Wednesday, September 23, 2009

Golf Pro Pleads Guilty to Tax Crime

A plea announcement published in this morning’s Tax Notes Today (2009 TNT 182-26) grabbed my attention. On September 22, 2009, the U.S. Attorney for the Middle District of Florida announced a plea agreement with a professional golfer, one Jimmie L. Thorpe. The announcement has not yet been posted to the press release page of the U.S. Attorney’s web site. The press release page for September is here and presumably the posting will appear today or, at least, soon.

I am not a big golf fan, so don't know who he is and where or even if he ranks in the pantheon of golfers. His celebrity status, if any aside, the plea agreement is interesting on several points of interest to the criminal tax afficionado.

First, the plea is for two counts of failure to pay under § 7203. Failure to pay is a misdemeanor (i.e., maximum sentence of one year per count). On the facts stated in the announcement, it would appear that failure to pay and/or perhaps failure to file (also criminalized under § 7203) were the crimes in play. The plea is only to failure to pay. The facts contained in the announcement establish that three years were in play. I surmise the compromise to reach agreement was that only two years / counts would be admitted, hence capping the possible punishment to 2 years incarceration. This capping of the possible sentence was likely important to the defendant because, in his case, the tax loss numbers and other sentencing considerations could easily produce a sentence greatly in excess of 2 years. I have previously published an article addressing the use of counts to cap a sentence that could otherwise go much higher. John A. Townsend, Analysis of the Fastow Plea Agreements, 2004 TNT 44-46.

Second, a subtext in some of these cases is tax evasion through failure to file and/or failure to pay (as well as at least one other affirmative act). The Government will sometimes try to make a tax evasion case where the failure to file or failure to pay is a prominent element in the attempt to evade tax. But such cases are often more difficult for the Government to make, and the Government can fall back on the more easily proved case of failure to file or failure to pay. By charging the “lesser crime,” the Government can more easily extract a guilty plea in such cases, thus satisfying its imperative to get the maximum number of convictions and prominent publicity. Thus, had the Government pursued tax evasion (a 5 year incarceration period per count), it may have had difficult incentivizing Mr. Thorpe to plead where he faced the realistic possibility of more than 2 years incarceration.

Third, the announcement indicates that the defendant may be subject to a fine of up to $4,125,152.52. The basis for the fine is not stated in the plea agreement but can be easily derived. My students will remember that the Code provisions state a maximum fine. Section 7203 states a maximum fine of $25,000 for an individual, so that with two counts the Code maximum fine would be $50,000, far short of the fine agreed to in this case. My students will also remember, however, that the real fine provision is § 3571 which permits a maximum fine for a class A misdemeanor of $100,000 for individuals or, if greater, double the pecuniary gain to the defendant or the pecuniary loss to the victim. According to the announcement, the fine amount is just double (rounded) the stipulated tax loss amount of $2,062,576.27. So, this facially explains the large amount of the potential fine. In my experience fines do not play a significant role in tax cases because the taxpayer will often have paid the tax, penalties and interest before or during the prosecution phase or will agree to contractual restitution.

Finally, the announcement implies that defendant was a repeat offender . He had previously been investigated by IRS CI for the years 1993 and 1994. The announcement notes that he had asserted a reliance on accountants defense, although the announcement does not say that this defense is why he was not prosecuted for those years. (OK, the implication is that this defense was a material part of the reason for nonprosecution, but announcement does not say that.) But, this guy was put on notice of his tax obligations and could not have reasonably expected that type of defense to fly twice, particularly given the repeated pattern for the years involved in this prosecution.

Errata: The above discussion has been amended as of 5:20pm 9/23/05 to correct a misstatement about the fine. Before revision, the statement was that the defendant had agreed to the large fine. He had not. The accouncement merely said that the fine could be up to the amount. Thanks to the readers for tolerating my hopefully infrequent errors.

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