Monday, January 24, 2011

Court Affirms Tax Evasion Conviction

US v. Cole: Cole was a real estate agent who partnered with three others to purchase commercial real estate. Cole negotiated the purchase price with the sellers and misrepresented the final amount of the sale price to his partners. The difference in the price paid and the seller's actual price demanded was absorbed by Cole, to the tune of $2 million. He also engineered a similar purchase involving a $1 million note financing one of the properties. Those funds Cole appeared to treat as sale commissions, in multiple venues. In 2005, Cole filed tax returns for 2001, 2002, and 2003 - the years during which he acquired these funds - but did not report any taxable income. He argued that the real estate money came from "assignment fees," rather than commissions, which subjected them to favorable tax treatment as capital gains. The nearly $100,000 he received from the sale of the note was omitted altogether - Cole "missed it" due to a bookkeeping error. Cole was charged and convicted of multiple counts of tax evasion and filing false tax returns.

On appeal, Cole made several arguments attacking his convictions, none of which was successful. First, the Fourth Circuit rejected his argument that the evidence was insufficient to convict him because the charges against him required "willfulness," but the commission/assignment fee distinction was "uncertain as a matter of tax law" and therefore he could not act willfully. In doing so the court declined Cole's invitation to hold that, as a matter of law, when an expert accountant testifies (without objection) to the confused nature of the tax law at issue, willfulness cannot exist as a matter of law. Second, the court concluded that, although it was error for the district court to allow introduction of evidence that Cole had lied previously on ATF forms related to firearms purchases, that error was harmless. Nor was there any error in allowing into evidence Cole's lavish spending during the time in question, as it went to his motive. Finally, the court rejected Cole's argument that the district court should have granted a continuance during trial (prior to Cole's cross-examination) due to Cole being "disoriented or incapable of focusing."

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