A recent decision from the 10th circuit is likely to make things more difficult for future tax evasion defendants. The defendants, a husband and wife, became involved in tax protester groups and stopped paying income taxes between 2006 and 2009. In order to evade taxation, the defendants created trust accounts, designating friends and family members as beneficiaries and the defendants as trust managers. The trusts had been sold to tax protester promoters as sovereign trusts that the defendants believed were tax exempt. The defendants claimed to have created a non-profit corporation, but the court found that it was used to pay their living expenses and not for any charitable purposes.
The defendants were indicted and convicted of multiple counts of tax evasion. Prior to trial, the IRS required the defendants to pay over half a million dollars in past due taxes. The IRS imposed a levy on the defendants’ funds, and the defendants’ request for an emergency release was denied. Their attorney withdrew for non-payment of attorney’s fees. The defendants claimed that the levy violated their 6th amendment rights by depriving them of funds necessary to pay for attorneys. The District Court denied the defendants’ motion.
On Appeal, the 10th Circuit affirmed the District Court’s decision. In Caplin v. United States, the Supreme Court had previously ruled that a defendant’s 6th amendment right to counsel was not violated by an asset forfeiture program that prevented him from accessing funds he planned to use for his defense. The defendants also argued that the IRS levy procedures were arbitrary and unfair. While the IRS forfeiture procedures differed from the asset forfeiture program in Caplin, the 10th Circuit ultimately found that this precedent controlled and denied the defendants’ appeal. Caplin specifically had contemplated a situation similar to this, and the 10th Circuit found that the challenges to the IRS levy were without merit.
The government enhanced the defendants’ sentences for using minors in their tax evasion schemes. Trusts had been created for minor members of the defendants’ family in order to evade income taxes. The wife appealed, arguing that it only foreseeable that the children might sign the trusts, but the 10th Circuit upheld the sentencing enhancement, finding that the defendant had in fact participated in obtaining the minor’s signatures. This should provide a cautionary signal to potential tax evaders out there since many tax avoidance schemes involve transferring assets to family members, sometimes children.