PROBLEM Daniel owns a series of high-profile nightclubs in several cities called Guys. Daniel owns these...

  

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PROBLEM Daniel owns a series of high-profile nightclubs in several cities called Guys. Daniel owns these clubs through a wholly-owned corporation, Guys Industries, Inc. While Guys clubs are quite successful, Daniel was in need of some additional cash, both to fund the expansion of his empire and to settle with his soon-to-be ex-wife, Jennifer. Like many before him, Daniel has decided to fund these enterprises with pre-tax dollars. Daniel contacted his longtime friend and business advisor Jack to find a solution. The strategy that Jack and Daniel devised is as follows: (1) They will set up a corporation in the Bahamas that is owned, at least on paper, by a colleague of Jack, but in reality the corporation is just a name and a bank account; (2) the Bahamian corporation will submit phony invoices to Guys Industries for "consulting services," which Guys Industries will pay and claim Page 167 a deduction for tax purposes; and (3) the funds will be repatriated via a "loan" from the Bahamian corporation to Daniel via a wire transfer into Daniel's personal bank account. Jack and Daniel told the bookkeeper, Susan, about the plan so that she would pay invoices, but they told her that this was part of an asset protection plan and as a way to keep Jennifer (who none of them like) from getting all of Daniel's money. At Daniel's direction, Susan paid the invoices and prepared corporate tax returns for Guys Industries claiming the consulting fees as a deduction, which zeroed-out the corporation's tax liability. Daniel signed the returns as president of the corporation and Susan mailed the returns to the IRS. Daniel did not report any of the "loan" proceeds as income on his personal return. 1. Should all of the above facts come to light, what are the crimes that the government could charge and against whom could those charges be brought? 2. What crimes is the government likely to charge, given its prosecution policies? 3. Would your answer to question 1 change if Daniel claimed a refund on his personal returns? 4. Assume that Jack and Daniel's strategy goes undetected for six years. In year seven,161 the three most recent years of Guys Industries' returns are subject to a routine civil audit by an IRS Revenue Agent, who meets with Susan. When the Agent asks about the consulting fee payments, Susan (not wanting to get Daniel in trouble with his ex-wife) invents an elaborate story about what the fees are for. After looking further into the deductions, the Agent learns that the Bahamian corporation is bogus and he refers the case criminally. What crimes can the government bring at this point, and against whom? PROBLEM Daniel owns a series of high-profile nightclubs in several cities called Guys. Daniel owns these clubs through a wholly-owned corporation, Guys Industries, Inc. While Guys clubs are quite successful, Daniel was in need of some additional cash, both to fund the expansion of his empire and to settle with his soon-to-be ex-wife, Jennifer. Like many before him, Daniel has decided to fund these enterprises with pre-tax dollars. Daniel contacted his longtime friend and business advisor Jack to find a solution. The strategy that Jack and Daniel devised is as follows: (1) They will set up a corporation in the Bahamas that is owned, at least on paper, by a colleague of Jack, but in reality the corporation is just a name and a bank account; (2) the Bahamian corporation will submit phony invoices to Guys Industries for "consulting services," which Guys Industries will pay and claim Page 167 a deduction for tax purposes; and (3) the funds will be repatriated via a "loan" from the Bahamian corporation to Daniel via a wire transfer into Daniel's personal bank account. Jack and Daniel told the bookkeeper, Susan, about the plan so that she would pay invoices, but they told her that this was part of an asset protection plan and as a way to keep Jennifer (who none of them like) from getting all of Daniel's money. At Daniel's direction, Susan paid the invoices and prepared corporate tax returns for Guys Industries claiming the consulting fees as a deduction, which zeroed-out the corporation's tax liability. Daniel signed the returns as president of the corporation and Susan mailed the returns to the IRS. Daniel did not report any of the "loan" proceeds as income on his personal return. 1. Should all of the above facts come to light, what are the crimes that the government could charge and against whom could those charges be brought? 2. What crimes is the government likely to charge, given its prosecution policies? 3. Would your answer to question 1 change if Daniel claimed a refund on his personal returns? 4. Assume that Jack and Daniel's strategy goes undetected for six years. In year seven,161 the three most recent years of Guys Industries' returns are subject to a routine civil audit by an IRS Revenue Agent, who meets with Susan. When the Agent asks about the consulting fee payments, Susan (not wanting to get Daniel in trouble with his ex-wife) invents an elaborate story about what the fees are for. After looking further into the deductions, the Agent learns that the Bahamian corporation is bogus and he refers the case criminally. What crimes can the government bring at this point, and against whom?

Answer rating: 100% (QA)

1 Yes all of the above facts should come to light The reason why all of the facts should come to light is because they are all relevant to the situati... View the full answer