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Embezzlers: It's not your money, but it will be your tax.

September 30, 2009

Des Moines is agog at the indictment of a local gay rights activist on charges of stealing $5.9 million from her employer, the insurer Aviva. A lawsuit by the insurer accuses her wife of sharing in ill-gotten gains.

There is actually a tax angle. The accused's spouse has posted on her blog:

"We won’t lie about our marriage on our tax forms, either, filing as married people we are," she wrote. "We’ve racked up about a million dollars in potential criminal fines and about a hundreds years in potential prison time under the old sentencing guidelines between us — so far."

If she was just talking about filing joint tax returns as a single-sex couple, she's grossly exaggerating the trouble they were in. While Iowa now allows same-sex marriage, federal tax law doesn't recognize it. Even so, there's little chance that disallowed joint filings would ever lead to criminal liability, and the fines would never get that big.

If she was taking a $5.9 million embezzlement into account, though, she's not exaggerating so much. With that much income, you are getting into serious tax evasion, and "millions" in fines is achievable for fraudulent underpayment of taxes on that much income. Hundreds of years in jail? Tough to achieve, even with these numbers, but for a couple aged 58 and 53, a lot less than a hundred years can still be bad for the relationship.

And yes, embezzlement proceeds are taxable. Just yesterday a North Dakota man was sentenced to four years in federal prison for not paying taxes on $6.9 million stolen from his employer, a Bismarck construction company. The North Dakotan pleaded guilty and appears to be cooperating. If the Aviva defendant fights the charges and is convicted, a longer term would not be surprising.