Friday, March 11, 2016

Sufficient Evidence Supported Tax Evasion Convictions; District Court Properly Refused to Include Back Taxes Paid When Determining Loss

United States v. Vernon, 2016 WL 502835 (2/9/2016) (KS): Vernon, a doctor, was convicted on five counts of attempted tax evasion. She challenged the sufficiency of the evidence against her. Primarily she argued that the legal theories upon which the government relied to prosecutor her - sham corporation, assignment of income, alter ego, substance over form - did not prove the elements of willfulness and the existence of a tax deficiency. The panel disagreed. It ruled that these theories were consistent with the general underlying principles of federal income taxation, especially that gains should be taxed to those that earn them. Her willfulness was evident in the numerous ways she schemed to avoid paying income tax: setting up sham corporations in her partner’s name, reassigning income from that corporation to herself, acting as the alter ego of a corporation she did not own and doing the work mandated by the corporation’s employment contracts and redirecting the money paid to the corporation to herself. Vernon also argued the court’s instructions to the jury on these legal theories was incorrect and described acts that were not criminal. Again, for the same reasons, the panel disagreed. Lastly, Vernon said the court erred calculating the tax loss. She said that the back taxes she paid before she was charged should not have been used to calculate loss. The panel saw it differently because the sentencing guidelines define tax loss under 26 U.S.C. § 7201 as the intended loss and not the actual loss. The fact that she was ultimately forced to pay those back taxes, interest and penalties is irrelevant since she attempted to evade paying taxes even before the misbehavior described in the indictment.