In Uncategorized on 07/12/2012 at 17:49

“He who tells too much truth is sure to be hanged.” G. B. Shaw

This is the lesson taught to Deputy Tina Aginaga of the Oakland County (MI) Sheriff’s Department by Judge Laro in Scott M. Eriksen, et al., T.C. Memo. 2012-194, filed 7/12/12. Tina is one of the “al”s.

Tina was one of a group of deputies, hereinafter the “al”s, all of whom had their tax returns prepared by Jim Kern or his successor Curt Redinger. Jim was an EA and Curt was a CPA, and both of them were rogues. They specialized in preparing tax returns for officers of the law, inventing deductions and ignoring unsubstantiated expenses. They also failed to find out if any of the deductible expenses they claimed for their clients were non-deductible because reimbursable.

Ultimately the forces of righteousness catch up with Jim and Curt, and CID nails them both for Section 7206(2) aiding and abetting false returns.

Judge Laro: “During his plea allocution Mr. Kern stated that not all returns he prepared were fraudulent. Upon further questioning from the District Court on that point, Mr. Kern represented that of the 1,900 or so tax returns that he prepared annually, between 30 and 40 were false. He also maintained that the IRS was, in some instances, challenging legitimate deductions.

“As part of his criminal plea agreement, Mr. Redinger agreed to disclose to the IRS false and fraudulent Federal tax returns that he and Mr. Kern prepared. In furtherance thereof, on November 25, 2008, Mr. Redinger submitted to a revenue agent in respondent’s civil division a partial list of clients for whom he and Mr. Kern prepared false tax returns for 1999, 2000, and/or 2001. Petitioners were not included in that summary, and the record is not clear as to whether Mr. Kern or Mr. Redinger provided a more comprehensive list to CID at another time. Nor is the record clear as to whether Mr. Kern agreed to cooperate with the IRS or whether he participated in preparing Mr. Redinger’s list.” T.C. Memo. 2012-194, at pp. 11-12.

IRS gets Jim and Curt’s client list and starts pulling returns for audit. But the three-year statute of limitations has run, so IRS claims fraud. But the “al”s claim no fraud, so the statute has run.

There are two elements to establishing fraud: first, an understatement of tax, and second, an intent to deceive. “Clear and convincing” is the degree of proof, and the burden is on the IRS.

All the “al”s, Tina included, stipulated that, if the statute of limitations wasn’t a bar, they agree to the deficiencies IRS asserted in the returns Jim and Curt prepared. But IRS can’t bootstrap that stipulation into an admission of fraud; IRS still has to show clear and convincing evidence of an intent to deceive.

IRS is prepared to trot out 150 guardians of the peace to prove that Jim and Curt were rogues and plunderers of the fisc. OK, says Judge Laro, but that doesn’t mean that the “al”s in this case had fraudulent intent.

All the “al”s testified on the trial. Judge Laro said this about the testimony of all the “al”s, except  Tina: “We found this testimony general, vague, and perhaps coordinated, yet respondent did not examine Deputy Eriksen, Hardin, or Kesselring to such a degree as to destroy his credibility. As to claimed deductions for weapons, ammunition, protective equipment, and professional subscriptions, respondent did not offer evidence that Deputies Eriksen, Hardin, and Kesselring did not purchase such items. Such an allegation might have been easily proven by, for example, introducing bank records, credit card statements, and/or gun records as to whether each deputy petitioner purchased the claimed items. See 18 U.S.C. sec. 923(g)(1)(A) (2012) (requiring firearms dealers to maintain records of firearms sales ). Respondent introduced no such evidence.” T.C. Memo. 2012-194, at p. 29.

Merely because the “al”s didn’t contest the deficiencies doesn’t mean they committed fraud. All that does is raise a suspicion, and that doesn’t get it. So IRS’ trial counsel didn’t net all the fish they sought, but Tina was out there alone.

“Respondent [IRS] asserts, and we agree, that Deputy Aginaga testified honestly and credibly. Her testimony, however, serves as the direct evidence that each of her returns for 1999 through 2002 was false and fraudulent. Deputy Aginaga’s trial testimony establishes that she ‘never’ purchased a gun or ammunition during any year at issue and that she explained as much to Mr. Kern. Deputy Aginaga’s statements on brief are consistent on this point in that she stated that ‘she did not actually purchase a gun or ammunition during the years at issue.’ Yet each return claimed as an unreimbursed employee expense deduction amounts for weapons and ammunition. By Deputy Aginaga’s admission, therefore, each of her returns at issue contained false or fraudulent deductions for a weapon and ammunition. We regard Deputy Aginaga’s admissions as direct evidence of Mr. Kern’s willingness to commit fraud with intent to evade tax as it relates to each of her returns.

“When viewed against the other indicia of fraud exhibited by Mr. Kern, the preparer who prepared each of Deputy Aginaga’s returns, we are convinced that each of Deputy Aginaga’s returns at issue was false or fraudulent.” T. C. Memo. 2012-194, at pp. 31-32.

Of course, if IRS establishes one part of one return was fraudulent, then they’re all fraudulent, and the statute of limitations is open indefinitely. So Tina’s stipulation that if fraud is shown, the deficiencies are valid notwithstanding the statute of limitations, gets her hooked. And of course she gets the accuracy penalties, as she credibly testifies she didn’t review her return before signing and filing.

No need to cross-examine a witness skillfully when she sticks her head in the noose for you.

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