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.
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