On April 12, after four weeks of trial and one week of deliberations, a federal jury in the U.S. District Court for the District of Kansas returned a verdict of not guilty for a firm client accused of engaging in a conspiracy with his wife to defraud the U.S. government by impairing and impeding the IRS. One Assistant U.S. Attorney and two trial attorneys from the Department of Justice Tax Division represented the government. Counsel Jay Nanavati represented the client.
The client and his wife were alleged to have agreed to fabricate a repairs and maintenance contract between their two businesses to increase one of the businesses’ tax deductions and to divert money from the business to their personal use. In December 2010, the client’s wife’s business wrote a check to the client’s business pursuant to a prepaid two-year service contract. The client allegedly immediately used the money to buy gold coins that were shipped to the wife’s business.
According to the government, the service contract was a sham created to disguise a circular flow of funds from the wife’s business to the client’s business and back to the wife’s business in the form of gold coins. On the wife’s business’s 2010 corporate tax return, the wife allegedly fraudulently deducted the payment to the client’s business as a business expense for repairs and maintenance.
The government called approximately 117 witnesses, most of whom were connected to different charges against the client’s wife. The defense called approximately seven witnesses over two days.
Nanavati said the key to the defense was undermining the government’s witnesses’ credibility during cross-examination and pointing out to the jury during closing argument various logical flaws in the government’s theory of the case. “By the end of the government’s evidence, it was fairly clear that the government had not met its burden,” he said.
