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This week, a man from Sausalito, California, received a prison sentence of 27 years for tax fraud and other charges. He pleaded guilty in 2009 to embezzling funds from a number of his clients, failing to report the embezzled funds as income, and setting his warehouse on fire in an attempt to destroy evidence.

The man operated a large warehouse in Vallejo, where Napa Valley wineries stored more than 4.5 million bottles of wine whose value was pegged at $200 to $250 million. According to reports, clients became suspicious when bottles of wine disappeared and the man tried to explain that the bottles had been “temporarily misplaced.” Some of the clients asked to have their wine back or to be shown that their stockpiles were still intact at the warehouse.

The man had in fact sold a number of bottles without the clients’ permission, earning in excess of $800,000. He did not return this money to the clients, nor did he report it on his income tax return. The U.S. Attorney’s Office said that the man fraudulently avoided approximately $290,000 in taxes.

The man then went to the warehouse in October, 2005, under the pretext of removing his clients’ wine. He was in the process of being evicted for non-payment of rent. But a massive fire erupted, consuming the warehouse. According to the fire department’s report, the fire began in his section of the warehouse.

Income is a broad category and even includes money earned from illegal activity. While it is not surprising that criminals tend to avoid reporting such income because it would reveal their operations to the government, failing to report the income constitutes tax evasion. Although the facts of this man’s case are unusual, it is important to consult with an experienced tax attorney when the IRS levels allegations of tax evasion against you.

Source:, “Sausalito man gets 27-year prison term for fraud, wine warehouse arson,” Feb. 7, 2012.