Opinion ID: 70708
Heading Depth: 1
Heading Rank: 1

Heading: the tax counts

Text: 7 Count one of the indictment charged defendant with evasion of tax due for the year 1986. On April 8, 1986, two days before the Omni board approved action to liquidate the company, defendant sold his shares in Omni for $1,117,104 to R. Mueller & Sons, Ltd., of London, England. According to the government, R. Mueller & Sons was the new name given to an English shelf corporation, an entity that can be acquired and used by anyone under whatever name one chooses. After activating R. Mueller & Sons through acquisition of the shelf corporation, defendant controlled it and handled its financial affairs. 8 Omni's primary asset consisted of shares in MagnaCard. On April 26, 1986, Omni sold its holdings in MagnaCard to Jacob Growth Capital, Ltd., an English company, for $3.6 million. The sale was made through Walter L. Jacob & Co., a London securities dealer. The relationship between Jacob Growth Capital and Walter L. Jacob & Co. is not clear from the record. Three days later, defendant directed that $2.3 million of proceeds due Omni from the sale of MagnaCard be sent to R. Mueller & Sons as a liquidating dividend, and that $940,000 be delivered to Omni's lawyers in Florida. The latter amount was eventually deposited in an account at Meritor Bank, Lakeland, Florida, in the defendant's name as trustee for Omni's stockholders. 9 On May 4, 1986, defendant began to draw dividend checks from the Meritor account and mailed them to stockholders with a letter explaining Omni's liquidation. Later, defendant withdrew $650,000 from the Meritor account in order to reduce Omni's exposure to pre-judgment attachments. However, by August 1986, that sum was redeposited to honor checks issued as liquidating dividends. 10 On August 19, 1986, defendant directed Meritor Bank to wire $485,177.37 (apparently the balance of the account) to Walter L. Jacob & Co., Barclays Bank, London. Defendant asserted that this account was a contingency fund set up to meet potential claims against Omni's officers arising out of the liquidation of the company. Subsequently, all of Omni's funds at Walter L. Jacob & Co. were transferred to an account in Hong Kong maintained by Walter L. Jacob. 11 Depository Trust never received the $496,437.50 in liquidating dividends from Omni to which it was entitled, although defendant maintained that he had mailed checks to Depository Trust in May 1986. 12 In his 1986 income tax return, defendant and his wife reported adjusted gross income of $159,525, and a loss of $156,025 from the defendant's sale of Omni stock to R. Mueller & Sons. The government contended that defendant failed to report as income the $486,178 due Depository Trust (the amount of the liquidating dividend less the $10,259 recovered from an attachment against Omni's account). In addition, the government asserted that as a result of his sale of Omni stock to R. Mueller & Sons, defendant realized a capital gain of $911,975, rather than the loss he reported. 13 Defendant argued that he never received the $485,000 wired from the Meritor Bank account to Barclays Bank, insisting instead that it went to Walter L. Jacob & Co. He also contended that Walter L. Jacob & Co. did not lay out cash for the MagnaCard stock. Instead, as partial payment, Jacob offset approximately $1 million it had loaned to defendant. Jacob provided the remainder of the sale price by issuing debentures, which were never paid. 14 We need not decide whether there was sufficient evidence for the jury to convict defendant of tax evasion on the sale of stock to R. Mueller & Sons because the verdict could properly have been based on the defendant's exercise of control over the money due Depository Trust. 15 26 U.S.C. Sec. 7201 provides that [a]ny person who willfully attempts in any manner to evade or defeat any tax ... shall ... be guilty of a felony.... Gain, lawful or unlawful, constitutes taxable income when its recipient has such control over it that, as a practical matter, he derives readily realizable economic value from it. Rutkin v. United States, 343 U.S. 130, 137, 72 S.Ct. 571, 575, 96 L.Ed. 833 (1952). See also Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431, 75 S.Ct. 473, 477, 99 L.Ed. 483 (1955) (receipt of punitive damages taxable); United States v. Schmidt, 935 F.2d 1440, 1448 (4th Cir.1991) (dominion and control of property makes it taxable); In re Bentley, 916 F.2d 431, 432 (8th Cir.1990) (increase in wealth over which taxpayer has dominion is taxable). 16 Viewing the evidence in the light most favorable to the government, United States v. Morris, 20 F.3d 1111, 1114 (11th Cir.1994), as we must in an appeal from a conviction, we conclude that the jury was entitled to find that defendant exercised sufficient control over the $485,177 due Depository Trust to make it taxable to him. The money went to an account at Barclays Bank, ostensibly for an Omni contingency fund, but was actually for the defendant's benefit. 17 Although supposedly designed to protect former officers and directors of Omni, the contingency fund was not so used. In one instance, when the former secretary and director of Omni was sued for participation in the liquidation, she received no assistance from the Barclays account. Pursuant to the defendant's instructions, no withdrawal from the account was permitted without his prior written authorization. None of the directors were aware of the existence of the account, and at the time the deposit was made, the jury could find that Omni, in fact, was but the defendant's alter ego. Although defendant contends that he was acting only as an agent or conduit for Omni, the jury was free to reject that position under the evidence presented by the government.
18 The bulk of the evidence presented on counts three and four, the tax perjury charges, involved the same facts as those underlying the tax evasion charge. Specifically, the indictment alleged that in his 1986 income tax return and 1988 amended return, defendant failed to report as income the money owed Depository Trust; failed to report as income the liquidating dividend received by R. Mueller & Sons; reported a capital loss instead of a gain from his sale of Omni stock to R. Mueller & Sons; and underreported his adjusted gross income. To the extent that these charges mirror the tax evasion count, defendant does not raise any additional arguments. 19 However, defendant was also charged with falsely checking the no box on his 1986 return that asked whether he had signature or other authority over a foreign bank account. It is not disputed that, in fact, he did have such power. Defendant contended that the matter was simply a mistake, and he produced evidence that on July 31, 1987, he filed a form with the IRS in Detroit reporting his connection with the London bank accounts. However, he had filed his tax return at the IRS office in Atlanta. 20 The government points out that, when defendant filed an amended return on October 3, 1988, again in Atlanta, he did not correct the false statement about the foreign bank accounts. The determination of whether the misrepresentation about the bank accounts was willful, or merely a mistake, is a typical issue for a jury to resolve, and here it decided against defendant. 21 We conclude, therefore, that there was adequate evidence to sustain the convictions on counts one, three, and four.