Opinion ID: 221659
Heading Depth: 3
Heading Rank: 2

Heading: Tax Matters

Text: The FA Defendants argue that the Receiver improperly calculated the amounts represented by the account freeze because the Receiver did not account for taxes paid by the Employee Defendants on the compensation. The district court rejected this argument, relying heavily on Donell v. Kowell, in which the Ninth Circuit declined to offset for taxes paid. 533 F.3d 762, 779 (9th Cir.2008). The Ninth Circuit first reasoned that if it allowed offsets for amounts paid in good faith as taxes, logic would suggest that the court also permits offsets for bank transfer fees, other fund management fees, and a myriad of other expenses. The court went on to state, There is simply no principle by which to limit such offsets. . . . If each net winner could shield his gains in their entirety in this manner, the purpose of UFTA would be defeated, and the multitude of victims who lost their entire investment would receive no recovery. Id. at 779. Second, the court found that allowing offsets in even a few areas like taxes paid would introduce complex problems of proof and tracing into each case, thereby severely reduc[ing] the receiver's ability to gather what few assets can be located in the wake of a failed Ponzi scheme. Id. Although, as the FA Defendants note, the Donell case involved taxes paid by an investor after receiving fraudulent funds, id. at 778, we find the Donell reasoning persuasive, particularly because there is no basis for this offset in TUFTA. We do not find the district court erred in declining to offset the prepaid tax amounts with respect to the preliminary injunction.