Tuesday, June 12, 2018

Mario Biaggi's Criminal Case Followed By Tax Travails

This post was originally published on Forbes Jun 29, 2015

The New York Times reports that former Bronx Congressman and hero New York City police officer Mario Biaggi died Wednesday at the age of 97.  Biaggi was convicted of a variety of financial crimes in the late eighties.  He maintained that he was innocent and was actually a victim of the then federal prosecutor Rudy Giuliani's soaring ambition.  Whenever I see an obituary of a larger than life figure like that, my immediate thought is that he must have showed up in some tax litigation making it time to fire up the wayback machine.

Wedtech Stock

In 2000, the Tax Court ruled on Mr. Biaggi's challenge to 1983 and 1985 assessments.  The assessment related to Mr. Biaggi's ownership in Wedtech, a defense contractor located in the Bronx, which was also the source of his criminal problems and those of his son.
In 1987, petitioner was indicted on, and in 1988 he was convicted of, various counts arising out of his relationship with Wedtech. Among those counts were (1) racketeering in connection with his demand and receipt of the Wedtech shares and $50,000 in exchange for influencing public officials to grant a lease to Wedtech; (2) extortion, bribery, and receipt of an unlawful gratuity in connection with his demand and receipt of the Wedtech shares; (3) making false statements in concealing his ownership of the Wedtech shares; (4) filing false income tax returns for failing to report income derived from acquisition of the Wedtech shares; and (5) perjury in connection with falsely testifying before a grand jury.
The Wedtech shares were not delivered to petitioner, but were delivered to his son, Richard Biaggi (Richard), who received the Wedtech shares as petitioner's nominee. Richard was convicted of filing false income tax returns by overstating his income to include the receipt of the Wedtech shares on his 1983 return and reporting gain from the sale of 25,000 shares on his 1985 return.
I know people get in trouble for overstating their income, to claim the Earned Income Credit, but that charge against Richard seems really unusual.

At any rate, the  112,500 Wedtech shares were received in 1983 around the time of Wedtch's IPO in which the shares  were going for $16 per share.  The IRS valued the shares at $11.20 to account for the two year restriction on transfer and other contemporary transactions.  Biaggi tried to argue that the $0.31 per share book value was a better indication, but the Tax Court was not buying that.

Then there was the fraud penalty.  With the tax case coming on top of a criminal conviction, that was tough to beat.
In addition to those inferences, petitioner is collaterally estopped from denying the following facts established in his criminal trial: The Wedtech shares were paid to petitioner as a bribe to influence him to use the power of his office to secure Government contracts for Wedtech. The Wedtech shares were paid to him in response to extortionate demands by him. Petitioner knew that, if the shares were received by him in his own name, his income for 1983 would exceed the statutory cap on income provided for under rules of the U.S. House of Representatives. For that reason, petitioner agreed to have the Wedtech shares registered in the name of Richard. When the Wedtech shares were issued, petitioner knew that, under the circumstances, he was the owner of those shares, that Richard was not, and that Richard received those shares as a nominee for petitioner. When the Wedtech shares were issued, petitioner knew that, as owner of those shares, he was required to report the value of those shares as income for 1983, as he had been advised by his accountant. In 1985, Richard, as petitioner's nominee, sold the 25,000 shares and improperly reported the gain on his income tax return. Petitioner did not report any gain in connection with the sale of the 25,000 shares.
No Luck On Appeal

Biaggi appealed to the Second Circuit, objecting to the failure of the IRS to release special agent reports that were submitted to the Grand Jury and on the valuation issue, but had not luck.

An interesting point that I have not been able to determine is whether the IRS ended up whipsawing the Biaggi family.  The assessment for Mario Biaggi not reporting the income from the grant of Wedtech stock relied on the six year statute.  So was it too late for Richard Biaggi to claim a refund for the income that he had over-reported?  Perhaps a protective refund claim went in early in the game.

Was Government Piling On?

In some ways the tax decision coming on top of the criminal conviction really makes me think there might have been something to Biaggi's contention that he was a victim of Giuliani's ambition.  When you look at the big picture of the transactions, nobody seems to have been getting away with anything from an income tax perspective.

More From The Wayback Machine Is Coming

Anyway, it's good to see that the wayback machine is still working as I will be using it soon to do a retrospective on Kent Hovind as we look forward to his release in just over a week.

No comments:

Post a Comment