Wednesday, July 27, 2011
A Doctor, A Tax, An Offshore Account And A Moral
I was reading Kindred v Commissioner recently. There is not much there of technical interest, but the facts are interesting. Plus it has a moral.
Dr Kindred failed to file tax returns or make tax payments for 2001 and 2002. The IRS prepared substitutes for returns and assessed him $912,529 and $1,184,115 for 2001 and 2002 respectively. The doctor goes to court, but not to argue the amount of tax assessed.
NOTE: Wow! This guy owes over $2 million to the IRS and is not even arguing the amount.
Dr Kindred had gotten himself involved with the Aegis Business Trust System (Aegis) out of Chicago. Aegis was a bushel of bad apples. They promoted the use of trusts – revocable, offshore - as a way to reduce taxes. The problem is that some trusts are useful and others are useless. Aegis promoted useless trusts. The IRS conducted an undercover investigation (code-named “Operation Trust Me”) which resulted in indictments and convictions for tax fraud conspiracy for the operators of Aegis.
Dr Kindred transferred money offshore to one of these Aegis trusts.
In 2003 the government indicted Aegis and froze their offshore accounts. The government seized all the accounts and kept the money, including Dr Kindred’s money.
Subsequently the doctor is contacted by the IRS, and they want $2-plus million.
The doctor’s money is gone. What is he to do?
He files a case in District Court and then Tax Court, that is what he does. His request is simple. He wants to receive “credit” for his share of the monies that were seized. After all, on the one hand he owes the government money. On the other hand the government took money that belonged to him. Seems reasonable, right?
The district court dismisses his case. There are several issues, one of which is that the case in district court was a criminal case. No matter what, Dr Kindred was not coming out of district court with a verdict that the monies represented tax payments, mostly because the monies did not represent tax payments. Rather than make tax payments to the IRS he boxed them in an Aegis trust and shipped the monies overseas. Money yes, tax payments no.
He next goes to the Tax Court and makes the same plea. The Tax Court asked the obvious question: we are a court for taxes. We see that you owe taxes. We see that you did not pay taxes. Why are you here?
This is a worst case scenario. The doctor lost the money that he shipped offshore AND he still owes the taxes.
The moral? Wouldn’t it have been easier to just HAVE PAID THE TAXES?