In Uncategorized on 11/03/2011 at 18:33

At least not to an IRS agent on an audit, is provided by the taxpayer-petitioner and his primary tax adviser and longtime accountant, Viggo (“Wiggy”) Carstensen, in Perry W. Browning, 2011 T.C. Mem. 261, filed 11/3/11.

Merry Perry was an electronics company CEO who needed to stash some cash against his impending old age and his company’s flagging sales. Wiggy put him in touch with some employee-leasing promoters, who put Merry Perry into a lease-and-sublease deal with an Irish corporation, a US shell, and a Bahamian bank (sounds like a joke, doesn’t it?).

Briefly, Merry Perry made a deal with the Irish to let the Irish lease him to a US corporation with no discernable business purpose except to sublease Merry Perry back to his company and help him stash the cash generated by the differential between the lease rent and what Merry Perry nominally got paid by the sublessor. Notwithstanding anything to the contrary elsewhere herein contained, as the high-priced lawyers say, Merry Perry continued to act, hold himself out, and generally carry on as if he still worked directly for his electronics company.

The deal was that the Irish would collect, via the US sublessor, Perry’s real salary as rent, stash what part he wanted in the Bahamas (“it’s better in the Bahamas”, as the tourist board slogan says), and give Merry Perry and Mrs. Merry Perry credit cards on a Bahamian bank, whereby they could use the stashed cash how they wanted.

Taxes were not a great concern. When Wiggy wanted a second opinion, he got one from a knowledgeable person (he thought), but one whose Circular 230 status was never made clear. The second opiner, McCarthy, was concerned that the personal service corporation cases wouldn’t fit, as Merry Perry wasn’t an athlete, an entertainer, or otherwise a personal services corporation type. Merry Perry had no PSC of his own, and, if audited, the whole deal would implode. Nevertheless, and notwithstanding et cetera, Wiggy told Merry Perry to go for it.

Merry Perry and Mrs. Merry went for it with a will, maxing the plastic and paying with the stashed cash, maintaining the fiction that the Irish controlled the expenditures. In fact, Wiggy checked the “no” box on line 7a of Schedule B to Merry Perry’s and Mrs. Merry’s joint 1040s, claiming they had no control over any financial account in a foreign country, such as a bank account, securities account, or other financial account. He later blames this on the default setting on his computer software, but Judge Halpern doesn’t buy it.

Comes now Bad Belinda Evans, IRS agent, and audits the Merry pair. No foreign accounts, the Merry pair aver, and hand Bad Belinda a credit report that doesn’t show the Bahama credit cards. Not for two months does the truth come out, when Bad Belinda grills Wiggy, telling him she knows about the hidden plastic, and Wiggy unbags the cat.

Bad enough, but Wiggy and Merry Perry wax humorous with Bad Belinda. Here’s the story, as told by Judge Halpern: “Ms. Evans’ testimony regarding her audit meeting with petitioner further indicates that petitioner intended to understate his income by hiding from respondent [IRS] his and Mrs. Browning’s 1998-2000 expenditures of unreported excess … payments by means of their personal charges to the Leadenhall Bank credit cards. That testimony was as follows:

“Q Okay. So, Ms. Evans, what was the nature of your conversation with Mr. Browning regarding his use of the Leadenhall credit card?

“A We had asked him if it was his intent to report the deferred compensation when he withdrew it as taxable income, then why didn’t he report the amounts of personal charges at that time on his tax return. Mr. Carstensen stated that —

“Q Mr. Carstensen or Mr. Browning?

“A Mr. Carstensen stated that everybody does it. Mr. Browning then stated that this is the standard way of using credit cards. Mr. Browning then went on to say it’s like running a red light or going the speed limit. You do things you shouldn’t while you can.” 2011 T.C. Mem 261, at p. 42.

Well, now Merry Perry can’t do it, as Judge Halpern finds enough badges of fraud to hang Merry Perry and Mrs. Merry (who’s bound by her husband’s fate per stipulation).

Takeaway–Do not, repeat do not, crack wise with an IRS agent, not now, not never.


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