Opinion
Criminal Action No. 01-10321-RWZ
November 13, 2002
MEMORANDUM CONCERNING RESTITUTION
A jury convicted defendant John Mikutowicz of evading income taxes in each of the years 1995 through and including 1998, and of filing false returns on behalf of AGM Marine, Inc. for the same years, and of Felix Management for 1998. At the sentencing hearing, a question arose about the amount of the unpaid taxes for those years and the amount of restitution to be ordered in the judgment.
The restitution amount is muddy for two reasons. First, defendant has filed amended returns for the years 1998, 1999 and 2000 and, using the "constructive receipt doctrine," he declared in those years some of the income generated in the indictment years. The government insists that the deductions taken by AGM Marine, Inc., for payments and land and equipment transactions involving Ellis Engineering Ltd., an offshore company created for the purpose, were taxable immediately because Ellis Engineering lacked any economic substance. Second, defendant established an offshore bank account to receive the monies that resulted from the improper deductions. Again, contrary to the government's view, defendant asserts that income generated in the indictment years which was ultimately deposited in the offshore account is not taxable until it was in fact so deposited.
I agree with the government on both issues. Implicit in the jury's verdict is a finding that Ellis Engineering was created and used solely for the purpose of syphoning income out of AGM Marine. That being so, the deductions taken by AGM Marine for payments to Ellis were improper, and the entire income, including the reductions of income created by the Ellis payments is correctly recognized in the year in which the income was created. Similarly, the date of deposit in the offshore account of such income is irrelevant.
Accordingly, the correct amount of restitution shall be based on the government's calculation of the amount of the income that was generated during each year covered by the indictment, less any amounts heretofore paid on account of the tax due in those years. To the extent that defendant, by following a different methodology, may have overpaid taxes for post-indictment years, this judgment does not prevent him from filing amended returns to reflect the correct tax due for those years.