by Brian Mahany
James Stuart was convicted earlier this month of three counts of felony tax evasion. When he returns to court for sentencing he faces up to 15 years in prison. His story hits very close to home. Literally. Stuart owned a business just a few miles from my house. His defense lawyer is also a friend and former mentor.
According to court filings and public records, Stuart owned New Age Chemical in Delafield, Wisconsin. Until 2005, he filed and paid tax returns like most Americans. Something happened that year, however, that would ultimately result in Stuart finding himself in handcuffs a few short years later.
Prosecutors say that in September of 2005, Stuart directed his company to stop withholding taxes from his paychecks. He unilateraly declared himself an independent contractor instead of an employee. He also amended his tax return seeking a refund of all taxes he previously paid. In April of 2006, he filed a return claiming he earned nothing for 2005.
Stuart began a series of letters to the IRS claiming among other things that he was “duped” into thinking that he owed taxes and had never worked for an “employer.” The IRS rejected his refund requests and warned him that his arguments were frivolous. The government says that the IRS warned Stuart to seek the advice of a competent tax accountant or attorney and that his actions might lead to criminal prosecution.
Apparently those warnings went unheeded. In February of 2009, the IRS executed a search warrant at New Age Chemical and discovered that Stuart had earned significant monies from the business. No taxes were paid on those earnings and no returns filed for 2006 and 2007. (In 2005 he filed a return but claimed zero taxable earnings.)
Prosecutors say that the Wisconsin Department of Revenue, Wisconsin Tax Appeals Commission, and even relatives and a former accountant also tried to warn him that his claims had no merit.
Ultimately, Stuart was indicted and arrested for three counts of tax evasion. At his initial bail hearing, Stuart was ordered held without bail after apparently refusing to recognize the authority of the court.
Stuart was tried in early December in a federal court in Milwaukee. His attorney claimed that Stuart had an erroneous but good faith belief that he didn’t owe tax. A 1991 U.S. Supreme Court case, U.S. v. Cheek, says that a “good faith misunderstanding” of tax laws can be a defense to criminal tax charges. Unfortunately, recent court decisions say that the good faith exception is limited. A jury can convict if they believe that a person was simply being “willfully blind” to the obvious. In simple terms, a good faith mistake shouldn’t lead to a conviction but sticking your head in the sand like an ostrich and avoiding the obvious is no defense.
The jury was out for about 2 hours before coming back and finding Stuart guilty of all counts. While there are many arguments that one can make as to the legality of the tax code and the authority of the IRS to collect taxes, all of those arguments have been rejected by the courts. Although a few people are acquitted each year of tax charges, getting a jury to go along with the so called Cheek good faith exception is difficult. Jurors feel that if they must pay their taxes so should the defendant.
The rare person that does get acquitted still must pay their taxes. The acquittal only means the IRS can’t put you in jail. The civil authority of the IRS to seize property, bank accounts and levy wages isn’t affected by the criminal prosecution.
If you haven’t filed or paid taxes or believe you are under criminal investigation for tax crimes, contact an experienced criminal tax attorney immediately.
The law firm of Mahany & Ertl has helped many people under under criminal investigation. When your liberty is at stake, call us. We can help. For a confidential consultation, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at