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Mondelli v. Kendel Homes Corp.

With regard to the Mondellis' appeal, we conclude that the district court abused its discretion in excluding the testimony of Drs. Pour and King. This exclusion of evidence was prejudicial error. The district court did not abuse its discretion in refusing to allow joinder of the claims of the Mondelli family.

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"Loss of Income" Tax Shelter is Federal Crime

Insurance Policies & Deductions for Premiums: Sixth Circuit Finds Tax Evasion & Conspiracy

The taxpayers’ longtime agent advised he had never seen anything like the LOI policy before. He explained it was different because of the ROP Rider provision. It not only returned funds, but allowed the policy holder to self direct the money into an investment and control it, before it was technically returned.

Rozin was concerned about the legitimacy of the policies and the viability of the insurance company. He was assured by advisors the policies were tax deductible and the worst thing that could happen would be a requirement to pay additional taxes plus interest.

During his investigative trip to the Virgin Islands, two (2) LOI policies with ROP Riders were purchased. The premium amount for each was $600,000.00 and the coverage amount was $720,000.00. A return of $30,000.00 per month for twenty-four (24) months was committed on each policy.

Rozin’s case was tried to a jury for thirteen (13) days. He was convicted on all three (3) counts. After trial, his judgment of acquittal was denied. The trial court found the insurance policies lacked a “true business purpose” and the coverage was dubious compared with the premium. The court noted that Rozin accepted control and access over the ROP funds and relied on Rozin’s own description of the policies as “tax savings products” as touted by their promoter.

Rozin was sentenced to serve one (1) year and one (1) day in prison, three years of supervised release, two thousand (2,000) hours of community service, pay a $30,000.00 fine, and $775,294.00 in restitution. The restitution was for tax only. Outside the criminal context, Rozin faced a seventy-five percent (75%) fraud penalty, possible additional penalties, and interest.

The United State Court of Appeals for the Sixth Circuit affirmed the convictions and sentence. US v. Rozin, ___F.3d___ (6th Cir 1-6-12). The Court found Rozin acted willfully because he undertook the “voluntary intentional violation” of a known duty to file a complete, truthful, non-evasive tax return. It claimed that when he took the deductions, even though he did not necessarily know they were going to be disallowed, he willfully signed the return which contained false information and a report of an investment effort sought to evade income tax.

The Court noted that at some point Rozin should have known something was wrong. He was aware of a practice of back dating the insurance policies. Yet, he continued with the scheme and the deductions.

Rozin maintained he thought the policies were a tax-deferred IRA-type benefit plan, but, he also knew he would have immediate access to funds placed in revocable trusts. Rozin was sophisticated enough to know what this meant.

Finally, Rozin argued that he relied reasonably on the advice of others and contends the government could not negate proof he did so. The Court noted that it is true a Defendant who “had a good faith belief that he was not violating the law… cannot be found guilty of a tax evasion, even if the good faith belief was unreasonable.” US v. Abboud, 438 F3d 554, 581 (6th Cir 2006) but, the Court rejected the argument because Rozin did not provide full information about the LOI policies to the accountants upon whom he relied in preparing his returns. His tax advisor “was not aware of the full facts regarding the LOI policies” so Rozin could not claim to rely on his advice.

Finally, the Court found that a conspiracy to defraud the government was proven because the law requires only that there be proof the Defendant “knew the object of the conspiracy and voluntarily associated himself with it to further its objectives.” US v. Crossley, 224 F3d 847, 856 (6th Cir 2000). The evidence was that Rozin was not pushed to participate in the scheme, but made his own decisions.

Comment:

Rozin is a powerful demonstration of the risks posed when one goes along with tax avoidance schemes. The tax system is designed to assure taxes are paid when due, not diverted through scheming.


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