Expatriate Owl

A politically-incorrect perspective that does not necessarily tow the party line, on various matters including but not limited to taxation, academia, government and religion.

Tuesday, January 28, 2014

More Profitable than it Appears





Yesterday's Tax Court opinion in the case of Potter v. Commissioner, T.C. Memo  2014-18, is rather instructive:

"In December 2006 IRS special agents engaged in an undercover investigation of Potter's Pub, posing as buyers interested in acquiring the business. Petitioner assured the agents that Potter's Pub was much more profitable than it appeared. He explained that he deposited in the corporate account only enough of the business revenues to cover its expenses and that he wired the balance of its revenues to his personal bank account in Florida. These wire transfers were structured in amounts less than $10,000 to avoid reporting obligations by the bank to the IRS.  In reality, petitioner told the agents, Potter's Pub grossed more than $1 million annually and he took home between $ 400,000 and $520,000 each year. Petitioner showed the agents clandestine sales ledgers for 2003 and 2004 that supported the gross receipts he claimed, acknowledging that it might have been unwise to maintain documentary evidence of his skimming."

Understand that this is the civil side of John M. Potter's tax problems with the IRS; he already had been sentenced to 18 months for tax fraud in a plea bargain to avoid trial.

First of all, he violated the law.  And he got caught.

Secondly, he lived a high lifestyle with two vacation homes, all while reporting minimal income.  Had he only skimmed five or ten thousand a month and reported all of the remaining income, then his lifestyle would likely not have raised any particular suspicion.

Thirdly, he left an electronic trail with the wiring of funds.  If he were dealing solely in cash and kept it all in cash in his cookie jar or under his mattress, it would have been somewhat more difficult to trace.

And, of course, his big downfall was falling for the IRS special agents' ruse as prospective purchasers of the business.

Pigs get fat, but hogs get slaughtered.

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