Skydiver ... Tax Preparer ... same thing

[Demosthenes]

FOR IMMEDIATE RELEASE TAX
TUESDAY, DECEMBER 16, 2008 (202) 514-2007
http://WWW.USDOJ.GOV TDD (202) 514-1888

EX-HOUSTON AUTO EXECUTIVE AND FORMER SKYDIVING COMPANY OWNER SENTENCED TO PRISON FOR TAX FRAUD

WASHINGTON - Madison Lee Oden, a former executive with Sterling McCall Automotive Group in Houston, and Richard Duane Davis, former owner of Skydive Houston in Waller, Texas, were sentenced to 15 months and 36 months in prison, respectively, by U.S. District Judge Lynn N. Hughes in Houston, the Justice Department and Internal Revenue Service (IRS) announced today.
In June 2008, following a bench trial before Judge Hughes in the Southern District of Texas, Oden was convicted of filing false tax returns for years 2000 through 2002 and Davis was convicted of aiding or assisting in the preparation of these same false returns. According to the evidence presented by the government at sentencing, Oden underpaid his income taxes for years 1993 through 2003 by approximately $1.7 million. Judge Hughes based his sentencing on the tax loss for years 2000 through 2002, which totaled approximately $800,000.
According to the evidence presented at trial, Davis purported to run his skydiving business through various partnerships, including Skydive Houston LLC, Skylakes Aviation LLC and Aircraft Aloft LLC. Evidence also showed that Davis prepared tax returns and provided financial services for clients out of his Spring, Texas, home. He performed these services under various business names, including R. D. Davis & Associates, R. D. Davis Investments and Financial Management Services.
As the evidence during trial established, Oden had his tax returns prepared by Davis since at least 1991. The evidence further demonstrated that Oden purchased tax write-offs from Davis as purported partnership “investments.” Evidence showed that at least two tax returns prepared for Oden by Davis were audited, resulting in disallowance of items and tax due and owing. According to evidence produced during trial, Oden refused to cooperate during the IRS’s audit of his 1993 tax return, which Davis had prepared; instead, he sent frivolous correspondence to the IRS. Evidence at trial demonstrated that this audit resulted in a tax liability of $73,000, which Oden paid in 1997.
It was further shown at trial that the fraudulent losses on Oden’s 1998 through 2002 tax returns were similar to the losses that were disallowed during two previous audits of his tax returns. Evidence also showed that, during tax years 1998 through 2002, Oden reported wages totaling $3,982,955 and that for the same years, the total tax paid by Oden as a result of the fraudulent losses included on his returns was $327,164. According to the evidence at trial, Oden underpaid his income taxes for those years by approximately $1 million.
According to evidence at trial and court documents, in addition to the fraudulent skydiving partnership losses reported on Oden’s returns, Oden also offset his income with losses from a fictitious auto finance sole proprietorship and false losses related to Oden Family Limited Partnership, which Davis set up and through which Oden purported to manage property and assets.
“Tax defiers who think that there are no consequences to forsaking their federal tax obligations and submitting bogus documents to the IRS should know that such thinking is flat-out wrong,” said Nathan J. Hochman, Assistant Attorney General of the Justice Department’s Tax Division. “They will be investigated, tried, and convicted as well as being branded felons for the rest of their lives, sentenced to prison, and still required to pay back all of the taxes, plus interest and steep penalties. The Justice Department is committed to stomping out tax defier conduct throughout the nation under the National Tax Defier Initiative.”
“Filing false and fraudulent federal tax returns to avoid paying taxes is a crime and one that defrauds our government. This practice is unfair to honest taxpayers who willingly pay their fair share of taxes,” said Eileen Mayer, Chief, IRS Criminal Investigation. “This sentence underscores the determination of investigators and prosecutors to uncover and bring tax wrong-doers to justice.”
Assistant Attorney General Hochman thanked IRS-CI who investigated this case, and Tax Division trial attorneys Jennifer Ihlo and Jenny Grus, who prosecuted this case. More information about the Justice Department’s Tax Division and its enforcement efforts is available at http://www.usdoj.gov/tax.

[Famspear]

By coincidence, an acquaintance of mine used to jump out of airplanes at Skydive Houston. The town of Waller is just northwest of Houston. The report says Davis is a "former" owner, so that may have been after Davis was no longer involved.

[Demosthenes]

More on Richard Duane Davis.

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
Criminal H-06-360
The United States of America,
Plaintiff,
versus
Richard Duane Davis, et al.,
Defendants.

Opinion on Altered Jurats

1. Introduction.

A taxpayer added a few words to the jurat of his individual income tax return. After having been convicted of having filed them fraudulently, he has moved for acquittal. He says that his change in the jurat negated the effect of its commitment that the returns were under the penalty of perjury. Because he used words that did not abjure the jurat's meaning, he will not be acquitted.2. Background.

For almost fifteen years starting in 1991, Richard Duane Davis prepared the tax returns of Madison Lee Oden – an executive of a large car dealership in Houston. To reduce tax liability for Oden, Davis included him as a partner in businesses related to skydiving. Davis “allocated” losses to Oden from 1998 through 2002. These losses had no relation to a business operation. Some of the business were operating, but the deductions were simply created.

Oden claimed losses from these firms among other imaginary deductions, evading at least a million dollars in taxes. Davis was convicted of three counts of assisting Oden to file false tax returns, and Oden was convicted of three counts of having filed false tax returns. Both defendants were acquitted of conspiracy to impede the internal revenue service. The conspiracy charge duplicated the substantive counts; the impediment to the Service was the false returns.

3. Altered Jurats.

To be convicted of having filed a false return, the taxpayer must have signed a return with a jurat – a written affirmation under the penalty of perjury that the information in the return is truthful. 26 U.S.C. §7206(1). Without a signed jurat, the Service cannot process the return; without that commitment, it is simply not a complete return. See id. at §6065.

On these returns, Oden had added the words “without prejudice” above the jurat and signature line. Because of these additional words, Oden says he voided the rigor of the jurat. He says that he should be acquitted because the Service should not have processed the returns without a proper jurat. He says that they were legally not returns. See Rev. Rul. 2005-18, 2005-14 I.R.B. 817. If the taxpayer had struck the jurat or had written “void,” the Service says that it would treat these alterations as having invalidated the returns. Those two abnegate the oath.

The Service also says that if a taxpayer had written “I deny that I owe tax” on the top of the return, it would not process the return. In this, the Service has erred. A political outburst at the top – or elsewhere – does not alter a sentence near his signature. This is parallel to the Service's petulant and official reaction to curses and insults written on the forms. The Service's responsibility is to collect taxes. It has no duty to police taste, politics, civility, or its own dignity. Neither administrative nor judicial priggishness should erode the constitutional imperative.

The Service violates the taxpayer's free expression when it treats every misguided, smart-aleck, or political denigration of its function as an alteration of a term of the return. The return is the data and a signed jurat. Obviously, writing that obscures the factual entries or changes the labels defeats the purpose of the return.

As an indication of the Service's peculiar reaction to taxpayer impudence, it has the examiners refer those returns with obscenities to its fraud section. When Oden added “without prejudice,” he did not negate the jurat. Although that phrase has some utility in the law of negotiable instruments, it is empty in this context. After Oden admitted that he had no idea what the words meant, he cannot plausibly argue that they had any effect much less the particular one of negating the jurat. Oden's central theme has been that he just did what Davis told him, but even now Oden knows of no function for the phrase as he used it.

No one has suggested a rational explication of those two simple English words written near a commitment that the data are submitted under the penalty of perjury – not in tax law, accounting, or politics.

4. Conclusion.

Oden's addition of “without prejudice” had no effect. Those words did not alter the apparent commitment in the jurat. Davis too imagines that he accomplished something by that phrase's presence. He did not. As a self-asserted expert in the preparation of tax returns, he has not suggested a meaning other than that no one can know exactly what is in all of the Service's rules, regulations, rulings, polices, and statutes. What he says about knowledge may well be true, but the commitment is about the data supplied by the taxpayer, including where he put it on the form. No new trial will be granted.

Signed on December 14, 2008, at Houston, Texas.
Lynn N. Hughes
United States District Judge

[Judge Roy Bean]

By coincidence, an acquaintance of mine used to jump out of airplanes at Skydive Houston. The town of Waller is just northwest of Houston. The report says Davis is a "former" owner, so that may have been after Davis was no longer involved.

The business probably couldn't get insurance with him still connected to it.

[grixit]

Hey, you can save a lot of money by using LeapofFaith(tm) brand parachutes. They're made by true blue sovereigns who always write "Without Prejudice" before signing the safety test results.