In Uncategorized on 04/10/2014 at 17:33

That’s STJ Dean’s word to Derek W. Somogyi, 2014 T. C. Sum Op. 43, filed 4/10/14, the only opinion out of Tax Court today. But Derek isn’t the physician in question; no, this doctor is the one to whom Derek’s “friends” (STJ Dean’s quotation marks) sent him. It’s The Tax Doctor Corporation, and the doctor is in; it’s Lawrence Murray.

Here’s Third Circuit’s take on the doctor.

“Murray advised high-income taxpayers how to fraudulently structure personal and business finances to maximize tax deductions and minimize tax burdens. Among other services, TDC would form shell corporations for its clients, and Murray would advise clients in deducting personal living expenses as business expenses of these corporations and in moving money between shell corporations in order to fabricate ‘expenses’ for ‘contracted services’ or ‘management fees.’ Murray also advised clients in the creation of false corporate board minutes for the shell corporations. Murray’s goal for his clients was to reduce their taxable income to zero by using these strategies, and he charged his clients between 20 and 35 percent of the tax savings they could expect to realize in the first year. He used the same techniques to reduce his own tax burden.” United States of America v. Murray, No. 11-1245, filed March 8, 2012, at p. 3. There’s more, but that will do for now.

Derek loves the doctor’s advice, notwithstanding his own CPA says the doc is way too aggressive for her. That caution doesn’t sway Derek, who jumps aboard the doc’s medicine wagon, even though he testifies on the trial that he has no idea what the doc was doing when he paid the doc based on his projected tax savings, and when he paid the doc to prepare his own (and his dummy corporations’) tax returns.

Derek stumps up the unpaid tax, but seeks to get out of the Section 6662(a) understatement penalties, claiming he was “tricked” by the doc into a defective strategy. You can guess how far Derek is going to get with that one.

First, a word from an old friend: ““Courts have repeatedly held that it is unreasonable for a taxpayer to rely on a tax adviser actively involved in planning the transaction and tainted by an inherent conflict of interest.” Canal Corp. v. Commissioner, 135 T.C. 199, 218 (2010).” 2014 T. C. Sum. Op. 43, at p. 11.

And now Derek’s loss of innocence. “The Court concludes that petitioner, a college graduate with some business experience, relied on the tax return advice of an adviser who had a financial interest in the return positions he recommended to zero out substantial income without a clear understanding of how that could be legally accomplished and ignored the cautionary advice of his C.P.A. in the process. Petitioner’s reliance on the Tax Doctor’s advice was not reasonable and in good faith….” 2014 T. C. Sum. Op. 43, at p. 13.

PS- The doc was convicted on all 19 counts, and conviction was affirmed.


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