Originally published on Forbes.com July 15th, 2014
“Mo” Vaughn just got some bad news from the United States District Court Northern District of Ohio Eastern Division. Vaughn’s issues with his financial advisor, from whom he was awarded $3.5 million in arbitration in 2011, do not relieve him of personal responsibility for filing his individual income tax return.
According to Wikipedia, Maurice Samuel Vaughn had quite a baseball career. From 1991 to 2003, he played for the Red Sox, the Anaheim Angels, and the Mets. His batting average was .293 with 328 home runs and 1,064 RBIs.
Apparently, he had some post-career money difficulties. According to the District Court decision,
In May 2004, Plaintiff hired Ra Shonda Kay Marshall (“Marshall”) to “assist in budgeting income and expenses and to provide bill payment services.” Marshall was previously employed at Omni Elite, a financial management firm in Ohio, where she had provided bill payment and other financial services to Plaintiff. However, she left the firm to work exclusively for Plaintiff. Upon hiring Marshall, Plaintiff signed a Power of Attorney giving her control over his funds and authority to file and pay taxes on his behalf.
Additionally, Plaintiff retained a tax accountant, David Krebs (“Krebs”) of CPA Advisory Group, Inc., “to provide tax advice, to ensure tax returns were properly filed, and to confirm that tax bills were paid on time.
In late 2008, Plaintiff decided to mange his money himself and terminated Marshall. At this time, Plaintiff hired new tax advisors and also terminated Krebs. After terminating Marshall and Krebs, Plaintiff reviewed his bank statements for 2008 and realized that Marshall had embezzled millions of dollars from him and used his funds to pay her personal expenses. Plaintiff hired a forensic accountant to further investigate the embezzlement and found that between 2004 and 2008, Marshall had embezzled more than $2.77 million from him. Plaintiff filed suit against Marshall personally and her company, RKM, and has outstanding judgments against each in the amounts of $1.5 million and $3.5 million, respectively.
Mr. Vaughn went on to discover that his tax compliance was also not up to snuff. His 2007 return had not been filed and his taxes had not been paid for either 2007 or 2006. He cleaned up that situation and found that he was assessed late pay and late file penalties – $1,037,158.25 for 2006 and $102,106.76 for 2007. He paid the smaller penalty and initiated the lawsuit. His claim is that the failure to pay and file timely was due to reasonable cause and not willful neglect.
The Court went with the government.
….while Plaintiff signed a Power of Attorney giving authority to an agent and delegated his responsibility for tax liabilities to agents, he still maintained the ultimate responsibility for his tax liabilities, oversight of his agents, and the ultimate control over his taxpaying activities. Thus, the failure to file and pay taxes as a result of the embezzlement by Plaintiff’s agent which resulted in penalty assessments against him was not beyond Plaintiff’s control and does not render him “disabled.”
Plaintiff does not even contend that he inquired of his agents as to whether his tax returns were filed and his tax liability was paid and that he relied on their false statements that his returns were filed and taxes paid. Instead, Plaintiff simply states he “had every reason to believe … taxes and tax returns were being dealt with appropriately” because “Marshall put on a strict monthly spending budget, and assured that she was working with Krebs to prepare and file all tax returns and pay all taxes owed” and because “t was through this arrangement… that paid taxes for 2004 and 2005 and filed returns for 2004–2006 on a timely basis.” Plaintiff is mistaken. The mere delegation of this responsibility to his agents with no oversight does not demonstrate ordinary care or prudence.
As Ronald Reagan used to regularly say to Mikhail Gorbachev – “Trust, but verify”.
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