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Guess What? I Want to Pay More Taxes, But Can’t

July 7th, 2011 No comments

Well…not me. But Georges Marciano, co-founder of Guess?, Inc., apparently does.

from Wikipedia

Marciano founded the American-brand clothing line Guess?, Inc. along with his three brothers in 1981. After facing allegations of sweatshop labor use in the 1990s, Guess? incorporated sex appeal into its marketing ads, and the company performed better in the 2000s. Throughout this burgeoning time, however, Georges Marciano later discovered he was apparently the victim of fraud and embezzlement due to the actions of his former accountants, bookkeepers and other employees.

Marciano suspected wrongdoing after receiving refund checks from the IRS in 2006 in the amounts of $233,706.27 and $647,290.90, apparently for taxes paid in 2000. He returned these checks under the belief they were wrongly issued, only for the IRS to inform him there was no issues with his 2000 tax year. The IRS also was not able to initially provide his 2000, 2001, 2002, 2003, 2004, and 2006 tax returns.

He then hired some forensic accountants to closely examine his records. After taking nearly three years to investigate, they concluded that the total amount missing from accounts held by him or in which he had a beneficial interest was nearly $200 million. Yep, he was dead broke.

Marciano filed lawsuits against his former accountants, bookkeepers and other employees, but judgment was entered against him in July 2009. To make matters worse, Marciano’s judgment creditors commenced Bankruptcy proceedings against him in October 2009.

This is where things get very interesting. At this stage, you’d think Marciano would come to terms with the fact that he was taken complete advantage of, and would proceed with the bankruptcy in order to move on with his life. Nope, Marciano had other ideas.

Shortly before the bankruptcy proceedings began, Marciano filed a complaint in federal district court against the Commissioner of the Internal Revenue Service. In the complaint, he sought, among other things, the placement of a tax lien on his property and an injunction requiring the IRS to furnish him with various documents to commence an investigation or audit of his tax liability.

Here’s where we ask why. Why does someone go to court to compel the IRS to audit his tax return, especially if the taxpayer believes he underreported substantial amounts of income?

I’m not an expert of the Bankruptcy Code, so I’ll simply speculate that it’s possible Marciano sought to have funds from his bankruptcy estate be exhausted by addressing federal tax liabilities, and avoid paying off other judgment creditors. Another possibility is that he feared IRS criminal investigation for tax evasion, and figured the IRS would be more lenient if he came forward. Peter Pappas offers a few other possible reasons.

Whatever the actual reason, it doesn’t matter now. The judge, analyzing each of Marciano’s bases for relief in turn, dismissed the complaint against the Commissioner.

I found Judge Kennedy’s application of the Due Process Clause of the Fifth Amendment to the matter most interesting. As the judge noted, the Due Process Clause was designed to provide adequate process where the government threatens a judicially cognizable interest in life, liberty, or property. In a footnote, Judge Kennedy pointed out there is “no precedent establishing a protected property interest in the ability to pay taxes.”

We’ll see if the next taxpayer begging the IRS to audit his tax returns can more convincingly persuade a judge to order it.

(Hat Tip: The Blog of LegalTimes)

Categories: Fashion, IRS Tags: ,
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