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Tax evasion conviction for failing to report robust cash revenue upheld

 

The Horners were convicted of two counts of assisting in the preparation of a fraudulent corporate tax return in violation of 26 U.S.C. 6206 and filing a false individual tax return in violation of 26 U.S.C. 7206. This couple owned and operated Topcat Towing and Recovery, Inc. an S-corporation, in Lithonia, Georgia. Because Topcat required customer to pay in cases for most of its services, the Horners deposited approximately $3 million in cases into several business accounts in various banks as well as in personal accounts. They did not tell their tax preparer H&R Block about any of the cash deposits into their personal accounts. The IRS investigators concluded that theses person cash deposits were actually diverted Topcat receipts which means the defendants underreported Topcat’s income as well as their own income. On this evidence, the defendants were indicted.

One issue raised on appeal was the resulted from the testimony from IRS Agent Owns who examined their tax returns and testified regarding what she calculated as their correct tax liability. In her estimation, they owed an additional $474,147 over a four-year period.   Her calculation did not account for any business expenses the Horners may have paid from their personal accounts but that they did not claim as a reduction. In her cross examination she said that such unclaimed deductions would reduce the Horners unreported income tax liability, but that it would not have a “really big impact” and would still leave “a substantial understatement.” When calculating the amount of tax due during the sentencing phase, the trial court ultimately accepted a figure of unclaimed business expense deductions which reduced the unreported income in the relevant periods by approximately one-third.

In this appeal the Horners claim the government presented false testimony from the IRS agent about the accuracy of her calculations against the unclaimed deductions and that the government failed to correct that testimony. The court of appeals rejected this argument. The court of appeals found that the agents testimony was not false or misleading to the jury. Her testimony on cross examination about the unclaimed expenses were based on a sample of those specific checks that defense questioned her, suggesting they were missed deductions.   The agent even assumed that her calculations assumed no business expenses were paid from the personal account. The defense counsel used the fairly large number of checks presented by the defense during cross examination to undercut the agents credibility and the weight of her testimony in the eyes of the jury. Nevertheless there was a large tax liability owed by the defendants despite the unaccounted business expenses.

The court rejected the defendant’s claim that the trial court should have given the jury an instruction about good faith reliance upon advise of accountant and due diligence obligations of the tax preparer.   The trial court did give the Eleventh Circuit Pattern instruction “Good-Faith Reliance upon Advice of Counsel” modified to refer to an accountant, rather than providing the instruction submitted by the defense.  As every criminal defense attorney should know, the Pattern Jury instructions are used in every criminal case in federal court in the states of Florida, Georgia and Alabama.

The court found the instruction given accurately reflected the relevant law. Defendants are not entitled to the jury instruction using the precise language they request where the district court’s charge adequately addresses the substance of the defendant’s request.

The court also rejected the defendant’s argument that the trial erred in failing to give an instruction “Due diligence obligations of Tax Preparers”, which uses regulations under the Internal Revenue Code to describe the regulation of tax preparers and the ways in which they are obligated to exercise due diligence. The court of appeals found that the crimes of conviction are specific intent crimes and the tax preparer’s own due diligence obligation are largely irrelevant to the defendant’s good faith reliance defense which focuses on whether the defendants fully disclosed all relevant facts to the tax preparer and relied in good faith on the expert’s advice.