No Fun for Shrum
In July 2010, a federal jury found Rodney Shrum guilty of willfully filing a false joint income tax return for the 2007 tax year. Three months later, he was sentenced to twenty-four months in prison.
In April 2011, Mr. Shrum filed an appeal, asking for a new trial. The Eighth Circuit Court of Appeals recently affirmed the lower court findings. I write about this case in part to highlight some of the evidence presented by the prosecution to prove the element of willfullness: records of his gambling activity.
Mr. Shrum ran an office-supply business, including the sale of computers. To his 2007 tax return, he attached a Schedule C, reporting gross sales of $279,316 and cost of goods sold of $285,115. This net loss resulted in no tax liability for the year.
Although Shrum did receive payments from a Department of Defense employee for some sales of computers, Shrum never actually delivered the computers he sold. In other words, his cost for the items sold was really zero. Uh oh.
To demonstrate Shrum was well aware that the amounts he received for all of his sales in 2007 were not spent on actual purchases, the IRS needed to track where the monies actually went. Upon receipt, the funds went into an account owned by Shrum. No problem there. Instead of actually purchasing products for resale, he used his gross receipts from his business to gamble at casinos. Problem there.
On appeal, Shrum argued that the trial court abused its discretion when it admitted into evidence records of his gambling activity. The basis of his argument was that he was unfairly prejudiced with the jury learning of his gambling activity.
The court disagreed, noting that his gambling was probative of not spending his business income on expenditures as part of goods sold. If, however, the funds Shrum used towards gambling were not tied to the funds received for his bogus sales, then the court likely would have held differently. Of course, prosecutors probably wouldn’t have introduced such evidence under those circumstances.