10-2194 Cole v. CIR

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Tax
Income tax; fraud

Where the taxpayer is an attorney specializing in business planning and tax matters, the Tax Court reasonably found that he committed fraud by funneling income into entities that lacked any business purpose.

“The Coles also concealed assets by funneling income into multiple business entities that lacked any business purpose. The entities served, as found by the Tax Court, ‘as conduits to hide income Scott earned from providing legal services and preparing tax returns.’

“Instead of reporting the income from his law practice, Scott attempted (after the IRS audit began) to assign his interest in his law practice to his personal corporation (for which he disclaimed all but 1% of the ownership) that later that year became defunct. This scheme, as found by the Tax Court, was an attempt to ‘conceal the true nature of the earnings subject to income and self-employment taxes.’ Scott also misrepresented his occupation (and thus his source of income) by stating on the Coles’ 2001 return that he was an investor. Scott directed his income through several entities he undoubtedly controlled.

“By attempting to minimize his ownership, Scott thought he could report only $505 in tax liability despite earning more than $1.2 million in tax year 2001. This scheme, given Scott’s apparent knowledge of tax and business planning matters, is a striking badge of fraud that Scott endeavors to further by advancing spurious arguments on appeal. Walton, 909 F.2d at 927 (agreeing with the district court that the taxpayer’s ‘most incredible, . . . most nonsensical, child-like story,’ despite his college education and business experience, supported a fraud finding).”

Affirmed.
10-2194 Cole v. CIR
Appeal from the United States Tax Court, Kroupa, J., Tinder, J.

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