Opinion ID: 42252
Heading Depth: 2
Heading Rank: 1

Heading: Looney’s Business Income and Tax History

Text: During Looney’s trial, the testimony regarding Looney’s business income was as follows. In October 1993, Looney began operating an independent distributorship in a legitimate multi-level marketing company called Starlight International (“Starlight”). Starlight distributes vitamins and nutrition products. As an independent distributor, Looney was responsible for reporting his income to the Internal Revenue Service (“IRS”) and for paying his own taxes. In October 1994, Looney transferred his distributorship to a business, CL Marketing. CL Marketing was an unincorporated business trust organization (“UBTO”). Looney created the UBTO after attending tax seminars and talking with “some tax professionals, attorneys, [accountants], and some friends,” including David Simmons (“Simmons”). Looney testified that Joe Sweet (“Sweet”), a minister at his church and a tax professional, told him that the United 2 States Supreme Court had ruled that UBTOs were non-taxable entities. According to Looney, he sent letters to several attorneys and certified public accountants (“CPAs”), asking them whether he was required to file an individual tax return. Based on their responses, Looney believed that: (1) filing a tax return was “strictly voluntary”; (2) compensation for his own labor could not be taxed; and (3) as long as he had no profit, he did not owe any taxes. Looney also testified that he relied on: (1) an essay written by Sweet concerning common law UBTOs; and (2) an article by an attorney, which, as he understood it, stated that a UBTO is a nontaxable entity. Looney failed to file individual tax returns for 1995 and 1996. On February 13, 1998, IRS Officer Kathy Kendall (“Officer Kendall”) met with Looney to discuss problems with Looney’s 1993 tax return and Looney’s failure to file 1995 and 1996 tax returns. At the meeting, Officer Kendall explained that IRS documents showed that Looney had earned taxable income for the years 1995 and 1996. In April 1998, Looney filed Form 1040 tax returns for the years 1995 and 1996. Although Looney had received approximately $306,894 in gross income in 1995, he reported only $53,480 on his 1995 tax return. Similarly, although Looney had received approximately $328,501 in gross income in 1996, he reported only 3 $69,221 on his 1996 tax return. On April 22, 1998, Officer Kendall referred Looney’s case to the criminal investigation division of the IRS. In 2003, Looney received notification that he was under investigation again. Looney then consulted Paul Chappell (“Chappell”), a tax attorney. Thereafter, Looney decided to file amended returns for the years 1995 and 1996, an original return for 1997, and to seek a status determination from the IRS regarding other years. Looney stated that in 2003, Richard Fuselier (“Fuselier”) prepared these returns for him.