In Uncategorized on 08/30/2013 at 00:18

See my blogpost “A Dangerous Thing”, 4/13/11, for my take on Alexander Pope’s famous verses on drinking deep from the Pierian spring.

Well, another Alexander, Dr. Stanley by name, and Ruth, his wife, didn’t even sip much, and it helped them avoid the 75% fraud hammer from the hand of Judge Goeke in Stanley L. Alexander and Ruth A. Alexander, 2013 T. C. Memo. 206, filed 8/29/13, which I finally get to blog as I’m homeward bound from National Harbor, MD,  and the 2013 IRS Nationwide Tax Forum, that well-known fount of knowledge.

Stan and Ruth get hooked up in one of those offshore employee leasing roundy-rounds. Ruth claims to be just a farm girl, but she did bookkeeping for Stan and her pleas of innocence are belied by her participation via her grantor trust and the absence of any records of her farming activity.

For a quick review of the offshore leasing game, see my blogpost “What Not To Say”, 11/3/11, the tale of Merry Perry Browning, whose case is cited by Judge Goeke here. Instead of the credit cards Merry Perry and Mrs. Merry Perry used, Stan and Ruth used revolving credit lines from their offshores, and there were many, to funnel the cash parked offshore back to Stan and Ruth. From Ireland to Isle of Man to Hungary runs the tangled trail, and Judge Goeke runs them all down.

If old-time wheeling and dealing sings to you, read the full opinion.

Of course Stan gets nailed for underreporting, failure to file, failure to pay, and accuracy, and his controlled corporation gets nailed for nonpayment of withholding taxes. As aforesaid, Ruth is in there with Stan, jointly and severally.

Now Stan is a retired Air Force light bird and a plastic surgeon of repute. He was an honors graduate of Otterbein College with an MD from Ohio State. Ruth had a BFA from Wright State in Dayton, OH, and took accounting and computer courses thereafter. Not a stupid couple, and Judge Goeke makes that clear.

So after blowing up the employee leasing scam and eviscerating the farming claims and the unsubstantiated deductions, Judge Goeke turns to penalties. And he hands out plenty, to Stan and his corporation, and Ruth.

But when it comes to fraud, Judge Goeke says IRS didn’t prove it clearly and convincingly. IRS shows that Stan was in the thick of the wheeling and dealing, and Ruth was by his side, although the deals were concocted and run by a couple of lawyers Stan met through an offshore peddler of leasing deals.

But that’s not enough for Judge Goeke. “While Dr. Alexander is highly educated and a very accomplished medical doctor, respondent [IRS] did not establish that he understood complex tax law issues. To be sure, Dr. Alexander has a basic understanding of corporate structures and filed his own tax returns, but nothing in the records establishes that he understood the complex tax laws involved with the OEL [overseas employee leasing] transaction, nor that he possessed the knowledge to determine that the OEL transaction did not comply with applicable tax laws. Similarly, Mrs. Alexander does have some accounting education, but she does not possess the education or experience for the Court to hold her to a higher level of understanding when it comes to the OEL transaction.

“The evidence shows that Messrs. Kritt and Reiserer [the promoters] explained the OEL transaction in detail to Dr. Alexander and assured him the plan complied with the tax laws. There is nothing in his education or experience that would indicate that he should have known differently. Messrs. Reiserer and Kritt structured and implemented every aspect of the OEL transaction. Dr. and Mrs. Alexander relied upon the assurance of Messrs. Reiserer and Kritt that the OEL plan conformed to the tax laws. Dr. and Mrs. Alexander do not possess the education and experience to understand that the plan did not conform to the applicable tax laws.” 2013 T. C. Memo. 203, at p. 44.

So, unlike the famous frankfurter, neither the doc nor Ruth must answer to a higher authority when it comes to knowing tax law.

Of course, their asserted good-faith reliance on the promoters gets sunk, as the promoters made the deal happen.

But maybe a little knowledge isn’t such a dangerous thing, after all.

Footnote for a lady– This is my post number 555–Triple Nickel.

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