Sun Sentinel.Com reports that Indy Car driver and Dancing with the Stars star Helio Castroneves says he’s ready to prove his innocence in his tax evasion trial that began yesterday.
“Today’s the beginning of our victory,” Castroneves said.
The United States claims that Castroneves, his sister and his business manager, Kati Castroneves, and Michigan attorney Alan Miller, conspired to hide more than $5 million of taxable income from the Internal Revenue Service between 1999 and 2004.
The feds have also charged Castroneves with intentionally failing to report additional income and deducting $687,000 as business expenses.
Castroneves’ attorneys Roy Black (he represented William Kennedy Smith in his Au Bar rape trial), Howard Srebnick of Miami and Robert Bennett (represented Bill Clinton and Caspar Weinberger) of Washington, D.C.
The Sun Sentinel says,
The lawyers will tell jurors the racing champ never owed income tax on $5 million he earned from Penske Racing Inc. because the money went to his father in Brazil as repayment for financing his son’s career.
Joe Kristan of Tax Updates Blog says this about the proposed defense:
That sounds like a stretch, but maybe it will sound fine to a jury. If my kids ever hit it rich it might suddenly seem more sensible to me.
Is the defense really claiming that Castroneves doesn’t owe any money to the IRS?
Or is it saying that Castroneves thought, at the time he filed his income tax return, that he didn’t owe any money to the IRS?
I can’t see how the $5 million gets excluded from taxable income.
Saying that the money was paid to your Dad, who conveniently happens to be outside the United States’ taxing jurisdiction, seems weak to me and may be seen by the jury as further evidence of an intent by Castroneves to evade U.S. tax.
And even if Castroneves’ father did, in fact, “finance” his son’s career and Castroneves is now paying him back, the monies he received from Penske are still taxable income.
If he argues that he repaid a loan from his dad, that still doesn’t explain his failure to report the income received from Penske. And it doesn’t justify a business expense deduction because repayments of the principal portion of a loan are not deductible.
If Dad’s financing was a gift to his son, that still doesn’t change the character of the payments made to Castroneves.
In short, it would appear that the payments made to Castroneves from Penske, no matter how the defense tries to spin it, constitute taxable income.
I agree with Joe Kristan, it is possible that the defense team will be able to convince the jury that Castroneves did not intend to evade U.S. taxes.
But I find it hard to believe that the defense team will argue that the $5 million is not taxable at all.
Finally, if Castroneves and his tax advisers truly believed that the $5 million was paid to Castroneves’ father and was a deductible business expense, it would have reported the $5 million as gross income and then claimed a deduction in the same amount to arrive at “zero” taxable income.
There has to be a reason Castroneves failed to report the Penske income at all and the “we-offset-it-against-expenses-paid-to-Daddy” argument seems awfully weak.
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1 Dancing Star Walks: Helio Castroneves Acquitted of 6 Counts of Tax Evasion // Apr 17, 2009 at 6:37 pm
[...] Castroneves Tax Evasion Defense: “Eu Dei O Dinheiro a Meu Pai (I Gave the Money to My Father)” [...]
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