The government attacked Kwame Kilpatrick and federal corruption trial defendant Bernard Kilpatrick Thursday for grossly under-reporting income to the IRS over 3 years to the tune of close to $200,000 in owed taxes.
IRS agent Rowena Schuch took the stand again Thursday morning. Schuch is one of a handful of government witnesses who make several appearances in court for various chapters in the trial.
The government focus was specifically on Kilpatrick's tax returns for the years 2004, 2005 and 2007. Schuch told the court that she took a close look into Kilpatrick's deposits into both his personal and business accounts as well as tax returns and subpoenas in order to get a full financial profile on the defendant.
The IRS agent determined that between 2002 and 2008, Kilpatrick deposited a total of $2,231,518.14 into his Maestro Associates business account.
The witness researched 9 accounts in total affiliated to Kilpatrick. In 2004, the total amount deposited into the combined accounts was $882,074.70. In 2007, total deposits were $606,225.52.
Given Kilpatrick's known proclivity for the casinos, Schuch also looked at any net gambling losses or gains in 2004, 2005 and 2007 that might have factored into his bank activity. Kilpatrick suffered a series of net gambling losses in the three specified years: $88,385 in 2004, $87,144 in 2005 and $42,322 in 2007. Thus any potential gambling winnings for Kilpatrick were offset by the obviously greater total losses.
Schuch determined that Kilpatrick understated his income in his returns for 2004, 2005 and 2007.
The IRS agent said that in 2004, Kilpatrick reported a total income of $336,625 on his tax returns. But based on her calculations, which she deemed very conservative estimates, the corrected total income was $387,019.87. This was an understatement of income by $50,394.87. Based on this figure, Kilpatrick should have paid $106,681.01 in taxes instead of the more than $91,000 he actually paid and thus owed the IRS at least $17,457.91 in taxes for 2004.
Schuch also concluded Bernard's tax returns in 2005 were not accurate because they did not include disbursements from an employee profit sharing plan that totaled $180,000. Two disbursements were made totaling $280,000 that year, $100,000 of which had been declared by Maestro Associates. Per Kilpatrick's tax returns, his reported total income was $220,259 in 2005. Schuch's corrected total income was $400,259. Kilpatrick's total income was understated by the $180,000 disbursement amount. Tax liability for 2005 should have been $112,983.24 whereas Kilpatrick actually paid $50,771. Thus, Kilpatrick's additional taxes owing for 2005 totaled $62,212.24.
US Attorney Jennifer Blackwell did not have time to get Schuch to fully go over Kilpatrick's tax figures for 2007 before the court session ended. However, the chart summary indicated that the additional taxes owed for that year were upwards of $104,000.
Earlier in the morning, the court had heard from accountant Cassandra Jones and her former boss Alan Young of the CPA firm Alan Young & Associates who helped Kilpatrick file his tax returns in the years in question. Both witnesses testified that when filing Kilpatrick's returns for 2007, they had to rely on figures from 2006 because he had not submitted the appropriate documentation in time for the Oct. 15 deadline. As a result, the income filed for 2007 was $70,259 and tax liability was determined to be $10,825.
Jones and Young testified that they filed the 2007 returns electronically by the deadline anticipating that they would be appropriately amended at a later date. They never were.
Both witnesses also testified that they knew nothing about $123,700 deposited into Kilpatrick's personal account in 2004 or of the additional $180,000 disbursement from the employee profit sharing plan in 2005. They agreed with prosecutor Blackwell that this might very well have increased the total income reported and the total tax liability showed owing on the tax returns.
Bernard Kilpatrick's lawyer John Shea posited that the $123,700 amount could have been either a loan or a transfer between business and personal accounts. If that was the case, countered Shea, then the amount would not have actually been unreported income. Young, the managing director of his accounting firm, agreed this was plausible.
Shea also argued that in order to file Kilpatrick's tax returns, the firm required his signed authorization. He pointed to the fact that there were no existing copies of Kilpatrick's signed authorizations for the years 2004 and 2007 despite IRS entreaties to produce them.
As for the lack of documentation for the 2007 returns, Shea explained that Kilpatrick was so embroiled in the controversy surrounding his son at the time that he simply did not have time to address his taxes in a timely manner and assumed as his accountants did that he would get around to amending his returns later.