Government says obstruction; taxpayer says evasion.

• Author: Beavers, James A.

The Tenth Circuit rejected a taxpayer's argument that his conviction for tax obstruction under Sec. 7212(a) should be overturned because he actually was guilty of tax evasion under Sec. 7201.

Background

Jerold Sorensen, an oral surgeon in California, from 2002 to 2007 began to use a pure trust organization (PTO) system that was marketed by Financial Fortress Associates (FFA). He learned about the PTO system on the internet and through seminars run by FFA.

Under the PTO system, FFA established six trusts for Sorensen. Sorensen then had an FFA affiliate open a bank account in the trusts' names; he named the bank account "Northside Management." Though the Northside Management account was in the trusts' names, Sorensen had authorization to withdraw funds from the account for whatever he wished. Under the system, he also retitled his personal residence, dental practice, and dental equipment in the trusts' names and then had his dental practice pay the trusts to rent those assets. In addition, he began depositing his income from his dental practice directly into the trusts' bank account.

On his personal tax returns, Sorensen took business expense deductions for the rent paid to the trust. He did not file tax returns for any of the trusts for the years in question. He obtained an employee identification number to use with the Northside Management account, but he did not file a partnership return for Northside Management.

Soon after establishing the trusts, Sorensen asked his longtime accountant to review the PTO system. The accountant determined that the system was a scheme and told Sorensen so.

She prepared his return for that year but included a disclosure statement regarding the trusts. Sorensen thereafter had his business returns prepared by an accountant referred to him by FFA and his personal returns by H&R Block. In 2007, he asked another CPA (his son's father-in-law) to review his situation. The CPA told Sorensen that he believed that the trusts set up under the PTO system were "a complete sham," and he prepared amended returns for Sorensen. However, Sorensen did not file these amended returns for another two years.

In 2008, the IRS sent Sorensen a letter by certified mail notifying him that he was the target of a criminal investigation. Sorensen refused to sign for the letter. He did so because an FFA-seminar speaker had advised against accepting certified mail from the IRS if a client did not know what the mail contained. Later, when an...