Sunday, July 4, 2010

Another Instance of Government Misconduct in a Tax Case

In United States v. Struckman, ___ F.3d ___ (9th Cir. 2010), the Ninth Circuit, as did the District Court, found that the Government committed egregious misconduct in its zeal to prosecute and convict an abusive tax shelter promoter. The Ninth Circuit’s opening provides a succinct summary of the claimed abuse, saying that the Government charged and apparently proved (Struckman was convicted) the following:

From 1996 to 2002, Global Prosperity offered, for a fee and through middlemen called "Qualified Retailers," an audiotape/CD series and seminars. These products advocated the use of illegal means to avoid paying income tax, including "voluntary withdrawal" from the United States' jurisdiction and the placement of assets in purported foreign or common law trusts without relinquishing control of them. The indictment alleged that Struckman purchased bogus trusts and fraudulently established bank accounts to receive profit distributions from Global Prosperity's more than $ 40 million in gross receipts, and that Global Prosperity and Struckman never reported these distributions to the Internal Revenue Service ("IRS") as income.
The IRS began investigating Struckman for this conduct. In the investigation, the IRS came up with all sorts of information about Struckman, but the sources and means of some of the key information were irregular to say the least. When, in the pretrial skirmishing in the criminal case, the court permitted Struckman to inquire into key Government sources, those sources became highly suspect and, in explanation, the prosecutors and IRS investigators were evasive to say the least. The prosecutors thus were “economical with the truth.” (The quote is from the infamous KPMG tax shelter criminal case, U.S. v. Stein (on which I have written extensively in this blog), where the prosecutors made the mistake of being “economical with the truth.”) The district court thus excluded the evidence in question but declined to dismiss. Struckman, of course, preferred dismissal. But sometimes the exclusion of evidence will result in the Government dropping the case or, alternatively, being unable to prove its case at trial. In this case, neither occurred, and, to his chagrin, Struckman was convicted.
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