Articles Posted in Tax Fraud

In September 2006 Ron Isley, lead singer of the Isley Brothers, was of convicted five counts of felony tax evasion and one count of willful failure to file his income tax returns. According to the Internal Revenue Service (IRS) at trial it proved that between 1997 and 2001 Isley evaded payment of $3.1 million dollars of income tax debts. The District Court sentenced Isley to 37 months in federal prison despite the fact that Isley had a series of health issues including kidney cancer, diabetes and a recent stroke. Isley appealed his tax fraud conviction, and earlier this month the 9th Circuit upheld his sentence. According to one article Isley is currently incarcerated at a federal prision in Indiana, and he has a projected release date of April 2010. Isley’s tax problems don’t end there. In addition to serving his time in prison Isley will be expected to liquidate his assets to pay his tax debts.

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On January 8th the Supreme Court heard oral arguments in the criminal tax appeal of Michael Boulware. The case involved the return of capital theory in criminal tax evasion cases. To make a long story shorter, Boulware was convicted of tax evasion in violation of Internal Revenue Code § 7201. Basically, he took money from his closely held corporation, and didn’t report it as income on his personal tax return.

In the District Court he argued that the funds he received were a return of capital he had invested in the corporation, and therefore were not income, and thus there was no tax deficiency. Of course if there was no tax due Boulware could not be convicted of tax evasion. The District Court precluded Boulware’s evidence on this point, and he appealed to the Ninth Circuit Court of Appeals. The 9th Circuit upheld conviction.United States v. Boulware, 470 F.3d 931, 933 (9th Cir. 2006).

The Ninth Circuit’s view was that a defendant in a criminal tax evasion case must show at the time the payments were made by the corporation there was a contemporaneous intent that they be a return of capital. This is despite the fact that the Ninth Circuit admitted that in a civil tax case there is no requirement of contemporaneous intent. The Second Circuit has ruled that no such proof of intent is required. United States v. D’Agostino, 145 F.3d 69, 72-73 (2d Cir. 1998); United States v. Bok, 156 F.3d 157, 162 (2d Cir. 1998). The Supreme Court agreed to hear the case to resolve the conflict.