The government and the defense offered their final arguments Tuesday in Peter Hoffman’s criminal trial on federal tax evasion charges.
Urging the jury to use common sense, Assistant U.S. Attorney Monica Bachner said about the $400,000 in payments the ex-Carolco Pictures CEO received in 1989, which the defense contends were loans and the government asserts was income: “If it walks like a duck, and talks like a duck, it is a duck. In this case, the payments acted like income because they were income.”
Casting aspersions on the government’s motives in bringing the case, defense attorney Brian Hennigan said, “The real question in this case is who is Peter Hoffman and why is the IRS doing these terrible things to him?”
Suggesting a vendetta, Hennigan said, “The answer is that Hoffman was a pretty aggressive tax lawyer who had taken the IRS to the cleaners.”
He also stated that this case involves an unusual tax “scheme” in that “nothing is hidden and there are lots of documents … this is the kind of thing that usually end up in a civil tax dispute.”
The government advanced the theory that Hoffman wanted to live the lifestyle of a movie exec making in excess of $800,000 without paying taxes on that amount.
Outlining a “scheme” of Byzantine complexity, Bachner explained that Hoffman received a draw of $25,000 a month from his law firm, Gipson, Hoffman & Pancione, which acted as a loanout company for his services, and deferred the rest of his income. However, he couldn’t live on that amount, so he arranged for additional payments and had the company pay third parties directly, essentially borrowing his own money from his deferred compensation account. “The defendant used the company like a piggy bank,” Bachner told the jury.
Reviewing the evidence, the government pointed out that there was no promissory note for the loan. Referring to the fact that the loans are not listed on Carolco’s earnings reports, Bachner asked, “Does it make sense that the president of a company, a highly trained lawyer,” was just careless?
Turning to the counts relating to Cinevisions, the company Hoffman started after he left Carolco, the government stated that termination payments from Carolco to Hoffman were improperly reported as income on Cinevisions tax return. The government claims that because of this misreporting, Hoffman got an $11,000 tax advantage and reduced the chances that he would be audited.
Throughout the day, the government returned to the issue of the taxes paid by Hoffman on the eve of trial after filing an amended 1990 tax return. The prosecution asserted that the ’90 W-2 was correct: In that year, he cleared out his deferred compensation account and paid taxes on the $1.3 million remaining after the $900,000 in payments he had received between 1986 and 1989 had been netted out.
Rejecting the defense theory that Carolco’s accounting department made a mistake by not grossing up the amount for purposes of Hoffman’s 1990 W-2 form, Bachner said, “The 1990 return was correct. The crime was not paying tax on the amounts the defendant received in 1989.”
Bachner concluded her argument by saying that paying the day before trial was evidence that Hoffman was someone who believed “the rules don’t apply to him,” and when he got caught, that’s when he decided to pay.
Defense attorney Hennigan said the only issue in the case is whether the payments were loans or income. He pointed to evidence that Carolco principal Andy Vajna had testified Hoffman could borrow from the company; that Hoffman could not take money from his deferred compensation account; that monthly accounting statements called the payments loans; Carolco never issued a W-2 showing that money was income from Carolco; and that Hoffman’s personal accountant believed the payments were loans.
Referring to the inconsistent way the payments were described by Carolco’s accounting department, Hennigan asked, “Should Hoffman be held criminally liable for a bookkeeper’s mistakes? That would be a new concept in criminal law.”
Addressing the fact that Hoffman didn’t notice that his W-2 for 1990 was incorrect, Hennigan said, “Who misses $1 million? Well, Carolco bookkeepers missed it; Peter Hoffman’s accountant missed it, and when it was finally brought to (Hoffman’s) attention in 1996, he was told, ‘You are the target of a criminal investigation and will continue to be even if you pay the tax.’ ”
It was in this atmosphere, Hennigan said, that Hoffman decided to delay paying taxes until the government was time-barred from prosecuting him.
Responding to the Cinevisions charges, defense attorney Tom Pollack pointed to several experts who testified that reporting the payments on Cinevisions return had no tax advantage, and that as far as reducing his chances of being audited, he in fact was audited on his 1993 return and the IRS concluded the reporting was proper.
U.S. District Court Judge John Davies will instruct the jury this morning and deliberations will begin today.