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Friday, January 18, 2013

Tax Lawyer Owen Fiore Liable for Fraud Penalties

Fiore v. Commissioner, FioreT.C. Memo. 2013-21 (Jan. 17, 2013):

Owen Fiore was a tax lawyer with a small but prominent practice. He went to prison for evasion of his 1999 taxes -- he admitted to fraud -- but the Commissioner now claims he can prove Fiore filed fraudulent 1996 and 1997 returns. The parties agree on the deficiencies and dispute only the existence of fraud.

A. Fiore’s Rise in the Legal Profession

Fiore graduated from Loyola University of Los Angeles (now Loyola Marymount University) in June 1956 with an accounting degree. He enrolled in the University’s law school that summer. ... He became well known in his field, and as the decades flowed by he gained national prominence, speaking at numerous conferences across the country and, more importantly to his partners, he made it rain -- bringing in substantial business for every firm he worked for. He rarely appeared at the office, and his days were a whirl of client meetings and conferences. Administrative details and accounting were someone else’s problem. ...

C. The Road to Prison

By the end of the century, Fiore’s practice was flourishing. But in 1995 his personal expenses started to swell. ...  The storm broke in 1996, when the Commissioner began an audit of Fiore’s 1993-95 tax returns. ...

Fiore did not report all his taxable income on his returns:

       Actual income       Reported income       Unreported income
 ______________________________________________________________________

 1996     $476,923              197,225                279,698

 1997      572,291              215,750                356,541

 1998      534,851              192,069                342,782

 1999      572,108               57,442                514,666

The bottom was now in sight. In November 2003, a grand jury indicted Fiore on four counts of tax evasion, one for each year from 1996 through 1999. He pled guilty only to the count arising from the 1999 tax year. ... In exchange, the government dropped the charges for 1996-98. He agreed, however, that the 1996-98 understatements were "relevant conduct" for the purposes of sentencing. He also agreed to pay restitution for the underpayments from 1996-99. On the other hand, in his plea agreement he preserved his right to contest civil IRS penalties. ...

At his 2005 sentencing hearing, Fiore emphasized that his 1999 guilty plea didn't apply to 1996-98. ... Fiore was sentenced to 18 months in the federal prison at Lompoc, California. He was released in October 2006. He is no longer a member of the bar. ...

Fiore in fact admitted to willful blindness "not for the purpose of defrauding the government, but rather, sadly, for the purpose of getting and keeping clients." At the very least, this is an admission that he believed his time was better spent on getting clients than confirming whether he reported all his income -- even when he suspected that at least some taxable income wasn't being properly reported. We therefore find that Fiore was willfully blind, weighing in favor of finding fraud.

And with particular weight given to this willful blindness we find that the Commissioner has met his burden of proving by clear and convincing evidence that Fiore filed fraudulent returns. We cannot accept that a person of Fiore's intelligence, training, and experience was not aware when he filed his returns for 1996 and 1997 -- at a time when he knew his need for cash was ballooning -- that there was a high probability that he was underreporting his income. And we find that he deliberately avoided steps that would have confirmed that underreporting, since all he had to do was read his monthly bank statements to verify the accuracy of his estimates of taxable income that he put on his returns.

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