Uniform Fraudulent Transfer Act, and the Nevada court agreed, setting aside the transfer. However, the court refused to hold Lazare personally liable under the Federal Priority Statute, finding that while the government’s fraudulent conveyance claim under Nevada law arose before the transfer was made, the Edelman Trust did not yet owe a debt to the government under the priority statute.

The government is represented by Geoffrey Berman and Jennifer Jude of the U.S. Department of Justice.

Lazare is represented by Eric Olsen of Garman Turner Gordon LLP.

Asher Edelman is represented by Frank Franzino and Erin Kormann of Franzino & Scher LLC.

The case is Ian Williams v. USA, In re Dispute over Distribution of the Assets of the Estate of Mildred Ash, case number 1:15-cv-08644, in the U.S. District Court for the Southern District of New York.