Question # 3: What holes do you perceive in the case and how should they be filled?
a. The government should check to see if the IRS issued Jack and Janet a 1099 for the dividends and for the sale of stock. If so, the special agent would need to determine who the 1099s were issued to and at what address. Were Jack and Janet living at that address at the time the 1099s were sent? There is a presumption of receipt if the government establishes that the 1099s were mailed to the correct address. What is that important? The receipt of 1099s by Jack and Janet would help the government prove willfulness. In other words, it makes it a lot harder for Jack and Janet to say, “Oops, I forgot.”
b. Assuming that Jack and Janet did, in fact, receive a 1099, did they forward it to Mr. Dewey?
This is important for two reasons:
i. First, if Mr. Dewey received 1099s and the items on the 1099 did not appear on the return, that’s good for the defense. It suggests that Mr. Dewey was sloppy. Blaming the sloppy return preparer is a good defense.
ii. Second, if the 1099s were received by Jack and Janet, but were never turned over to Mr. Dewey, that’s good for the government. The failure to turn over information to a return preparer is a strong badge from which the jury can infer willfulness.
c. For the indirect method to be of any use, the government must establish how Jack and Janet paid for the items in question
i. For example, with respect to the new home, how was it purchased? Was it financed through a mortgage? Or was it purchased outright in cash? If the home was purchased with borrowed funds, that doesn’t help the government when it comes to proving unreported income. Jack and Janet installed a satellite dish and an in ground pool. How did they pay for these? Did they pay for them over time pursuant to an installment agreement or did they pay for them outright in cash? While the former is good for Jack and Janet, the latter isn’t.
ii. How about the vacation to Las Vegas? Casinos sometimes provide free accommodations to favored guests during times of special promotions. Did Jack and Janet receive a complimentary stay at a chique Las Vegas hotel or did they pay for the trip out of their own pocket? If the latter is true, how much did Jack and Janet pay for the trip?
iii. Of course, the government must avoid double counting. For example, when the $ 2,000 in dividends was deposited and possibly withdrawn from Jack and Janet’s bank account to finance one or more of these purchases, it must only be counted once!
In accordance with Circular 230 Disclosure
As a former public defender, Michael has defended the poor, the forgotten, and the damned against a gov. that has seemingly unlimited resources to investigate and prosecute crimes. He has spent the last six years cutting his teeth on some of the most serious felony cases, obtaining favorable results for his clients. He knows what it’s like to go toe to toe with the government. In an adversarial environment that is akin to trench warfare, Michael has developed a reputation as a fearless litigator.
Michael graduated from the Thomas M. Cooley Law School. He then earned his LLM in International Tax. Michael’s unique background in tax law puts him into an elite category of criminal defense attorneys who specialize in criminal tax defense. His extensive trial experience and solid grounding in all major areas of taxation make him uniquely qualified to handle any white-collar case.
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