Opinion ID: 4537244
Heading Depth: 2
Heading Rank: 1

Heading: Lee family trusts and life insurance policies

Text: Nicholson & Co. prepared tax returns for two trusts Lee had established for his family, which were prepared by attorney Robert Jackson. Lee used JLPA’s corporate account to write checks with a blank “for” line and payable to Jackson for the purpose of depositing into the trusts’ bank accounts, which Jackson did. Jackson used money in the trusts’ bank accounts to pay the Lee family life insurance premiums. 2 Case: 19-60365 Document: 00515431288 Page: 3 Date Filed: 05/28/2020 No. 19-60365 Dawn Jones, a CPA and partner at Nicholson & Co., was assigned to Lee’s account. Typically, Lee would provide information regarding the purpose of his expenses directly to Jones. In July 2012, though, while Jones was preparing the Lee family trusts’ returns, she noticed the “for” line was blank on check #6223. This check was one Lee had made payable to “Robert T. Jackson, Trustee” for the purpose of depositing into a Lee-family-trust bank account. Jones asked Nicholson the purpose of the check, and in response, Nicholson sent her an email with the subject line “Check to Jackson.” It stated, in its entirety: “Legal fees per John Lee.” Jones entered a note on the email, which stated: “This e-mail was in response to the classification of Ck no 6223 dated 5-7-12 [for] $250,000 recorded to Associate Fees Paid. Per this e-mail, that classification is correct.” Jones did not know the checks from JLPA’s corporate account, made payable to Jackson, were for insurance premium payments for the Lee family trusts. Because Jones categorized the payment as a corporate deduction, it was not reported in Lee’s 2012 individual income tax return. Lee told Nicholson that the characterization of check #6223 as a business expense was a “glaring error,” to which Nicholson responded, “this is the only way we can do it to save you taxes” and, “only you and I will know.” Even though Nicholson did not provide additional specific instructions every year, Jones continued to rely on Nicholson’s 2012 instructions in future years, using the same process for future checks from JLPA to Jackson. JLPA made payments to Jackson in this manner in 2012, 2013, and 2014; each year, Nicholson & Co. recorded these payments, bound for the Lee family trusts, as corporate deductions in JLPA’s tax returns. The payments were not included as income in Lee’s individual returns. A recording of a conversation with Nicholson describing the arrangement was played at trial. In the recording, Nicholson stated that Lee “would write a check out of the PA . . . to Robert Jackson,” that “Robert knew it was for him 3 Case: 19-60365 Document: 00515431288 Page: 4 Date Filed: 05/28/2020 No. 19-60365 [to] pay the life insurance premiums as trustee of the trust,” and that Lee “wrote that off as legal fees, knowing that it wasn’t legal fees.” Nicholson stated this occurred “every year,” for “10, 15 years,” and Lee took deductions “[f]or legal fees, which is false.”