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U.S. District Court Acquits Defendant on Tax Fraud and Conspiracy Charges

On Behalf of | Apr 1, 2013 | Tax Crimes |

In Pflueger v. United States, U.S. District Judge, Leslie Kobayashi, recently acquitted James Pflueger on all tax fraud and conspiracy charges. Judge Kobayashi of the U.S. District Court for the District of Hawaii wrote that the government had not met its burden of proving beyond a reasonable doubt that there was an agreement between James Pflueger and his alleged co-conspirators to obstruct the lawful function of the Internal Revenue Service (IRS).

Mr. Pflueger was indicted in September 2010 on tax conspiracy charges and filing a false tax return for two separate schemes. The first scheme involved Mr. Pflueger’s company alleged payment of personal living and travel expenses for Mr. Pflueger, as well as Mr. Pflueger’s failure to report the payments as income on his personal tax returns. Prosecutors argued that Mr. Pflueger’s accountant, Dennis Duban, knew and helped Mr. Pflueger illegally deduct his personal expenses on corporate income tax returns as business expenses

The second scheme involved an underreporting gain on the sale of California property. The government argued that Mr. Duban arranged for the funds from the sale to be transferred to an offshore account controlled by Mr. Pflueger at Wegelin & Co., the Swiss bank that was recently ordered to pay $58 Million in restitution and fines. Both schemes were charged under 31 U.S.C. section 371 and under section 7206(1), willfully filing a false tax return.

Mr. Pflueger’s attorneys successfully argued that he lacked the financial expertise, knowledge, and willfulness to commit the alleged offenses. Mr. Pflueger placed the blame on Mr. Duban, who had already pled guilty to a related tax fraud charge. The defense also claimed that Mr. Pflueger’s signature was forged on key documents, that he was unaware of the tax fraud; and that his California accountant, Mr. Duban, embezzled over $2 million from him. Mr. Duban testified against Pflueger, but Mr. Pflueger’s attorneys effectively argued that there was no evidence linking Pflueger to the tax fraud conspiracy.

Judge Kobayashi cited Cheek v. United States, 498 U.S. 192 (1991), which says:

“[W]illfulness, as construed by our prior decisions in criminal tax cases, requires the Government to prove that the law imposed a duty on the defendant, that the defendant knew of this duty, and that he voluntarily and intentionally violated that duty.”

Although the judge said the U.S. Attorneys did not prove beyond a reasonable doubt that Mr. Pflueger knowingly conspired to defraud the United States of taxes he owed, the IRS may still pursue a civil case against Mr. Pflueger to settle some $4.5 million in unpaid tax liability resulting from the sale of his California property.


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