The billionaire creator of the “Beanie Babies” craze was sentenced yesterday in federal court in Chicago to two years of probation and 500 hours of community service for tax evasion. Prosecutors had argued strenuously for a prison sentence for defendant Ty Warner, but United States District Judge Charles Kocoras rejected the argument in favor of a non-custodial sentence. Warner had entered a guilty plea in the case last year.
The tax evasion charge emanated from Warner’s failure to report close to $25 million in gross income between 1999 and 2007. It is reported that the money was hidden in Swiss bank accounts, thereby avoiding taxes of well over $5 million. The guilty plea involved just one count of tax evasion, based on liability from 2002. Under 26 U.S.C. § 7201, Warner could have been sentenced to up to five years in prison on the charge.
Arguing against a custodial term, Warner’s attorneys stressed his charitable activities, including a $20 million charitable donation, payment of a $20,000 medical bill for a stranger undergoing kidney treatment, and similar activities. Prosecutors, as one might expect, argued to the contrary. They said that Warner’s crime was committed not out of necessity but as the result of greed, and that probation would fuel the perception of the public that rich folks could avoid jail by writing a large check. (Warner has since paid the back taxes, as well as over $50 million in penalties.) At the sentencing, the federal prosecutor said that unless a prison sentence were imposed, the message to tax evaders would be that getting caught is simply like making a bad investment.
Whatever your opinion may be on the merits of the sentence imposed, this was clearly a great result for Warner. He could have received up to five years in prison under the statute, and the federal sentencing guidelines called for a prison term of between 46 and 57 months. Under these circumstances, Warner appears to have received quite a deal.
Probably the most curious aspect of the case involves the following question: Why would a very wealthy person (Forbes recently estimated Warner’s net worth at $2.6 billion) go to the trouble of avoiding (evading, really) a few piddling million in taxes? Maybe Fitzgerald’s statement is true: The very rich are different from you and me.
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