Record $2.2 Billion Tax Bill Against Entrepreneur and Founder of Michaels Stores Inc., Sam Wyly, for Alleged Tax Fraud

In possibly the largest individual civil tax fraud penalty in U.S. history, the IRS seeks a massive $2.2 billion from former billionaire Sam Wyly and the estate of his late-brother, Charles Wyly, for allegedly hiding income in offshore trusts and failing to pay taxes on that income.[1] Now you may be asking, how does anyone amass over $2 billion in unpaid taxes? Well, first, the tax bill arises in part from the scope of the IRS’ claim against the Wylys—spanning over twenty years, from 1992 to 2013. Second, penalties amount to over $1.5 billion of the tax claim; the Wylys owe a relatively small $620 million in back taxes and interest. Still, where does a person begin to defend against a claim for more than the GDP of small country?[2] In all seriousness, hire a good lawyer. A good lawyer will begin, among other ways, by breaking apart the charges and targeting the weakest aspects of the government’s case. In the Wylys’ situation, whom are charged with tax fraud, the government must prove that the Wylys willfully failed to pay their taxes.[3] To prove willfulness, the government must show a voluntary, intentional violation of a known legal duty; merely failing to pay the taxes is not enough.[4] In other words, the taxpayer must be shown to have been aware of his or her obligations under the tax laws, and violated them anyway.[5] Yet, willfulness is determined by a subjective standard, and a taxpayer is not required to have been objectively reasonable in misunderstanding the pertinent legal duties or in believing he complied with the law.[6] The inquiry, therefore, must focus on the knowledge of the taxpayer, not on the knowledge of a reasonable person. The element of willfulness is not met if the taxpayer’s conduct was due to negligence, inadvertence, or mistake, or if it was the result of a good faith misunderstanding of requirements of the law.[7]

The lesson here is that the IRS will search far back into your past to build a case against you, the penalties often surpass what was not paid, and a good lawyer is crucial to navigate the intricacies of a claim from the IRS. If the IRS is targeting you, find a good lawyer early, ask complicated questions regarding the strengths and weaknesses of the government’s investigation or case, and make sure you get the best representation possible. Don’t end up facing a huge tax assessment like the Wylys; proactively and preemptively address any potential tax problems to minimize risk and any potential damage.

–By Tony J. Nasser, Esq., Barnes Law

Tony J. Nasser is an associate attorney with Barnes Law, licensed to practice law in California.

The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] http://www.reuters.com/article/us-irs-wyly-idUSKBN0UK2J620160106

[2] In 2011, Greenland had just under $2.2 billion in GDP. https://www.cia.gov/library/publications/the-world-factbook/fields/2195.html

[3] See 26 USC  7201–06.

[4] Cheek v. United States (1991) 498 U.S. 192.

[5] United States v. Buford (5th Cir. 1989) 889 F.2d 1406, 1409.

[6] Cheek v. United States (1991) 498 U.S. 192.

[7] Nicolaou v. United States (4th Cir. 1999) 180 F.3d 565, 572–73.