Los Angeles tax attorney Matthew Krane pleaded guilty Thursday to tax evasion in connection with a $36 million kickback federal prosecutors say he received from steering media mogul Haim Saban into an illegal tax shelter.

Krane pleaded guilty to tax evasion and passport fraud before U.S. District Court Judge Ricardo Martinez in Seattle. Under the terms of the deal, Krane agreed to cooperate with federal prosecutors in what they’ve called one of the largest tax evasion schemes in U.S. history. He will serve up to five years in prison for the convictions, and is scheduled to be sentenced in March 2010.

Seattle federal prosecutors charged Krane in June with failing to pay taxes on the $36 million kickback he received from Seattle investment firm Quellos Group LLC. Krane received the money in exchange for bringing Saban into the illegal tax shelter, which allowed Saban to evade taxes on capital gains of $1.5 billion he made after selling his interest in the Fox Family Channel in 2001.

In surprising testimony in 2006, Saban told the U.S. Senate that his limited formal education prevented him from understanding the shelter was illegal. He ended up paying $250 million in back taxes and penalties.

Former Quellos Chief Executive Jeffrey Greenstein and his business partner Charles Wilk were indicted in June alongside Krane. Greenstein and Wilk are accused of developing an illegal tax shelter scheme that, according to a 2006 Senate report, created fake transactions and fake losses to “offset real taxable capital gains of U.S. taxpayers so they could avoid paying taxes.”

The charges of passport fraud were filed against Krane in Los Angeles federal court in 2008, when federal agents found the fake passport application while searching Krane’s West Hollywood home in connection with the Quellos matter.

Another L.A. attorney, Robert Jason, a former Harvard Law School classmate of Krane’s, pleaded guilty to filing a false tax return in connection with the case. The terms of Jason’s deal were filed under seal.

An attorney for Krane and a federal prosecutor with the Seattle U.S. Attorney’s Office did not immediately return calls seeking comment.

Meanwhile, Krane is still in a legal tussle with Saban over the $36 million, which is sitting in an offshore bank account. Krane filed suit against Saban in Los Angeles Superior Court in July alleging that Saban froze the Austrian account through a lawsuit in Vienna.

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