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Schock's father ensnarled in alleged tax fraud case

Posted March 11, 2008 11:00 pm

Bernard Schoenburg

The father of congressional candidate Aaron Schock could end up testifying in the trial of three eastern Illinois residents charged with a tax fraud conspiracy.

Dr. Richard Schock, 58, of Peoria is mentioned as one of several customers of the alleged schemers in a federal document filed Monday in U.S. District Court. That document lays out the case against Charleston residents Kenton Tylman, 61, and Debra J. Hills, 51; and Brent Winters, 53, of Clark County.

The alleged scheme involved the selling of sham trusts and financial packages that allowed trust customers to illegally shelter almost $7.3 million in income from the Internal Revenue Service.

The elder Schock said Tuesday the IRS ended up auditing his finances, and he paid between $20,000 and $30,000 for what he believes was three years' worth of back taxes. A superseding indictment filed in June indicates that in tax year 2000, $86,000 was omitted from Dr. Schock's taxable income.

"A lot of the things that I did had good reasons for them," Schock said.

No penalties were assessed with his back taxes, he added, because "they realized that I have been taken."

Winters said by telephone that he has pleaded innocent, and he also came to the defense of his former customer.

"Dr. Schock is innocent of any wrongdoing," Winters said. "I think that's important to be said. He's an honest and conscientious man."

Winters himself has twice been a Republican candidate for the U.S. House, losing to Democrats Glenn Poshard in 1994 and David Phelps in 1998.

A federal grand jury in Springfield returned indictments against Tylman, Hills and Winters in 2006.

Richard Schock, a family-practice physician, said he got involved to try to protect assets from possible medical malpractice lawsuits as well as to reduce his tax liability.

"I feel like I've been led down a path and sold a bill of goods," he told The State Journal-Register, referring to the sales pitch for which he fell.

He said he met with the IRS "a number of times."

"Basically, I'm a witness for the government at this point," he said, adding that the trial may get under way in June.

He also said he was not trying to avoid paying all taxes.

"I'm not anti-government or anti-tax," he said. "I don't like to pay taxes any more than anybody else, but I pay my taxes."

He said he was introduced to Tylman by another doctor.

Aaron Schock, a state representative from Peoria, is the GOP candidate for the U.S. House from the 18th Congressional District. He faces Democrat Colleen Callahan in the November election.

"What does this have to do with me?" Aaron Schock asked when reached by telephone in Washington, D.C., Tuesday. "This is a cheap shot."

After being told the information about his father was filed in court just this week, Schock said he "maybe spoke too soon."

"I'm not aware of anything," he said about the court case.

Bernard Schoenburg can be reached at (217) 788-1540.

How the tax fraud allegedly worked

The 26-page document filed Monday is a "Santiago proffer" that lays out the government's case and seeks pre-trial rulings on admissibility of certain evidence.

In general, Kenton Tylman, Debra J. Hills and Brent Winters are accused of setting up sham trusts for clients. Some of the clients' assets were transferred to the trusts, but, allegedly, neither the trusts nor the clients would pay taxes on income produced by the trusts. The indictment alleges that each trust purchaser retained control over the funds and was therefore responsible for paying taxes on the money.

The section on Richard Schock states that he contacted Tylman in December 1999. Schock paid $40,000 for his "trust system," and, according to the government, four entities were set up -- Kcohcs Trust, Schock Foundation Trust, REM Co. Trust and Schock Limited Partnership. The Schock Foundation Trust was funded with $100,000 from the doctor's individual retirement account. That trust filed no 1999 tax return, and in 2000, it paid $24 in tax.

Winters also allegedly drafted documents so the elder Schock could place his home in the Schock Limited Partnership.

"Following the system, for the 2000 tax year, the majority of the income from REM Co. and Kcochs LLC was 'distributed' to the Schock Foundation Trust," the proffer states. "However, the Schock Foundation Trust failed to declare 'distributions' from REM Co. Trust or Kcochs; thus no tax was paid on the funds so distributed."

The document states that Schock sought information on the trusts a number of times from all three defendants. In August 2000, Schock told Tylman that the IRS had questioned the legitimacy of trusts purchased by another doctor.

"Tylman reassured Schock that Brent Winters had full confidence in the trusts," the document states.

In May 2001, after "many requests," the proffer says, Hills finally supplied documents for the trusts Schock had purchased in 1999.

"The instructions included such points as: 'Janice M. Schock will date this document 10/1/99 and sign on the signature line,'" the proffer states, noting that the date was 1 1/2 years before the documents got to Schock and two months before Schock's $40,000 purchase.

Richard Schock, who said he and Janice divorced in mid-2002, said he doesn't consider the documents backdated.

"We dated them from the time that we started using the corporations and the partnerships and so on," he said, adding that he "kept calling them and harassing" the defendants until the documents were finally provided.

"They kept saying they wanted to make sure they were done right," he said.

The elder Schock also said that he was pitched the idea of buying offshore trusts, but Aaron brought home some books on the subject.

"I read them," Richard Schock said. "Then I told Tylman that I didn't want to do the offshore."

Tylman said Tuesday evening that all the defendants have pleaded innocent.

"The government has obviously made a wrong turn," Tylman said.

-- Bernard Schoenburg

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