Attorney-at-Law

MUST DASH

In Uncategorized on 11/13/2014 at 17:38

No, I’m not leaving. I’m just telling how Agent Chan of the IRS reconstructed the tax postures of Frank Kenneth Worth, a.k.a. Frank K. Worth, a.k.a. Frank Worth and Helen Laura Worth, a.k.a. Helen L. Worth, a.k.a. Helen Worth, et al., 2014 T. C. Memo. 232, filed 11/13/14, a Judge Lauber opus.

Frank and family followed the lead of the Beach Boys and went surfin’. But instead of hitting the curls they opened a bunch of stores selling boards, both surf and skate.

Trouble was, they were underreporting income, not keeping records, trying the $8K-$9K dodge (cash deposits just below the $10K radar), and telling different stories about just who exactly owned the White Sands chain that sold the boards aforesaid.

Tracked down by Criminal, Frank, Donnie and Marie all pled to various charges. But as we know, that doesn’t established civil fraud penalties, although it weighs heavily against them.

No, enter the dragon, a/k/a Revenue Agent Helen Chan, who reconstructs the tax history of the Worthies by use of the net worth and personal expenditures method.

Cash method doesn’t work, as the Worthies distributed the boodle in many banks and dealt extensively in what certain former clients of mine called “blatter”; no, not album pages, Ludwig, but rather green leaves that don’t grow on trees.

Judge Lauber spends a lot of time on methodology, but Agent Chan went by-the-book, IRM pt. 4.10.4.6.7 (June 1, 2004).

Now comes the dash. The idea behind net worth and personal expenditures is that one can measure year-to-year accretions to wealth. But to do so means assuming that cash on hand remains relatively stable year-to-year.

Judge Lauber expatiates: “Instead of trying to calculate annual cash balances, Agent Chan assumed that the amounts of cash petitioners kept on hand for use in their business were relatively constant from year to year. In her net worth calculations, she accordingly placed a dash, or zero, in the column labeled ‘cash on hand.’ As a result the annual change in petitioners’ net worths was not affected, positively or negatively, by the undeposited cash they held. Because it is impossible to ascertain, in unreported income situations, precisely how much cash a taxpayer has at any particular time, courts have consistently approved the use of the ‘dash method.’” 2014 T. C. Memo. 232, at p. 35. (Citations omitted).

Now of course the Worthies claim they got a wad of untaxed USD from Donnie’s papa Fred. There’s a wee snag, though. “According to SSA records Fred’s total income during the 40-year period ending in 1977 was $185,430. Fred retired in 1985 and moved into a federally subsidized housing unit for low-income seniors. By 1986 his income consisted solely of Social Security and retirement payments totaling about $1,000 a month. This evidence was clearly sufficient to support the inference that Fred lacked the wherewithal to make a $200,000 cash gift to Donald and Marie.” 2014 T. C. Memo. 232, at pp. 32-33.

Frank claimed Donnie and Marie lent him money that he repaid, but of course he had zero proof, except for his own testimony, which Judge Lauber decided wasn’t Worth much (sorry, guys).

Give the Worth lawyers credit, they tried. They claimed Agent Chan was an expert who hadn’t followed the Rule 143(g) expert testimony rules, or the amended FRE 702 rules. But Agent Chan wasn’t testifying as to any scientific, technical or other arcane matters. Her two-day spiel was strictly what she did and how she did it.

The Worthies’ hopes are dashed. Civil fraud penalties rain down.

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