ASSIGNMENT 3: DR. RACHIS INDICTED FOR TAX EVASION

Glenn E. Rachis was indicted by a federal grand jury on charges of tax evasion in May 2009. According to the indictment, Dr. Rachis evaded federal income taxes for the years 2004, 2005, and 2006, with actions that fraudulently reduced his taxable income. Specifically, Dr. Rachis entered into an improper offshore executive leasing and deferred compensation scheme by contracting his professional services to Executive Recruitment and Leasing Services (ERLS), an Irish entity, which leased his services to Domestic Executive Leasing Services (DELS), a U.S. company, which then leased his services back to Glenn E. Rachis, PC. All charges were in violation of IRC Section 7201. Pending trial, Dr. Rachis was released on a $150,000 bond, with travel restrictions requiring him to surrender his passport.

Dr. Rachis has asked your firm to represent him before the I.R.S. and to work with his defense attorney to develop a strategy for dealing with the legal charges. Dr. Rachis claims that he does not know the tax law, and because he relied on the advice of his attorney (also a CPA), the liability for incorrectly setting up the plan should be his attorneys problem.

Ray Bertman provided Martin with the updated facts and asked him update his prior research. He must prepare a research memo to address the following items.

1. Analyze the facts and law and recommend whether your firm should work with Dr. Rachis and his attorney to resolve the charges. Your firms policy is to represent only clients that are in compliance with tax law.
2. Evaluate whether and how Dr. Rachis liability for fraudulent tax evasion changes, given his reliance on his attorney (also a CPA).