Justia Tax Law Opinion Summaries

The Seventh Circuit affirmed the Tax Court holding that the Coles omitted income from their 2001 return and imposed a fraud penalty. Because the Coles had not maintained adequate records of income from a "confusing maze of entities and financial dealings," the IRS reconstructed their income. The Coles did not rebut the presumption of accuracy with respect to the reconstruction. An argument that certain entity income was not attributable to the Coles was "spurious," according to the court, and a claim that the Coles did not benefit from certain loans was a "nonstarter." The court particularly noted the Coles' control over the entities at issue. There was clear and convincing evidence of fraud: Jennifer Cole has worked as an accountant and Scott is a licensed attorney, yet they failed to keep records, commingled funds, and funneled assets into entities that had no business purpose.