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August 23, 2007

The outcome would have been much better than you typically see in a tax evasion scheme. A Pennsylvania contractor pleaded guilty to committing tax fraud by having his construction company build a mansion. The company, an S corporation, deducted the costs, and the contractor failed to pay report the value of his new mansion as income on his tax return.

The trial judge sentenced him to a year of house arrest in the very same mansion.

The government wasn't amused, so it asked the Federal Court of Appeals for the Third Circuit to impose a harsher sentence. The court decided the government had a point:

We share with the Government concern about the message a sentence of probation for the indisputably serious offense of willful tax evasion sends to the public at large and would-be violators. Tomko’s sentence of probation included home confinement in the very mansion built through the fraudulent tax evasion scheme at issue in this case – an 8,000- square-foot house on approximately eight acres, with a home theater, an outdoor pool and sauna, a full bar, $1,843,500 in household furnishings, and $81,000 in fine art. The perverse irony of this gilded cage confinement was not lost on the Government, it is not lost on us, and it would not be lost on any reasonable public observer of these proceedings, including those would-be offenders who may be contemplating the risks associated with willful tax evasion.

The appeals court ordered a resentencing more in line with federal sentencing guidelines. This is likely to be a 12 to 18-month sentence, to be served in a more spartan setting.

Cite: William Tomko, CA-3, NO. 05-4997

UPDATE: The TaxProf has a roundup, with links; The TaxGrrrl weighs in.

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