A complex tax dispute between the IRS and Indianapolis 500 Three-Time Champion and Dances with the Stars T.V. winner Helio Castroneves has lead to another interesting turn of events. You may recall the Indy champ was criminally prosecuted for allegedly owing millions of dollars in back taxes, tax evasion, and conspiracy, along with his sister-manager, Katiucia Castroneves, back in 2009. The federal criminal jury reportedly acquitted both brother and sister on the evading tax charges, but dead-locked the twelve (12) member panel on the conspiracy charge resulting in a mistrial on that count which prosecutors later dropped.
After winning the criminal trial in April 2009, Helio celebrated his 3rd Indy win a month later and apparently used the winnings to pay the IRS $5 million which he believed paid-off any and all back taxes he owed for the seven (7) years between 2000 and 2007. But, according to the IRS, Mr. Castroneves still owes $3.6 million in back taxes and another $2.7 in fraud penalties for the four (4) years between 2000 and 2004. In fact, the IRS “determined that all or part of the underpayment of the required taxes on the returns… [was] due to fraud,” further finding that a stiff penalty totaling 75% of the back taxes owing was warranted.
Now, in what Castroneves’ tax attorneys are suggesting is a surprising turn of events, the IRS has filed a civil lawsuit against Castroneves and his sister. The tax lawyers for the accused brother and sister point-out the IRS is, in essence, bringing the same criminal case in a civil court where the standard of proof is lower. Castroneves’ tax attorneys maintain the IRS seems to be acting with an improper motive to punish the Indy champ and his sister, justify a costly failed criminal prosecution, and vindicate the agency’s arguably unsupported position.
Tax lawyers not connected with the case say the IRS’s decision to pursue remedies available in a civil lawsuit following the loss of a criminal case, particularly with a dead-locked jury, is not surprising. They also offer an alternate view that perhaps the agency’s decision to pursue a civil lawsuit doesn’t have to be motivated by any of the improper reasons cited by Castroneves’ tax attorneys. Perhaps, and this may be going out on a limb, the IRS is just trying to do its job!
Now that’s not to say the IRS doesn’t ever make mistakes. And, that’s not even saying the IRS didn’t make any mistakes in Castroneves’ case. To the contrary, the tax issues involved are very complex and deal with deferred millions in income which was supposed to go into a Panamanian tax shelter, but somehow ended up in a Dutch annuity. If there were mistakes, on either side, one can certainly appreciate perhaps why.
Many tax lawyers will tell you the lesson to be learned here is that there are several ways for the IRS to pursue what it believes to be taxpayers owing back taxes. In the vast majority of cases, taxpayers will typically find the agency willing to work with them to resolve unfiled returns and/or back taxes owing. Like any large institution, however, there are going to be mistakes and working with the assistance of competent, ethical tax lawyers is certainly one of the best ways to protect yourself.
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