Scottsdale lawyer indicted for allegations of ducking Internal Revenue Service

Scottsdale lawyer Frederick E. Davidson has been indicted on three counts of criminal activity in the United States District Court.

Frederick E. Davidson

Mr. Davidson’s three charges are for corrupt interference administration of Internal Revenue Service; evasion of payment of tax; and falsification of records in a federal investigation.

The case, United States of America vs. Frederick E. Davidson, is in the United States District Court for the District of Arizona, according to a March 26 indictment.

Mr. Davidson allegedly willfully attempted to evade and defeat the payment of tax due required as Davidson Law Firm and Davidson Law PC owner, to the United States of America, in the total amount of approximately $250,000, for the years 2007-11.

Additionally, Mr. Davidson is accused of knowingly to alter, conceal, falsify and make a false entry in a document with the intent to impede, obstruct, and influence the outcome of an investigation.

In an initial appearance on April 2, Mr. Davidson plead not guilty to all pending counts. He is represented by Attorney Theron M. Hall, III, appointed for the defendant.

A jury trial is set for May 14, before Judge Susan N. Brnovich.

Doing business as Davidson Law

Mr. Davidson was an attorney licensed to practice in three states: Arizona, Colorado and New Jersey, according to the indictment.

From approximately 1990 to 2009, Mr. Davidson operated and was the sole owner of Davidson Law Firm, a civil law practice in Scottsdale, which primarily focused on real estate, business and construction law.

Davidson Law Firm had a number of employees and paid these employees’ wages, according to the indictment. He served as officer and director of the law firm. As the employer, DLF was responsible for accounting for and collecting the employer’s and employees’ portion of the Medicare tax and Social Security tax, as well as the employees’ income tax withholding.

DLF was required to report these payroll taxes to the IRS on a Form 941, Employer’s Quarterly Federal Tax Return, according to the indictment.

The law firm was also required to make payroll tax deposits with the IRS.

Mr. Davidson was the sole responsible person for preparing Forms 941, and making the federal tax deposits on behalf of DLF to the IRS.

“If a person willfully fails to pay over payroll taxes, the IRS may impose personal penalties on a responsible party,” the indictment states.

Mr. Davidson next began operating Davidson Law PC in or around July 2009; also a civil law practice in the same location with the same employees as DLF.

On or about July 30, 2009, a Compass Bank account ending in 0768 was opened in the name of Davidson Law PC, with Mr. Davidson listed as a signatory.

Mr. Davidson was the sole owner, officer and director of Davidson Law PC, and as such, was the sole responsible person for preparing Forms 941 and making the federal tax deposits on behalf of Davidson Law PC to the IRS.

On or about Nov. 10, 2011, Mr. Davidson switched banks and became the signatory on a Bank of America account ending in 1909 in the name of Davidson Law PC, doing business as Davidson Law Firm.

On Jan. 25, 2010, IRS Collection initiated contact with Mr. Davidson in an attempt to collect outstanding Forms 941, and federal payroll taxes due for DLF.

On or about March 23, 2011, Mr. Davidson was notified the collection’s case had expanded to include Davidson Law PC.

Although the law firms had sufficient funds, Mr. Davidson failed to file numerous Forms 941 and failed to make the quarterly tax deposits when due to the IRS, the indictment states.

In or around September 2012, Mr. Davidson began operating Davidson & Lester PLLC.

On or about Oct. 5, 2012, a Bank of America account ending in 0159 was opened in the name of Davidson & Lester doing business as Davidson Law Firm with Mr. Davidson listed as a signatory.

In May 2013, a Bank of America account ending in 0586 was opened in the name of Davidson, Lester & Kaffer doing business as Davidson Law Firm, with Mr. Davidson listed as a signatory.

In 2014, the name changed again to Davidson & Kaffer, PLLC.

Pinnacle Pro

In 1997, Mr. Davidson had previously established Arizona Corporation Pinnacle Pro, Ltd. as an arbitration and mediation services company.

Mr. Davidson represented that he was the sole officer, director and majority shareholder of Pinnacle Pro.

On or about Jan. 1, 2011, Mr. Davidson added his wife and stepdaughter as officers of Pinnacle Pro.

On or about Nov. 14, 2011, a Bank of America account ending in 1446 was opened with Mr. Davidson and his wife listed as signatories on the account.

On or about March 30, 2012, Mr. Davidson filed documentation expanding the characterization of Pinnacle Pro to include sports management.

On or about Oct. 29, 2013, “C.K.” was appointed director of Pinnacle Pro.

Following, on or about Nov. 1, 2013, Davidson, Lester & Kaffer PLLC entered into a Retainer Agreement with Pinnacle Pro in the amount of $4,000 a month, the indictment states.

IRS

From January 2010 through November 2013, the IRS attempted to collect outstanding Forms 941 and tax liabilities for DLF and Davidson Law PC by various means.

On Nov. 20, 2013, IRS Collections referred the case to criminal investigation.

On Feb. 26, 2014, Mr. Davidson was advised that he was under criminal investigation. At that time, DLF and Davidson Law PC owed in excess of $250,000 in unpaid payroll taxes and Mr. Davidson, as the responsible party, personally owed in excess of $110,000 in penalties associated with the payroll tax deficiencies.

On or about April 5, 2016, criminal investigators discussed the investigation during a meeting with Mr. Davidson’s counsel. On or about April 26, 2016, Mr. Davidson through Counsel, provided criminal investigators with three single-page documents that had been electronically transmitted by Mr. Davidson to council on April 6, 2016.

On April 13, 2017, a subpoena was served to obtain Mr. Davidson’s original April 6, 2016 electronic transmission to counsel and the attached documents.

On or about Aug. 14, 2017, subpoena compliance was received.

Count 1

The indictment states Mr. Davidson did allegedly endeavor to obstruct and impede the due administration of the internal revenue laws by committing acts, including incorporating and operating new law practices without disclosure to IRS Collections, providing false, incomplete and misleading information on IRS forms, and providing false sworn testimony on April 10, 2013, during a deposition.

Count 2

Secondly, Mr. Davidson allegedly attempted to evade and defeat the payment of tax due and owning by DLF and Davidson Law PC, to the United States of America, in the total amount of approximately $250,000, for the years 2007-11.

Mr. Davidson concealed and attempted to conceal, from the IRS, U.S. Department of Treasury, the true nature, source and location of his and the two law firm’s income and assets.

The indictment states the evasion of payment was done in the following manner:

  • Mr. Davidson changed banks and opened new operating accounts for the law practices, including accounts not previously disclosed in documents provided to the IRS;
  • Mr. Davidson transferred and sheltered income earned by DLF and Davidson Law PC in Interest on Lawyer Trust Accounts required to be maintained by law practices to separate client deposits from the law firms’ operating accounts;
  • On April 10, 2013, Mr. Davidson provided materially false information related to the financial status of his various law practices and his personal finances during sworn testimony provided to the IRS; and
  • Between Nov. 21, 2011 to Dec. 31, 2013, Mr. Davidson transferred approximately $455,595 from various law practice bank accounts, including Bank of America accounts ending in 1909, 0159 and 0586 to Pinnacle Pro’s Bank of America account ending in 1446. These transfers were falsely characterized as payments for mediation, arbitration, consulting and marketing services.

Count 3

The third count alleges on or about April 26, 2016, Mr. Davidson did knowingly alter, conceal, falsify and make a false entry in a document with the intent to impede, obstruct, and influence the investigation and proper administration of the criminal investigation of his conduct as it relates to the tax liabilities of the defendant and his entities, a matter that Mr. Davidson knew was within the jurisdiction of the Department of Justice, a department and agency of the United States.

Northeast Valley News Editor Melissa Rosequist can be e-mailed at mrosequist@newszap.com or can be followed on Twitter at twitter.com/mrosequist_.

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