RUTLAND — Federal prosecutors say an attorney evaded taxes to maintain a “privileged lifestyle” and should serve time behind bars to send a message that “white collar” crimes are taken seriously.
Defense attorneys say the once-prominent Rutland lawyer has already suffered. He has lost his law license and his legal practice and has endured humiliation and embarrassment after federal charges against him came to light earlier this year.
The two sides will present their arguments to Judge Christina Reiss on Sept. 29 in federal court in Burlington when John Canney III, 63, a lawyer in Rutland for more than three decades, is sentenced on federal tax fraud offense.
The prosecution and the defense have both recently submitted sentencing recommendations to the judge. The documents also provide many more details into the case against Canney, a well-known figure in the Rutland community.
The prosecutor says Canney should spend at least nine months in prison, while his attorney is asking the judge to spare his client jail time and instead sentence him to probation or home detention.
“His tax offenses were not isolated mistakes; he perpetrated these crimes over four years,” Assistant U.S. Attorney Kevin Doyle, who is prosecuting Canney, wrote in his recent filing.
“Canney cannot claim ignorance of his tax obligations,” Doyle added. “He has been a licensed attorney for over 30 years, and the owner of his law practice for approximately 25 years.”
Tristram Coffin, Canney’s attorney, countered in his filing that his client is a “good man who made a series of very bad mistakes.”
And those mistakes took place, the defense attorney wrote, “during a time in our country unparalleled since the Great Depression and at a point in his life when he faced financial, person, and medical crises that pushed him to the breaking point.”
Doyle, through a spokesperson in the U.S. Attorney’s Office, declined comment Thursday. Coffin could not reached for comment.
Canney pleaded guilty in June to federal charges of filing false individual and corporate tax returns for the tax years 2010, 2012 and 2013. As part of a plea agreement, the prosecutor and his attorney have agreed the tax loss is between $100,000 and almost $200,000.
The prosecutor wrote in his filing that Canney, whose practice focused on real estate and bankruptcy law, took “deliberate and willful” steps to defraud the government, “knowingly” depositing checks into his personal bank account and withholding that information from his accountant.
In addition to his private law practice, Canney served as a U.S. Bankruptcy Court trustee for more than 30 years in Vermont, Doyle wrote.
“As a trustee, Canney was charged with administering bankruptcy estates, a function that included the handling of disbursements to priority creditors such as the IRS,” Doyle wrote. “While Canney was making sure that debtors made good on their obligations to the IRS, he himself was bilking the same agency for years.”
The prosecutor added that Canney has stated his practice and his wife’s real estate business suffered after the recession in 2008, making it hard to pay their son’s tuition at Bates College in Maine and their daughter’s tuition at Stanford University in California.
Also, Doyle wrote, Canney said he had to deal with a heart condition, as well as the deaths of a close family friend and his wife’s father.
“While this serves as context,” the prosecutor’s filing stated, “it does not excuse Canney’s criminal conduct.”
Many people lost jobs, insurance, homes and savings as a result of the recession, and unlike those people, Canney had significant assets, Doyle wrote.
A pre-sentencing report showed Canney’s total net worth at $2.7 million, including nearly $20,000 in savings and $1.1 million in retirement accounts, according to the prosecutor.
Also, the filing stated, Canney has $1.9 million in real estate holdings, with two homes, one near the racetrack in Saratoga, New York, the other in Clarendon, each valued at more than $600,000.
In addition, the prosecutor wrote, Canney has five vehicles and two commercial properties in Rutland valued at more than $500,000.
The Rutland attorney had plenty of options to make financial ends meet, such as selling off some of his assets, taking out loans to pay the college tuition, or even filing for bankruptcy, the filing stated.
“He did none of those things,” Doyle wrote of Canney. “Put simply, tax evasion to maintain a privileged lifestyle is inexcusable.”
Canney’s sentence should tell the public that “white collar” crime is taken seriously by the courts, the filing stated.
“The sentence in the case should send a message to other would-be tax cheats that imprisonment is a reality for those who violate the internal revenue codes,” Doyle wrote.
Doyle is asking the judge to sentence Canney to nine months in prison as well as impose a “substantial” fine. Canney is resolving his tax issues with the IRS separate from the criminal case, which will result in restitution, the prosecutor added.
Coffin, Canney’s attorney, wrote in his filing that when an IRS criminal investigator arrived at his client’s Rutland law office “unexpectedly” in February 2015, Canney “did not stall, delay or obfuscate,” but admitted to the IRS agent what he had done.
Canney also admitted to the charges against him after negotiating a plea agreement with prosecutors, accepting responsibility for his conduct from the outset, Coffin wrote.
The defense attorney is asking the judge for a probationary sentence for his client, with conditions such as a fine, community service or home detention.
Canney, he wrote, has been a valuable member of the Rutland community, serving on boards and in officer positions of organizations. The defense attorney said his client also often represented people “pro bono” or for significantly lower fees.
Coffin highlighted the difficulties faced by Canney and his wife, a real estate broker, during the recession.
“To a degree perhaps unprecedented in modern history, there was almost no work for a real estate broker,” the defense attorney wrote. “Similarly, there was only very limited work for a lawyer with a real estate-focused practice.”
While the couple had real estate holdings, it was a time when they could not be readily be sold due to the market, Coffin wrote.
An IRS audit of Canney’s law firm began in 2013, and is still incomplete with no final assessment yet of how much is owed, the defense attorney’s filing stated.
After his interview with the IRS agent in February 2015, Canney received no word on the audit or the criminal investigation until May 2016 when he learned federal prosecutors were considering charges, according to Coffin.
For a year before the prosecutors filed charges, Canney tried to resolve it as a civil matter, but ultimately negotiated a plea agreement, the defense attorney added.
Canney’s law license has been suspended, he faces disbarment, and his law office has been shut down, Coffin wrote. The defense attorney added, “The story of his prosecution and guilty plea has been widely publicized.”
Coffin, a former top federal prosecutor in Vermont, called the case against his client “among the lowest level prosecuted” in recent years.
No client money was taken or diverted, with the U.S. Department of Treasury the “sole victim” in the case, Coffin added.
“While admittedly a very serious offense and a calamitous mistake, this offense was frankly not as serious as other types of fraud cases that often come before this court,” the defense attorney wrote, adding, “Rather, this was a rather routine diversion of reportable income.”