Sullivan And Cromwell Law Partner Sentenced to Prison In IRS Case

January 12, 2012

From 2001 through March 2009, John J. O'Brien, 48, of Caroga Lake, NY,  was a partner at the international law firm of Sullivan & Cromwell ("S&C"),  This venerable Wall Street law firm - known in the industry as S&C - is pretty much at the top of a formidable heap. O'Brien worked at the law firm's New York City office, where he handled corporate mergers and acquisitions. If you make partner at S&C, that's quite an accomplishment.

As with so many employers and partnerships, every year, S&C provided its  partners with their Schedule K-1 form, the Internal Revenue Service ("IRS") form that reports a partner's share of income, deductions, and credits. Annually, S&C also requested that all partners complete a certification form indicating that he or she was in compliance with all income tax requirements.

Between 2001 and 2008, O'Brien O'Brien received over $10.8 million in partnership income and owed over $2.5 million in taxes.  During that same time period, he  received copies of S&C's tax certification form but never completed it. Worse, he failed to file his tax return for the same period.

Instead of paying his taxes, O'Brien used the money to pay for various personal expenses, including :

  • funding an antique books business that he partly-owned,
  • renovating his lakeside weekend home in the Adirondacks, and
  • traveling internationally.

Upon learning that S&C had become aware of his failure to file returns and pay state and federal taxes, O'Brien resigned on March 31, 2009.

On  August 4, 2011, O'Brien pleaded guilty  to two counts of failing to file tax returns and two counts of willfully failing to pay taxes. On January 11, 2012, he was sentenced in federal court in Manhattan to 28 months in prison; one year of supervised release;  and was ordered to pay $2,866,832 in restitution to the IRS.

Bill Singer's Comment

Sometimes about all that you can do is shake your head and wonder.

The K-1 is as basic a tax form as there is. More to the point, this doesn't appear to be any particularly convoluted tax shelter.  O'Brien could have telephoned H&R Block or pulled up a Turbo Tax screen and got the same answer - yeah, dude, ya gotta pay tax on your income.