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Evidence of Lavish Living Exposes Tax Fraud

By Tanya Roth, Esq. on May 04, 2012 | Last updated on March 21, 2019

Here's an interesting case about tax fraud and the admissibility of evidence.

The Third Circuit Court of Appeals recently dealt with a case involving over half a million dollars in unpaid taxes. When the taxpayers alleged that they had made a willful attempt at paying the tax and that the non-payment was not, in fact, willful, the government threw in damning evidence that hurt the taxpayers' case.

The DeMuros, a married couple, owned and managed an engineering company. The IRS came after them for their massive tax liability, claiming that they owed taxes through their trust fund liability (essentially, that they owed the IRS for the withholding they took from employees paychecks).

While they admitted to not paying the tax, they also said that they weren't in a position to pay it. They raised the fact that they had negotiated with the IRS to try to pay the tax off in installments and they even claimed that they needed to refinance their properties in order to meet the tax burden.

Did the Third Circuit Court of Appeals buy this argument?

Well, the lower court certainly didn't.

The government submitted evidence that the couple had been living it up.

Indeed, they had allegedly spent over $5 million from business and personal accounts, on apparently lavish business and personal items.

The couple was convicted by the lower court. On appeal, they raised the issue that the evidence presented by the government was prejudicial. They claimed that the evidence "fomented class prejudice by depicting a life of luxury that came at the expense of the DeMuros' employees and the American people."

While the Third Circuit court noted that the evidence may have been harmful to the defendants' case, the circuit stated that the rule did not require the government to sanitize its case, to deflate its witnesses' testimony.

In short, FRE 403 doesn't force the government to tone down its story if the story reflects the facts.

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