Here is the cast of characters for
today’s discussion:
Brian orthopedic surgeon and idiot tax
savant
Mark Brian’s brother and idiot business
manager
Michael long-suffering CPA
Lynn the “other” CPA
All
right, maybe I am showing some bias.
Let
us continue.
The
two brothers attend a seminar about using domestic and offshore trusts to delay
taxes until the monies were brought back into the United States. In the
meanwhile, one could tap into the money by using a credit card.
Sure.
Sounds legit.
The
brothers return and are excited about this new tax technique. They ask
Michael’s advice. Michael tells them that the seminar promoter was “a person to
avoid” and to consult an independent tax attorney.
Brian blew off Michael. Brian signed up for
the offshore trust. He may have received a toaster with his new account.
Michael
– who does the accounting - sees a $15,000 check to the promoter. He writes Brian:
I am writing to you because I am concerned for
you and the risks you may inadvertently be taking.
It seems to me that the promoters are relying
on an elaborate chain of complex entities to conceal taxable income. I am
especially suspicious when I learned that they will provide you with a VISA
card to access the money.
I am asking that you consider the worst case
scenario in which the IRS takes the position that you are committing tax
evasion. They have the power to assess huge penalties and interest, to
prosecute you, to ruin your career, and seize your property. Is the risk worth
it?”
Michael
talks with Mark. He believes that the brothers have finally listened to his
advice.
Meanwhile,
the brothers did not listen to anything. They set up a series of interlocking
companies and hired Lynn to prepare taxes for those companies. Lynn is
associated with the promoters of this tax scheme.
- In year one the brothers transfer $107,388 offshore and deduct it as management fees
- In year two they transfer and deduct $199,000
- In year three they transfer and deduct $175,000
The IRS swoops in on the trust
promoters. They take Lynn’s computer. Lynn calls Mark, explains all that, and
recommends that they see a tax attorney. Maybe they should amend the tax
returns. Mark, after his many minutes of
tax education, training and experience, told Lynn that he was not amending
anything.
It gets better.
The promoter
contacts the brothers and says that they have a NEW AND IMPROVED program that
will be bulletproof against the IRS. The brothers sign on immediately.
The brothers
receive their sign soon thereafter.
- In year four they transfer and deduct $650,000
Michael is preparing this tax return.
He calls Mark and asks about the “management fee.” Michael has Mark write him a
letter that all was on the up-and-up.
- In year five they transfer and deduct $460,000
Michael is
not preparing this tax return. He has had enough, and he has a career to
protect. He wants a letter from an attorney that the transactions are above
board.
Mark fires
Michael.
And, in
another surprise, daytime was followed by darkness.
A year
later, Michael (the hero of our story) sends the brothers a press release about
the “dirty dozen tax scams.” Sure enough, theirs is on the list. There is still
time to send back the sign.
- In year six they transfer and deduct $180,000
In addition,
Brian taps the offshore account for $270,000 for the purchase of a new home.
A couple of years later Michael
receives a subpoena from the IRS for records pertaining to Brian and his
company. This is when all that communication back-and-forth with Mark and Brian
may have taken its toll, as Brian was virtually giving the IRS a roadmap.
The brothers, perhaps whiffing that
they may have missed a key lecture in their vast tax education, decided to
amend Brian's personal returns, adding most of the so-called management fees back to
his income. Brian sends a big check to the government.
This case goes to Court. This is not a
regular tax case. No sir, this is a fraud case. Someone is going to jail.
There was an eleven-day trial. The
brothers were found guilty on all counts.
There was something interesting in
here during interrogatories. The IRS never discussed the amended returns when
they were presenting their fraud case. The brothers objected, but the Court
sustained the government. The brothers introduced the amended returns when it
was their turn.
The brothers had a point. The
government was not out ALL the money, because Brian had paid a chunk of it with
the amended returns. Why then did the Court sustain the government? Here is the
Court:
As
an initial matter, we note that the amended returns were submitted years after
the false returns had been filed and months after[Michael] warned [the
brothers] that their records had been subpoenaed. We have previously said that
‘there is no doubt that self-serving exculpatory acts performed substantially
after a defendant’s wrongdoing is discovered are of minimal probative value as
to his state of mind at the time of the alleged crime.”
Wow. There were no brownie points with
this Court for doing the right thing.
By the way, Brian got 22 months at
Club Fed and his brother got 14 .
But they got to keep the sign.
