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Cheek To Check
Nov 30, 2001
 

He had plenty of cheek, this guy. Max C. Tanner received the revered master’s degree in tax law from prestigious Georgetown University, the alma mater of famous people like Bill Clinton and Gloria Macapagal-Arroyo. Then, for a number of years, he worked in the national office of the U.S. Internal Revenue Service, the counterpart of our very own Bureau of Internal Revenue, responding to requests for private letter rulings from individuals.

Last week, The New York Times reports, he was found guilty by a Las Vegas jury after five weeks of trial of tax evasion, of all crimes. That the trial lasted for only five weeks is by itself worthy of note in our little nook in this valley of tears famous for long judicial processes. More compelling of our attention is that it was a tax lawyer who was convicted of tax evasion. After all, how may tax lawyers in our country have we ever heard of being convicted of tax evasion, or, for that matter, of being convicted of any crime at all?

But what is most interesting is that this tax expert sought to escape conviction by using what is known in US tax practice as the Cheek Defense. But, first, a brief statement of facts.

Mr. Tanner was proven to have made US$8 million by way of gains in a scam involving the sale to the public of millions of shares of Maid Aide. Maid Aide was a one-woman business that was run by the person who cleaned the office of a certain Dennis D. Evans, a Las Vegas stock promoter. From an office in the Empire State Building, now the tallest building in the area after the terrorist attack on the World Trade Center, sales agents for Baxter, Banks and Smith, a stock brokerage firm, made cold calls to many people enticing them to put their money in Maid Aide stocks.

In the second and third quarters of 1998, the firm sold Maid Aide shares at the price of US$9.375 per share. Kickbacks of about 70 percent of the sales price for the 1.78 million shares of Maid Aide were given to brokers. In contrast, in the only trade recorded in recent months, Maid Aide shares were sold for only 2 US cents per share.

Mr. Tanner, as previously stated, made about US$8 million on the sales. He was taken to task, among other charges, for not paying his taxes on his gain. His defense was that he sincerely believed (despite his being a master’s in tax law holder and former IRS official) that he did not have to pay taxes on his gain.

The defense is called the Cheek Defense after a US Supreme Court decision involving a person named John L. Cheek. Mr. Cheek was an American Airlines Pilot who was charged with tax evasion, a crime that requires the prosecution to establish what we lawyers call the mens rea, or criminal intent. He proved to the jury that he sincerely believed that he did not have to pay taxes. The case went up to the Supreme Court which decided in 1991 that such a person, even if there were no rational basis for his belief, could not be convicted of tax evasion. He must, however, upon being enlightened, pay the taxes he sincerely thought he did not have to pay.

Our laws on tax evasion, which were copied from the United States, likewise require mens rea. I am certain, however, that a taxpayer who raises the Cheek Defense in our courts will be laughed out of town. Locally, we have no need for the Cheek Defense because taxpayers worth running after for tax evasion use the Check Defense. A check written in the right amount payable to the right person, for many, is often mere effective than the Cheek Defense. Unfortunately, the check defense gives a twist of meaning to the adage, the best defense is a good offense.

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