Sherlock’s famous jibe to Watson from The Valley of Fear introduces a Tax Court case that’s actually fun to read, bringing a smile even to my jaded visage.
George Schussel first used Bermuda to stash the cash from his cash-cow Digital Consulting, Inc., but when DCI cratered, he moved his loot to the Bay State and set up Driftwood Massachusetts Business Trust, whence he claimed the loot was either loans to DCI or DCI’s payment for his intellectual property.
His hideaway in the “still vex’d Bermoothes” was Digital Consulting Limited, Inc., a Bermuda shell that did no business except cash checks made out to its US sibling DCI and divert same as Georgie directed, which neither DCI nor Georgie ever reported as income.
You’ll find the whole story, as told by Judge Cohen, in 2013 T. C. Memo. 32, filed 1/31/13.
Georgie claimed that, because DCI was a C Corp., he wanted to avoid double taxation. What he did in fact was evade any taxation, whereupon IRS descended heavily, and First Circuit affirmed Georgie’s conviction for tax evasion and conspiracy to defraud the USA.
Restored to society and litigating Section 6901 transferee liability for the Driftwood cash, Georgie’s trial testimony was blown away by Judge Cohen. Running money through DCLI violated Massachusetts’ fraudulent conveyance statute (see my blogpost “Game Ends in No Score”, 5/30/12, for more about fraudulent conveyances), and there’s no proof that Georgie transferred any intellectual property to DCI, for which Driftwood was obligated to pay him, nor any documentation of any loan from Georgie to Driftwood or anyone else.
Nothing exciting here, so why do I blog this run-of-the-mill case?
Georgie’s never-say-die attitude and his delightfully unencumbered moral sense make reading Tax Court cases fun: “…in early November 1997, while auditing DCI’s return for 1995, a revenue agent began questioning checks payable to DCI deposited in DCIL’s account. Petitioner prepared a bogus contract between DCI and DCIL allegedly for a term of two years beginning January 4, 1994, to be presented to the revenue agent by the lawyer he had hired to represent DCI in the audit. Petitioner picked the dates of the contract to coincide with termination of the practice of sending money to Bermuda, which was supposed to stop on December 31, 1995. While he was preparing the contract, he looked out the window of his home and observed his gardener mowing the lawn. Petitioner signed the name of his gardener as the ‘managing director’ executing the contract on behalf of DCIL.” 2013 T. C. Memo. 32, at p. 6.
Of course Georgie gets transferee liability in high seven figures for these shenanigans, but his story does have “a certain unexpected vein of pawky humor”.