Originally published on Forbes.com July 18th, 2014
In the Fox News worldview, William Beavers is probably the poster boy for the type of person that the IRS would not target. He is a Democratic politician from Chicago (a Cook County Commissioner) and African-American to boot. Nonetheless, he just finished a six-month sentence. He had been convicted of three counts of making material false statements on his tax returns and “corruptly obstructing the IRS in its administration of the tax laws”. Who knew the latter was a crime? I imagine that it doesn’t cover gutting the enforcement budget.
Mr. Beavers claimed that he was prosecuted because he refused to cooperate in a government investigation of John Daley, brother of former Mayor Richard Daley. Mr. Beavers had requested that his sentence be delayed pending appeal. On reflection, it was probably a good thing that he did not get the requested delay. If he had, he would be starting his sentence now, rather than having just finished it, as the Seventh Circuit turned down his appeal in a recent decision. If I lived in Chicago and had to spend six months in Club Fed, I’d just as soon skip a winter next to Lake Michigan.
The Basics Of The Case
The case concerned the handling of campaign funds. Apparently, in Illinois, it is OK for a politician to spend campaign money pretty much however he or she wants to. The thing is that if it is spent on personal items it becomes taxable income. There were some discrepancies in that regard which was the source of his troubles.
Each of Beavers’ campaign committees was required to file semi-annual disclosure reports (called “D-2s”) listing its expenditures. In its D-2 for the first half of 2005, Citizens for Beavers reported a payment of $56,149 to Beavers. This payment was legal under Illinois law. However, Beavers had given his tax preparer a letter, addressed to the IRS and signed by Beavers, stating that he had received only $43,000 in campaign funds from Citizens for Beavers. Thus, Beavers’ tax return listed $43,000—rather than $56,149—as “additional income.”
The second inaccuracy concerned Beavers’ undeclared use of campaign funds to increase his pension annuity. Shortly before Beavers left his position as a Chicago alderman in November 2006, the Municipal Employees Annuity and Benefit Fund of Chicago informed Beavers about his options for his aldermanic pension. To take advantage of the option that maximized his pension benefits, Beavers provided the Annuity Fund with a check for $68,763, which was drawn on the account of Citizens for Beavers. Beavers did not report the $68,763 as income on his tax return for 2006, nor did Citizens for Beavers report the expenditure on its D-2s for 2006, 2007, or 2008.
The third inaccuracy concerned the monthly stipends that Beavers took as a Cook County Commissioner. Cook County paid its Commissioners not only an annual salary, but also a monthly stipend of $1,200 from the Cook County Contingency Account. Beavers cashed (or deposited in his personal bank account) every monthly check from December 2006 through November 2008. Beavers informed the County (through forms that he submitted) that he would claim these $1,200 stipends as income. However, he did not report these monthly checks on his tax returns for 2006, 2007, or 2008.
The fourth problem was that, between 2006 and 2008, Beavers wrote himself 100 checks totaling $226,300 from his three campaign-committee accounts. At trial, the government demonstrated that Beavers often wrote these checks in order to finance his gambling trips to the Horseshoe Casino in Hammond, Indiana.
Frankly, it does strike me that the government was picking on Mr. Beavers. Clearly, his returns were something of a mess, but this is the type of stuff that you will see a lot in Tax Court decisions where all that is at stake is the tax and civil penalties. The Government’s final complaint seems really rather hollow
The fifth problem concerned Beavers’ efforts to obstruct the IRS. The government says that the fact that Beavers “made the 100 campaign checks payable to himself made it more difficult to determine what he did with the proceeds.”
I really don’t get that one. If he made the checks out to himself without putting in an expense report, an auditor will treat that as taxable income. Hardly much in the way of obstruction going on there.
The Evidence
Mr. Beavers was going to testify on his own behalf but ended up thinking better of it. The jury took only two hours to find him guilty of three counts of making material false statements on tax returns and one count of “corruptly” obstructing the IRS in the administration of the tax laws. The appeal was mainly based on evidentiary rulings. Beavers wanted to use his filing amended returns after he was approached by the government as evidence of his good faith, but his refusal to testify meant that he could not show the connection to his state of mind, so that evidence was excluded.
Beavers had a tax expert lined up to testify that the County should have included the $1,200 per month on his W-2. He got no sympathy on that one.
Beavers’ argument is unconvincing. In an ordinary case, it may well be that an individual can reasonably rely on a W-2 from his employer as an accurate statement of his income. In this case, however, the government explained at oral argument—and Beavers did not dispute—that Beavers received his 2007 and 2008 W-2s from the county before he advised the county each year that he would take the $1,200 monthly stipends as income. This timeline strongly suggests that Beavers could not have reasonably relied on a document that he knew understated his income.
Frankly, it strikes me that the Cook County system is just a bit flaky and maybe the Government should not be taking it out on a single Commissioner over less than 15 grand.
There is quite a bit more about the evidence. It gets rather lawyerly. You may find Jack Townsend’s analysis of interest if you are into that type of thing. The focus of Jack’s piece is:
How does a defendant unwilling to testify as to his intent — thus invoking his Fifth Amendment privilege — introduce indirect evidence of his lack of intent to blunt the Government’s indirect proof of his intent?
The Jury
The jury that decided the case was drawn from a pool of 50 potential jurors. There was not a single African-American male in the entire pool. The defense attorney made much of this in the court of public opinion according to this story.
Beavers’ defense team led by Sam Adams Sr., meanwhile, thought the result was more than just an outlier.
According to the Sun-Times, Adams hollered “Don’t tell me this was an accident!” outside the Dirksen Federal Courthouse after spying the jurors in Judge James Zagel’s courtroom.
“I thought I was in Mississippi today,” Adams said. “The only black man down here today was Jim Crow!”
When it came to the appeal, though, the argument appears not to have been well made.
Beavers did not develop an argument in his opening brief as to why African-American men constitute a distinctive group in the community.
We also find that if Beavers sought to make a separate argument under the Equal Protection Clause, he waived this argument as well. His brief on appeal seems to argue that the district court committed an equal protection violation in handling jury selection as it did, because around the time of Beavers’ trial, another judge in the same district ordered a new panel when the original jury pool contained only one African-American male. However, Beavers did not develop his legal theory and cited no cases in support of it.
I’m still trying to wrap my head around that part about not proving that African-American men constitute a distinctive group in the community. I guess I would not have made much of a lawyer.
Why Beavers?
I really question whether this case merited criminal treatment. It strikes me that Mr. Beavers was just a bit on the sloppy side. Unfortunately, the “Why me?” defense does not fly well in criminal trials.
You can follow me on twitter @peterreillycpa.
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