Fraud in taxation

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encountered tax erimes. It is di of Justice Ta The IRS i PROBLEM an attorney employed by the United States the Criminal Section. A new file has arrived on your desk. Tistice 7201. You skim the file before ou are Division in under section oftice in the evening. You discover the sident and sole owner of Crafty C Ronald Wolzak is the pre corporation. Crafty is a contractor at various small building sites. There are they perform the activities specified by Wolzak on hehalf of Crafty, and tya job the times, in the places, and in the manner specified by wozak on behalf loso Able, Baker, Charlie, Dan, Evan, and Fred) who work regularly at Crafty at has always and for all purposes taken the position that the six Crafty compensated the six workers for their services by giving them old market values of the coins The coins are more valuable than their fa ow the ahe independent contractors, not employees. and silver coins. The coins have face values, but their face values are far hel because of eurrent prices of gold and silver and because of the coins The IRS Special Agents who developed the case interviewed Wolzak to use gold and silver coins at face value as a medium of exchange is a lawftul which they mean currency in the form of precious metals or at least fully b them status as collectibles. workers. They all said essentially the same thing. They claim that using and a the si of a statutory right. Moreover, they assert that the only real money is a nited States went off the gold standard. They view the Federal Rethe 81x ver cons a moneyby metals. They assert that U.S. "paper money" has been worthless si being under the control and direction of the International Monetary Fund and let financial interests." Their use of old gold and silver coins is part of what thet oreign as their "boyeott of the corrupt and un-American Federal Reserve S offer their view that the federal income tax is uncon Amendme stitutional because the Sixteenth nt was not properly ratified by the requisite number of states. Crafty and the six workers value the coins for tax purposes at their face amounts not at their fair market values. For example, assume Able received from Crafty i given year coins with an aggregate face amount of $100 but aggregate fair market valte of $30,000. On these facts, Crafty would take the position that it had paid $100 to Abla for the year, and Able would take the position that he had received $100 from Crafty for the year. As a result, none of the six workers filed federal income tax returns for years they worked for Crafty. They maintained that their incomes (as measured face amounts of the coins) fell und See IRC 6012(a)(1). er the levels at which returns are required t by the You are aware of two decisions holding that, when gold coins have a fair market alue in excess of face value, taxpayers must report income at the fair market value, not the face value. California Federal Life Ins. Co. v. Commissioner, 680 F.2d 85, 86-87 (9th Cir. 1982); Cordner v. United States, 671 F.2d 367, 368-69 (9th Cir. 1982). At this point, you leave your office, resolving to read the rest of the file tomorrow. On your commute home, you mull the case over. Specifically, you consider and form 1. Are section 7201 charges appropriate here? Consider whether the prima fa elements of section 7201 are met, which of the actors are appropriate defendants, and 2. What defenses could the putative defendants advance? Identify tentative conclusions about the following questions all other relevant matters defenses-including both failure-of-proof defenses and affirmative defen evaluate their strengths and weaknesses. all ses-a