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THE LEATHERSTOCKING TALES

August 15, 2006

What does Ferdinand Marcos have to do with partnership taxes? You'd be surprised.

Robert L. Steele was the "tax matters partner" for the Leatherstocking 1983 Partnership, a cattle-feeding shelter. The tax matters partner is responsible for adminstering tax filings and IRS matters for a partnership. Mr. Steele also had some unusual outside business interests, as laid out yesterday by the Tax Court:

In or about August 1986, Steele and three of his coconspirators (we refer collectively to Steele and one or more of the conspirators as coconspirators) traveled to Hawaii to meet with Ferdinand Marcos (Marcos), who was then in exile there. The coconspirators offered to help Marcos return to power in the Philippines. The coconspirators first offered to return Marcos to power peacefully in return for at least $180,000. In September 1986, Marcos transferred $180,000 to the coconspirators by wiring that amount from a foreign account to an account of one of Steele's corporate entities, Commonwealth Group, Ltd. In October 1986, Marcos wired another $1 million to the Commonwealth account.

When the peaceful efforts failed, the coconspirators offered to return Marcos to power forcefully by way of a coup. The coconspirators told Marcos that they wanted $100 million if the coup succeeded and that $15 million of that amount would have to be paid immediately. In or about December 1986, the coconspirators directed Steele's cousin, Michael Seifert (Seifert), a solicitor in London, to open bank accounts on the Isle of Man in the names of nominee corporations in order to receive and conceal funds relating to the planned coup...

...The planned coup collapsed in March 1987 when two of the coconspirators (other than Steele) were arrested in New Jersey trying to buy weapons from one or more undercover agents.

To make a long story short, Mr. Steele ended up in federal prison (he's a fugitive now), but continued as tax matters partner for Leatherstocking. Among his acts was to extend the statute of limitations for an ongoing partnership audit by IRS.

The other partners tried to keep IRS from assessing taxes against the partners on the grounds that he was too conflicted to serve, what with the federal investigation, stealing from partners, and all. The Tax Court didn't buy it.

The Moral? When choosing a tax matters partner, remember that imprisoned coup plotters may not be the best people to entrust with tax responsibilities.

Cite: LEATHERSTOCKING 1983 PARTNERSHIP, T.C. Memo 2006-165

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