Tax Scheme Figure Gets Probation : Judge Ignores Request by Prosecutors to Jail Schulman

North Hollywood businessman Gerald L. Schulman, once one of the nation’s largest tax shelter promoters, was sentenced Friday by a federal judge in Los Angeles to five years probation and ordered to perform 1,000 hours of community service for cheating the government out of $28 million in taxes.

In sentencing Schulman, U.S. District Judge Mariana R. Pfaelzer, who convicted Schulman on Feb. 12 of 20 counts of felony tax fraud, spurned recommendations by federal prosecutors that Schulman be sentenced to prison. Schulman faced a maximum prison sentence of 64 years.

Prosecutors had further recommended that Pfaelzer fine Schulman $105,000 and order restitution for investors who lost money investing in Schulman-designed tax shelters. Schulman was ordered to pay $22,500 in government prosecution costs.

An Encino resident, Schulman, 56, in the late 1970s and early 1980s sold tax shelters to more than 5,000 investors, including comedian Robin Williams, actor and director Woody Allen and major league baseball pitcher Rick Sutcliffe of the Chicago Cubs. With investors’ money, Schulman acquired and managed nearly 600 post office, utility and government office buildings through limited partnerships he organized. At one point he controlled enough post office buildings to make him the U.S. Postal Service’s single largest landlord.

Schulman was indicted on the tax fraud charges by a federal grand jury in March, 1986. Pfaelzer dismissed the charges three months later, saying she did not believe he committed a crime. The charges were reinstated in May, 1987, by the appeals court, which called Schulman’s programs “a sham.”

Phony Loans Alleged

Pfaelzer said that she found the case difficult to decide, adding that she believes it is “not the kind of case in which incarceration is appropriate.” She said that the issue of whether investors are owed money should be decided through a civil lawsuit that is pending in U.S. District Court in Los Angeles.

During Schulman’s trial, Assistant U.S. Atty. Brian J. Hennigan argued that the Schulman-designed programs defrauded the government by taking interest deductions on phony loans Schulman arranged. Hennigan further argued that Schulman orchestrated the scheme, arranging that $252 million be shuffled in and out of Panamanian bank accounts to make it look as if the loans were real.

Speaking for the first time publicly on the case, Schulman tearfully told Pfaelzer he was trying to put his life back together and that he “never intended to hurt anybody. I fully believed in what I was doing.”

Schulman also made indirect reference to two previous felony convictions he had in New York and New Jersey, telling Pfaelzer that he turned his life around then and could do it again.

In 1969, he was placed on probation after he pleaded guilty to second degree attempted grand larceny in connection with an attempt to steal property worth nearly $20,000 from a New York bank. In 1971, he pleaded guilty to making false statements by overvaluing security for a Small Business Administration loan, for which he served four months at the federal facility in Lompoc.

Political Contributor

“I made a mistake. I paid for it dearly,” Schulman said.

Schulman was a prominent Democratic Party contributor in the early 1980s, belonging to the $15,000-a-year U.S. Senate Democratic Leadership Circle made up of large contributors. Included in the letters sent to Pfaelzer asking for leniency for Schulman was one from Sen. Carl M. Levin (D-Mich.), who said he has known Schulman for about 10 years. Levin said he found Schulman to be a “law-abiding, honorable man.”

Other letters came from former Gov. Edmund G. (Pat) Brown, who testified on Schulman’s behalf as a character witness during his trial, and Arthur Risser, general manger of the San Diego Zoo, where Schulman donated $100,000 for an exotic bird hatchery that was named in his honor.

Raymond W. Bergan, Schulman’s lawyer, said he has filed an appeal of Schulman’s conviction with the U.S. 9th Circuit Court of Appeals.