Bernhoft & Banister

[Demosthenes]

http://www.cheatingfrenzy.com/banisterc14.pdf

[Demosthenes]

In the instant case, the IRS states that it “does not know how long [the] Respondent has been compensating Banister” because the sole Form 1099 Banister submitted was in 2006, although Banister’s bank records show that he received prior payments from the Law Firm.

In short, Bernhoft has, in the view of the Court, not taken any steps to indicate a good faith effort to respond to the summons.

In this case, the focus of the summons is Banister’s participation in the promotion of an abusive tax shelter scheme, which may involve Law Firm clients who may be knowing or willing participants in such a scheme.

Bernhoft asserts that the individual IRS employees assigned to the investigation engaged in improper conduct. In support of this claim, Bernhoft submitted declarations regarding a July 24, 2008, teleconference between IRS attorney Kevin W. Coy (“Coy”), IRS agent Felton, Hawkins, Bernhoft, his representatives, and three attorneys from the Law Firm, Barnes, Daniel J. Treuden, Esq. (“Treuden”), and Christopher J. Ertl, Esq. (“Ertl”). (See Truden Decl. ¶¶ 2-3.) The Court will not go into detail regarding the affidavits from the Law Firm’s paralegals, who did not attend the teleconference, but state that they heard shouting over the teleconference phone during the meeting.

Treuden, on the other hand, was present at the teleconference and states that, during the meeting, Coy stated to Barnes, “[a]re you a real attorney?” and “[y]ou have no right to speak for the witness!” (Treuden Decl. ¶ 8.) Treuden also states that Coy accused Barnes of “being obstreperous, of delaying and inhibiting the questioning process,” and that Coy threatened to end the conversation several times if Barnes kept answering for Bernhoft. (Id.) Treuden stated that most of Coy’s comments were made “while yelling and his voice was going very fast” and that, in his opinion, Coy “had totally lost control.” (Id.)

Bernhoft attempts to further suggest institutional bad faith through the declaration of Barnes – counsel for Bernhoft and an attorney with the Law Firm. Barnes attests that “a journalist from a well-respected and prominent publication” asked him if “the summons was punitive in order to quiet the positive publicity Bernhoft received for his continuing success against the IRS in nationally prominent cases.” (Barnes Decl. ¶ 9.) Barnes further attests that the journalist explained to him that from “prior interviews with IRS personnel, they made it clear the IRS was displeased with the national attention Bernhoft received after obtaining felony acquittals for Wesley Snipes . . . and Bernhoft’s 50% acquittal rate in criminal tax felony cases.” Id.

Barnes’s statements about his conversation with the journalist and Barnes’s recitation of the journalist’s reports of his conversations with IRS personnel is hearsay and double hearsay that is inadmissable under Rule 802 of the Federal Rules of Evidence. Additionally, Bernhoft’s reliance on the journalist’s statements is misplaced. The declaration does not indicate that the journalist ever explicitly stated that a valid civil taxation purpose did not exist or that the motive behind the summons was the ill-will intent of the IRS rather than a valid civil taxation purpose. Rather, the journalist merely asked Barnes if IRS bad faith was a possible explanation behind the summons. Even if admissible, the journalist’s questions to Barnes are not statements of fact and the journalist would not speak for the IRS.

CONCLUSION

The Court concludes that a prima facie case for the enforcement of the IRS summons exists. Bernhoft’s blanket claim for attorney-client privilege necessarily fails because he has not provided a privilege log or affidavits specifying the application of privilege to each and every document. The heavy burden of establishing all elements of the attorney-client relationship rests upon the party asserting the privilege. First State Bank, 691 F.2d at 335. Since Bernhoft fails to do so, he does not attach privilege to any of the requested documentation. Bernhoft also has not established that the summons is overly broad in respect to proper addressing, time frame, subject-matter, or the Monumental test. Additionally, Bernhoft has not established an abuse of process by the IRS.

NOW, THEREFORE, BASED ON THE FOREGOING, IT IS HEREBY ORDERED THAT:

The Government’s petition to enforce the IRS summons for “[a]ny form, document or letter prepared by Joseph Banister for [Bernhoft] and/or [his] entities” and “[a]ny correspondence (including e-mails) between Joseph Banister and [Bernhoft] and/or [his] entities” is GRANTED.

Bernhoft MUST PRODUCE those materials to the Government no later than November 30, 2009.

[wserra]

Ohh. What is the sound of shredders working overtime?

[bmielke]

Ohh. What is the sound of shredders working overtime?

Destroy evidence, thats just wrong, and Lawyers would never do anything wrong, never. Um almost never? I think I hear those shredders...

[Noah]

Ohh. What is the sound of shredders working overtime?

The had better be water cooled or they will melt down to a puddle.

[Judge Roy Bean]

I have little use for TD/TP defenders, but I'm betting Bernhoft appeals (and IMHO will get some relief in the form of limitations in terms of work product protections).

I have to admit I'm somewhat troubled with fishing expeditions, particularly those involving attorneys who specialize in criminal defense cases and their communication with experts who are apparently employed and paid to contribute to work product for their clients.

A disturbing part of the rationale for the subpoena is that the IRS agent was "...unable to verify the purpose behind the financial transactions" (allegedly "substantial amounts of money" paid by Bernhoft to Banister) despite also acknowledging that Banister "is an employee of Bernhoft's law firm."

Sorry, but if it walks like a duck and swims like a duck it might just be a duck, even if the court doesn't hear the quacking.

[Demosthenes]

despite also acknowledging that Banister "is an employee of Bernhoft's law firm."

Where does that acknowledgment take place?

In what I read, Bernhoft's law firm made substantial payments to Banister in multiple years but only 1099d him in 2006???

[LPC]

despite also acknowledging that Banister "is an employee of Bernhoft's law firm."

Where does that acknowledgment take place?

In what I read, Bernhoft's law firm made substantial payments to Banister in multiple years but only 1099d him in 2006???

And a 1099-MISC is only appropriate for an independent contractor, not for an "employee," and so contradicts the claim that Banister was an employee.

[Judge Roy Bean]

Where does that acknowledgment take place?

In what I read, Bernhoft's law firm made substantial payments to Banister in multiple years but only 1099d him in 2006???

BACKGROUND
On June 13, 2008, the Petitioner, the United States of America (“the
Government”), filed a petition to enforce an Internal Revenue Service (“IRS”) administrative
summons against the Respondent, Robert Bernhoft (“Bernhoft”). The summons was issued
pursuant to 26 U.S.C. § 7602 in connection with an IRS investigation into whether Joseph
Banister (“Banister”) – an employee of Bernhoft’s law firm, Bernhoft Law Firm, S.C. (the
“Law Firm”) – is engaging in the promotion of abusive tax schemes such as tax shelters that
would be subject to civil penalties under 26 U.S.C. § 6700 and whether Bernhoft should be
enjoined from promoting abusive tax shelters pursuant to 26 U.S.C. § 7402 and § 7408.

[jg]

Pursuant to the investigation, the lead IRS agent, Shereen Hawkins (“Hawkins”),
discovered that Banister has been receiving substantial amounts of money from Bernhoft each
year, but was unable to verify the purpose behind the financial transactions.

Classifying Banister as an employee would not seem possible if one is unable to verify the purpose of the transactions between him and the law firm (or Bernhoft). Perhaps this is a simple poor choice of words, or sloppy writing, since it appears that the classification has no basis in fact (or at least any such basis is not within the appeals decision).
There is also a lack of clarity as to whether the payments were from Bernhoft personally or as an agent for the law firm.
It would be interesting to know whether Banister referred clients to Bernhoft and the timing or coordination between just referrals and the financial transactions.
In my layman's reading the court gave a reasoned denial of Bernhoft's response to the court's order to show cause.

Just one man's opinion, yours may vary significantly.

[Judge Roy Bean]

Pursuant to the investigation, the lead IRS agent, Shereen Hawkins (“Hawkins”),
discovered that Banister has been receiving substantial amounts of money from Bernhoft each
year, but was unable to verify the purpose behind the financial transactions.

Classifying Banister as an employee would not seem possible if one is unable to verify the purpose of the transactions between him and the law firm (or Bernhoft). Perhaps this is a simple poor choice of words, or sloppy writing, since it appears that the classification has no basis in fact (or at least any such basis is not within the appeals decision).

Granted the hour is late, but a simple 'poor choice of words, or sloppy writing' in the filing doesn't mean the alleged classification has no basis in fact. Trust me, there should be no free pass for a poor choice of words or sloppy writing in Federal criminal trials. We should expect better.

...
It would be interesting to know whether Banister referred clients to Bernhoft and the timing or coordination between just referrals and the financial transactions.

Bingo. The very definition of a fishing expedition - "... It would be interesting to know ..."

[LPC]

Granted the hour is late, but a simple 'poor choice of words, or sloppy writing' in the filing doesn't mean the alleged classification has no basis in fact. Trust me, there should be no free pass for a poor choice of words or sloppy writing in Federal criminal trials.

This is not a federal criminal trial.

As I understand it, this was a petition to enforce a summons that was issued in an investigation into whether Bernoft and Banister had been promoting abusive tax shelters.

... It would be interesting to know whether Banister referred clients to Bernhoft and the timing or coordination between just referrals and the financial transactions.

Bingo. The very definition of a fishing expedition - "... It would be interesting to know ..."

I believe that 26 U.S.C. § 7602 allows "fishing expeditions."

The IRS does NOT need to have "probable cause" or anything like it. All that Powell requires is that that (1) the investigation was conducted pursuant to a legitimate purpose; (2) the inquiry is relevant to that purpose; (3) the requested information is not already in the agency’s possession; and, (4) the agency followed the administrative steps necessitated by the Internal Revenue Code.

[Judge Roy Bean]

Granted the hour is late, but a simple 'poor choice of words, or sloppy writing' in the filing doesn't mean the alleged classification has no basis in fact. Trust me, there should be no free pass for a poor choice of words or sloppy writing in Federal fishing expeditions.

This is not a federal criminal trial.

As I understand it, this was a petition to enforce a summons that was issued in an investigation into whether Bernoft and Banister had been promoting abusive tax shelters.
...

A correction of my own 'poor choice of words' applied.

[notorial dissent]

What I can see here from looking over the preceding text, is that there are three issues here.

1.) Is that the IRS is looking in to Bernhoft & Banister for running abusive tax shelters.

2.) Banister has been “working” in some capacity for Bernhoft for quite some time it, since at least 2006 by their own admission.

3.) They are making contradictory claims as to the type of relationship, and if and how much has been paid out.

The IRS issued a 26 U.S.C. § 7602 summons and are now in court for enforcement to find out why and how much had been paid to Banister. On the basis of what could he possibly be doing there and getting paid for if not in the furtherance of the scam, since they can’t seem to come up with any kind of explanation of the relationship, or actual record thereof.

Banister being a known tax fraud proponent and having a relationship with Bernhoft should be enough for a start, but the plain fact of the matter is that they have unreported income, could be lots of income in fact, apparently from both sides, and whether Banister is an employee or a consultant doesn’t make any difference. They both had a requirement to report it and I’m willing to bet neither did. The IRS could quite easily answer the question internally with a review of the tax filings of the two entities, if nothing is listed, they have them for tax fraud at the very least, and a clear right to go poking through their financials, and the fact that they were unaware of the relationship prior to this tells me that the payments haven’t been reported.

[LPC]

Banister being a known tax fraud proponent and having a relationship with Bernhoft should be enough for a start,

And Bernhoft is *also* a known tax fraud proponent. In 1999, he was permanently enjoined from promoting his "De-Taxing America Program" tax protester scheme. United States v. Robert R. Raymond et al., 78 F.Supp.2d 856, No. 2:97-cv-00207-CNC (E.D.Wis. 7/27/1999), aff'd 228 F.3d 804, 86 AFTR2d Par. 2000-5325, 2000 TNT 189-9, No. 99-4024 (7th Cir. 9/26/2000).

Does that help fuel your suspicions?