United States v. Bencs

Ronald Bencs (defendant) was a business owner. Internal Revenue Service (IRS) agents seized Bencs’s records during a search of Bencs’s accountant’s office. The agents concluded that Bencs’s net worth was not justified by the income Bencs reported to the IRS. Bencs told the agents that his business received income from various sources and had received nontaxable income as loans. The investigation revealed that Bencs had substantial taxable income from a marijuana business. Bencs was indicted for income tax evasion. At trial, the government (plaintiff) presented a net-worth analysis starting at the end of 1983 and for each year through 1988. The IRS agents who did the analysis included all assets and known income, subtracted liabilities, and concluded that Bencs’s net worth exceeded his reported income and he had underpaid income tax. The expert witness Bencs called at trial calculated a different starting net worth because he included the value of coins, kruggerands, and jewelry Bencs claimed to own. The agents testified that Bencs’s financial statements and tax returns did not substantiate Bencs’s claim that he owned or sold a coin collection. Bencs called witnesses who testified that they had seen his coin collection, but none could state that the collection existed when the net-worth period started. The agents interviewed the source of Bencs’s jewelry collection, who indicated that Bencs had purchased jewelry over a period of 10 years for $5,000 per year. Bencs was convicted and argued on appeal that the government’s net-worth starting figure was too low because it omitted the coin, kruggerand, and jewelry collection.