IRS: Sam Wyly considered renouncing U.S. citizenship
A lawyer for the Internal Revenue Service on Monday disclosed a series of emails and legal memos from 2004 apparently showing that Dallas entrepreneur Sam Wyly was interested in knowing the legal and financial ramifications if he renounced his U.S. citizenship.
The IRS also introduced testimony from previous court proceedings in which lawyers told Sam and Charles Wyly two decades ago that they could “litigate for years and settle for pennies on the dollar” if the government ever challenged the legality of the offshore trusts the Wylys created in the Isle on Man.
The evidence was introduced in the billion-dollar bankruptcy trial of Sam Wyly and his sister-in-law Dee Wyly, which is in its second week in U.S. Bankruptcy Court in Dallas.
Assistant U.S. Attorney Holly Church started her cross-examination of Sam Wyly on Monday by reminding the witness that he testified last week how much he loves America and even cited the Boy Scout oath and its loyalty pledge to the country.
“Isn’t it true that you considered renouncing your citizenship?” Church asked.
“That’s not true,” Wyly responded.
Church then introduced into evidence emails and memos between the Wylys’ office manager and the family’s business lawyers in February 2004.
“Sam really wants us to explore what happens if he is not a U.S. citizen,” Keeley Hennington, manager of the Wyly family office, wrote in an email to lawyers.
The next day, the lawyers sent the Wylys a memo stating that the IRS would view attempts by Wyly to expatriate as an effort to avoid taxes.
Sam and Dee Wyly, Charles’ widow, filed for bankruptcy in 2014 after a New York judge hit the Wylys with a $299 million judgment for federal securities violations involving offshore trusts the family created in the 1990s in the Isle of Man.
In April, the IRS accused the Wylys of tax evasion and fraud. The agency seeks $1.4 billion in back taxes, fees and penalties from Sam Wyly and $800 million from Dee Wyly.
The IRS claims that the Wylys set up a series of offshore trusts in the Isle of Man in order to hide income from being taxed, while still using the money in the trusts to fund their lavish lifestyle. The government claims that the trusts were sham operations that purchased multimillion-dollar houses, $700,000 pieces of jewelry and artwork any time the Wyly family demanded it.
U.S. Bankruptcy Chief Judge Barbara Houser is allowing Sam Wyly to limit his testimony to 90 minutes each morning because of health issues that cause him to lose energy quickly.
Sam Wyly, who testified for an hour and 45 minutes Monday, will take the witness stand again Tuesday.
Church, who represents the IRS in the proceedings, also introduced documents from 1991 and 1992 in which Wylys’ lawyers advised the Wylys that they could use the legal system to thwart government efforts.
“If the IRS ever challenged your use of offshore trusts, you could litigate for years and settle for pennies on the dollar,” former Dallas lawyer Michael French told the Wylys.
At another time, French told the Wylys, “the worst thing that can happen” is that they would have to pay the original tax amounts that the Wylys owed.
In separate testimony Monday, Evan Wyly, Sam Wyly’s son, testified about a dozen meetings the Wylys had with their lawyers. Evan Wyly testified that his father always followed the advice of his lawyers.
