Tuesday, March 29, 2011
The United States Court of Appeals for the Seventh Circuit affirmed the conclusion that an Indiana couple fraudulently understated their 2001 income. The court forewarns the reader of the opinion:
Appellants [husband and wife] (a married couple from Brownsburg, Indiana) ran into trouble with the Internal Revenue Service (IRS) in 2003, when a revenue agent began auditing their 2001 joint tax return. Through this audit, the agent discovered a web of corporate and partnership entities serving dubious purposes, undocumented financial transactions, and inconsistent reports regarding the [couple's] income. Incongruously, although [the husband] engineeered much of the financial and legal tangle that landed him and [his wife] in hot water with the IRS, [he] is a licensed Indiana attorney with a practice focused on business planning and tax matters. We outline the confusing maze of entities and financial dealings below, but be forewarned that much of it makes little business or legal sense as the [couple] fail to dispel the perception underlying the Tax Court's finding that the perplexing arrangements served as nothing but the after-the-fact attempts to avoid taxation on the substantial income [he] earned in 2001.
The court held that the Tax Court's reliance on a number of "badges of fraud" was not clearly erroneous. These factors included the couple's education and experience, the omission of over $2.5 million in income, the failure to maintain records, commingling business and personal assets, and the absence of a business purpose in moving funds around. (Mike Frisch)