I really hoped for a good case out of Tax Court today; perhaps one, if not scary, at least evocative of ghouls, ghosts, goblins and the brigade of frighteners who make the day what it is.
What we have is an eager entrepreneur who, notwithstanding one IRS audit and a couple of State audits (California, where else?), persisted in making cash withdrawals from his one corporate account, not reporting income and trying to stonewall two Revenue Agents. Oh, and he was late eight of ten years in his filings. I do not recommend this course of action.
You can read all about it in Rodney Eric McClellan, 2013 T. C. Memo. 251, filed 10/31/13, as Judge Laro gives Rod the Grand Chop, 75% fraud penalty. I really hoped for some more elaborate scheme, involving offshore tax-indifferents, trusts, LLCs, loans from offshore banks with “Hypotheken” thrown in somewhere, and high-priced lawyers and accountants dancing the Highland Fling through the IRC, but not today.
Rod’s basic maneuver was the “joint check”. Rod was a drywaller. This is a construction trade that puts up gypsum board, wallboard and similar materials. The general contractor would write a check payable both to Rod and to the gypsum board supplier who sold Rod the materials, to make sure they both got paid and wouldn’t file liens.
Apparently out in the Great Wide Open a supplier’s or tradesperson’s lien trumps the building loan mortgage from Day One, unlike back East here.
So Rod would get the GC to write the joint check to Rod and the supplier, but only for enough to cover the materials supplied. The GC would then give Rod a check drawn to Rod only for the non-material portion of the required payment. Rod would sign over the material check to the supplier, then deposit his check and take out cash. He’d pay his employees and ICs partly by check and partly by cash. Of course, he deducted the supplier’s bill from his check, notwithstanding the supplier had already been paid. And he carefully avoided payroll taxes on the cash payments he made to his employees.
Shows some inventiveness, but unravels really fast.
And the only designated hitter is STJ Daniel A. (“Yuda”) Guy going through some allegedly privileged documents IRS’ counsel prepared in the Eaton Corporation case, and letting Eaton Corporation’s counsel take a peek at a redacted version of one of them. If document discovery is your thing, and if governmental deliberative and pre-decisional processes make your day (no accounting for tastes), it’s Eaton Corporation and Subsidiaries, Docket No. 5576-12, filed 10/31/13.
And see my blogpost “Advance and Retreat”, 6/26/13, for background.