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Tax Evasion Sentence Upheld for Adult Entertainment Entrepreneur.
(Parker's Federal Tax Bulletin: June 8, 2013)

An adult entertainment entrepreneur could not evade a 72-month prison sentence and restitution of $4.2 million for failing to timely file tax returns and report taxable income. U.S. v. Sharrak, 2013 PTC 120 (6th Cir. 5/30/13).

From the early 1990s to 2006, Francis Sharrak made millions of dollars in unreported income operating internet pornography businesses and acting as a consultant for a strip club. He did not pay any federal taxes from 1993 to 2002, and did not timely file tax returns from 1996 to 2005. In December 2003, Francis filed late income tax returns for tax years 1996-2002 that indicated a total tax liability of almost $1.5 million for those years. He also filed an offer-in-compromise with the IRS, but the IRS rejected his offer.

In 2010, following a 10-day jury trial, Francis was found guilty by a jury of tax evasion and failing to file tax returns. While waiting for sentencing, Francis was held in the county jail. In 2012, staff confiscated a laptop from his cell. An investigation by the U.S. Attorney's Office uncovered evidence that Francis was using the internet-equipped computer for, among other things, speaking with a fourteen-year-old girl, sometimes via a three-way phone connection, and discussing drugs, sexual experiences, specific sexual encounters, and his past relationship with her. It was subsequently determined that Francis did not have written authorization from the court or any other entity to have access to or possession of a private, personal computer in his jail cell. The authorities seized one notebook-style laptop computer with a built-in cell phone containing a SIM card, one external hard drive, one flash drive, one set of earphones, one wireless mouse, and a power cord directly from Francis's cell.

The sentencing was delayed as a result of various motions filed by Francis. However, he was eventually sentenced to a within-guidelines term of 72 months and ordered him to pay $4.2 million in restitution. Francis appealed. On appeal, Francis argued that the district court abused its discretion when it denied his fifth request for a continuance of his sentencing. Francis also argued that the district court abused its discretion by imposing a procedurally and substantively unreasonable sentence when it sentenced him to 72 months' imprisonment. According to Francis, the district court relied on an improper sentencing factor when determining his sentence, to wit his involvement in adult entertainment bars and his continuing involvement with these bars while in jail and the district court failed to consider his diminished capacity.

The Sixth Circuit affirmed Francis's sentence. The court noted that the district court had considered Francis's employment situation in response to his objection to a sophisticated means enhancement, and in response to his request for a downward departure from the sentencing guidelines due to diminished capacity. The Sixth Circuit agreed with the district court's conclusion that ample evidence both supported the sophisticated means enhancement and contradicted Francis's assertion of diminished capacity. This evidence, the court noted, included substantial testimony that Francis operated some really, really successful businesses . . .gave orders . . . whipped people into shape . . . cut costs . . . maximized profits . . . made a lot of money for a lot of people . . . in this relatively unusual and unsavory field. The Sixth Circuit also said that post-conviction conduct, such as Francis's continuing involvement in the adult entertainment business while in jail, was a proper factor to take into account in sentencing.

Staff Editor Parker Tax Publishing



Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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