Plea ends tax trial

Ex-Carolco CEO accepts misdemeanor charge

Peter Hoffman, CEO of the defunct Carolco Pictures Inc., pleaded guilty Tuesday to one misdemeanor count of filing a false tax return. Under the plea agreement, Hoffman admitted that he did not pay taxes on approximately $60,000 in disbursements that should have been reported on his 1989 tax return, which resulted in an understatement of income of approximately $30,000.

The misdemeanor charge is a far cry from the original indictment, which contained four felony tax charges involving more than $1 million in unreported income.

In a written statement, Hoffman cited economic factors as his reason for accepting a plea.

“I am concerned that the very substantial costs of a new trial, when added to the very substantial costs I have already incurred, would materially affect my family and my business,” Hoffman said. “This agreement allows me to terminate this ordeal for a fine of $250 to $5,000 plus the payment of a modest amount of taxes I intended to pay anyway.”

Assistant U.S. Attorney Monica Bachner, who tried the case for the government, said, “The plea agreement and the plea are a proper disposition of a difficult case.”

Lengthy probe ends

The plea brings to an end — at least for Hoffman — a lengthy criminal investigation and trial, which resulted last fall in an acquittal on tax charges relating to Hoffman’s movie finance company CineVisions, and a hung jury on the counts relating to Hoffman’s actions while at Carolco. A retrial on the two open counts had been scheduled for April.

What remains open is the government’s longrunning criminal tax investigation of Carolco principals Mario Kassar and Andy Vajna, stemming from their 1989 tax returns. However, Kassar and Vajna may be the big winners here, because Hoffman did not agree to cooperate with the government as part of the plea bargain.

There has been widespread speculation that the original charges against Hoffman were brought to pressure him into cooperating with the government’s investigation of Kassar and Vajna. The resolution of Hoffman’s criminal case comes at a time when Vajna and Kassar are in talks to resume their partnership.

In addition to pleading guilty to a misdemeanor, Hoffman agreed to file an amended return and pay any taxes still owing.

Although there is the possibility of jail time for Hoffman, the most likely outcome is probation. The statute provides for a sentence of one year, but under the governing federal sentencing guidelines, the maximum sentence is six months, and because of a variety of factors even a six month sentence is unlikely.

No immediate sentencing

At Tuesday’s hearing, the judge denied an unusual request by the defense for immediate sentencing. The sentencing hearing is scheduled for April 7.

Although plea hearings are usually a routine matter, Hoffman remained contentious to the end and clearly uncomfortable with the notion of admitting guilt. He reiterated in court that his guilty plea was confined to the pre-negotiated statement of facts, and brushed aside efforts by U.S. District Court Judge John Davies to get him to describe the charges in his own words.

Hoffman made it clear that despite the guilty plea, he has not had an attack of remorse and continues to find the government’s charges baseless: “This (agreement) eliminates without any concession by me the original charges filed against me. I am accepting a misdemeanor involving about $30,000 of expenses Carolco paid on my behalf which the government claims should have been reported on my return, resulting in an additional tax of about $10,000.

Payment of expenses of senior executives is a common practice in our industry without tax liability to the executive. This practice is rarely challenged even in civil tax proceedings, much less as a misdemeanor.”

In December 1996, the Justice Dept. indicted Hoffman, charging that he treated Carolco income of more than $400,000 as “sham loans” to avoid paying taxes. During the month long trial in U.S. District Court in downtown Los Angeles, Hoffman testified that he had set up a legitimate deferred compensation plan under which he put aside a substantial portion of his $750,000 annual salary.

The government, however, charged that Hoffman created a “deferred compensation scheme” to obtain over $1 million in tax free income.” (The charges related to only $400,000 because the remainder was time barred from criminal prosecution).

Further complicating an already complicated case was the fact that when Hoffman closed out his deferred compensation account in 1990, he did not pay taxes on the loan amount. The defense consistently argued that the failure to pay the taxes at that time was the result of a bookkeeping error by Carolco in preparing Hoffman’s W-2 form.

Among the surprises of the trial were Vajna’s testimony that he loaned Hoffman $400,000 to help pay for his defense and Hoffman’s revelation that on the day the trial started he paid taxes on virtually the entire amount he borrowed from Carolco, including the portion that was time barred from criminal prosecution.

The trial ended with an acquittal on the CineVisions counts and a hung jury on the Carolco counts. Daily Variety interviews with jurors revealed a 9 3 split in favor of acquittal. In October, the Justice Dept. announced that it would retry Hoffman on the two Carolco accounts.

Before he assumed the chief executive role at Carolco in 1986, Hoffman was considered by many to be the pre eminent entertainment tax lawyer, a significant factor in his getting the top Carolco job.

Hoffman has been described as the architect of Carolco’s corporate tax structure, and his trial took place against the backdrop of a criminal investigation and civil lawsuit against Kassar and Vajna.

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