Castroneves tax trial diary - The wait is over

Friday, April 17, 2009

Helio Castroneves and his sister Katiucia have been acquitted on all counts of tax evasion. The jury remained hung on one conspiracy charge against each of the Castroneves defendants. Castroneves's Michigan lawyer, Alan Miller, was acquitted on the conspiracy count and three counts of tax evasion.

 

Friday, April 17, 2009

For a second time, the Castroneves defense team has filed a motion for a mistrial, and for a second time, Judge Donald Graham denied the request.

Yesterday jurors reached a partial verdict, but the judge refused to read the results until the jury finishes its job.

"It is agony to know a verdict has been returned," defense attorney Bob Bennett told the Associated Press.

The jury has sent several questions to the judge asking for clarification on complicated tax issues, but the answers they've gotten have been incomplete. That may explain why they have been unable to reach decisions on the remaining charges. Defense attorneys for Castroneves believe the case is too complex for jurors to understand, which is why they have asked Judge Graham to read the partial verdict and then declare a mistrial on the other counts.

Today jurors asked to see the transcripts of the attorneys' opening statements of the trial, but that request was denied. Graham reminded the jury that what attorneys say during the trial does not constitute evidence therefore the transcripts would not be provided. The case involves numerous complexities, including various banks and companies in foreign countries, and requires decisions about U.S. tax law that would be vexing even for many tax professionals.

As the day winds down, chances are slim that any final conclusions will be reached today. If the jury had reached verdicts on all counts and Castroneves was found not guilty, he would likely be in the cockpit of his Penske Racing car for Sunday's race. Instead, it looks like substitute Will Power will be the driver.


 

Thursday evening, April 16, 2009

It's Thursday night, and Will Power, the driver tapped as a substitute for Helio Castroneves doesn't know if he'll be driving for Penske racing on Sunday at the Streets of Long Beach, or if Castroneves will. It could depend on what happens in tomorrow's jury deliberations. Today the jury reached a partial verdict, deciding on two of the seven charges against the race car driver. The judge in the case will wait till they've decided on the other charges to read the full verdict.

If Castroneves is found not guilty on all charges, he could be in the cockpit on Sunday morning, instead of Power. On the other hand, if Castroneves is found guilty on even a single charge, Power would most likely finish out the remainder of the season.

Not that Power wants to see his peer go to prison. But the waiting game that is plaguing Castroneves is plaguing Power too. "The team had to cover all its bases going into the season. I am the insurance policy," Power told reporters. "I have to be prepared for anything. Either I drive the car or Helio drives it. I'm waiting like everyone else. It's all up in the air."


 

Thursday, April 16, 2009

Today begins the fifth day of jury deliberations in the Castroneves trial. Yesterday U.S. District Judge Donald Graham rejected a request from the defense team to declare a mistrial. The motion to dismiss was made after the judge was called upon to clarify certain legal issues for the jury on Tuesday. On that day, reporters outside the deliberations room said the jury could be heard laughing and talking loud, but, they said, there did seem to be an atmosphere of serious debate.

On Wednesday, after the judge denied the request to dismiss, he gave another round of instructions to the jury. One of the issues the jury is struggling with is the term "binding agreement," which Judge Graham told them could apply to both a verbal and a written contract, according to a report in the Miami Herald. In addition to this issue, jurors asked Judge Graham whether it was legal for a taxpayer who had agreed to defer income to also defer paying federal taxes on the income. The judge's answer was "yes." This answer is key, because Castroneves has maintained that he always expected to pay taxes on the income once he received it in May 2009, and that he never intended to cheat the government. Now the jury has to decide whether they believe his claim.

The nail biting for Helio Castroneves and his two codefendants may be even worse this afternoon as the jury has delivered only a partial verdict. They've reached conclusions on two of seven counts concerning Castroneves, one of seven concerning his sister/business manager, Katiucia, and four concerning his attorney Alan Miller. U.S. District Judge Donald Graham will hold off reading the verdicts until the jury finishes deliberating on the other counts.


On 4/16/2009 10:36 AM, Gail Perry wrote:

 

 

Wednesday, April 15, 2009

By the end of the day Monday, Helio Castroneves was biting his nails, waiting for a jury verdict. Twenty-four hours later, he's still waiting. The jury is struggling with questions about the true ownership of the Panamanian shell corporation where the racecar driver's fees were originally supposed to be deposited.

For the second day in a row, jurors sent questions to U.S. District Judge Donald Graham, regarding tax principles they didn't understand. Deliberations were delayed for two hours because of the questions, after which Graham, assisted by two attorneys, gave them a partial answer and told them that to some extent, they had to make the judgment themselves.

A key issue continues to be whether or not Castroneves had "constructive receipt" of the money. His defense team maintains that, because the racer's attorney and codefendant, Alan Miller, told Penske Racing to halt the planned payments, Castroneves did not have access to the money. Confusion on this point is one of the reasons jurors asked for clarification.

A fourth day of deliberations begins today.

Meanwhile, when complex tax issues created confusion among the jurors late Tuesday, attorneys for Helio Castroneves asked for a mistrial. Jurors took questions to U.S. District Judge Donald Graham, who, with the help of two attorneys supplied the best response they could, though it was only a partial answer. Judge Graham also told jurors that they would have to use their best judgment to decide the tax issues.

Today, Judge Graham denied the motion.

 

 

Tuesday, April 14, 2009

After six weeks of evidence, the fate of racer Helio Castroneves went to the jury last Friday. On Monday, jurors deliberated for eight hours without a verdict. As the day progressed they asked to see transcripts of testimony given by two New York tax attorneys – Fred Feingold and Mark Berg - who were called by the prosecution. Specifically jurors wanted to clarify what role the attorneys played in the structuring of Castroneves's financial affairs.

Another question posed by the jury was the meaning of the doctrine of "constructive receipt," a key tax issue in the case. To answer, U.S. District Judge Donald Graham read to them from the U.S. tax law which explains that the income is taxable when it becomes available to the taxpayer for withdrawal at any time. The prosecution maintains that Castroneves had constructive receipt of the $5 million paid to him by Penske Racing and other money from a company called Coimex, while the defense asserts that he never had control of the money, therefore taxes will not be owed until the money becomes his next month.

The jury will took up the case again this morning at 8 a.m. A local CBS affiliate said that Castroneves was on edge the entire day yesterday, and after the adjournment, walked up to a bank of microphones outside the courthouse for a brief news conference. "Now comes the waiting game," he told reporters. "I trust in the justice system. And I trust the jurors. It's been very difficult. This is not something I can control. This is a very hard situation. I just hope it'll be over soon. It's just so hard on my feelings right now."


 

Friday, April 10, 2009

As both sides rolled out their closing arguments yesterday, the stories were predictably at odds.

Assistant U.S. Attorney Jared Dwyer told the jury, "These defendants attempted to skip out on taxes that all must pay, regardless of how rich, regardless of how famous. We have proved that beyond a reasonable doubt." The prosecution said codefendants Castroneves, his sister Katiucia, and attorney Alan Miller engaged in a "pattern of deception" for five years, designed to avoid taxes on millions of dollars.

But defense attorney David Garvin said the "deception" cited by the prosecution was not an intent to hide money. If anything, Castroneves was guilty of over-reliance on experts, according to the defense, who painted a picture of a foreigner who was too-trusting.

"He signed anything in front of him, including documents he shouldn't be signing. There is ignorance and mistakes at times. But there is no crime."

The trial that started March 2nd has consisted of long days of cumbersome financial details, expert testimony, and numerous witnesses, including both of Castroneves's parents, and racing world celebrities such as NASCAR champion Jimmie Johnson. Dwyer summed up his case by saying that evidence presented by the prosecution shows that Castroneves did control the Panamanian shell company – Seven Promotions - where millions of dollars in income were to be parked. Dwyer also told jurors that the racer lied to tax attorneys and accountants about his true income, and that, the bottom line is, Castroneves dodged about $2.3 million in income.

Defense attorney Howard Srebnick told jurors in his summation that Castroneves paid every penny of taxes he owed in the United States during those five years, amounting to more than $1 million.

"What Helio doesn't have to do is pay more than his fair share. If you 'conspire' to minimize your taxes lawfully, that's not a criminal conspiracy," said Srebnick.

The closing arguments continue today, followed by jury deliberations. Start to finish, Penske Racing has stood behind Castroneves.


 

Wednesday, April 8, 2009

After weeks of presenting evidence on both sides, the testimony phase of the Castroneves trial is over. Last week, the defense offered its case, including appearances by both of the defendant's parents. Helio Castroneves Sr. testified that Seven Promotions - a company that was created to be a tax shelter for racing fees from Penske Racing and endorsement fees from the Brazilian firm, Coimex - was owned and controlled by him, not his son, and that the money that went into the Panamanian shell corporation was payback for the work done on behalf of his son. This has been the contention of the Castroneves family from the beginning, even though the prosecution was able to present documents that listed the younger Castroneves as the owner, such as a mortgage application and his 1999 contract with Penske Racing.

Testifying in Portuguese, his father told the jury, "It's a mistake. No, he's not the owner."

Whether or not the race car driver owes the $2.3 million tax bill that the IRS says he does, rests on the ownership and control of Seven Promotions.

Not only is Helio Castroneves accused of failing to pay taxes on income which, the prosecution says, he had access to, but the District Attorney also says he took large expense deductions for his father that were inappropriate.

Closing arguments in the trial begin tomorrow. U.S. District Judge Donald Green told reporters the trial should end next Monday and then the jury will begin deliberations.


 

Monday, April 6, 2009

As the IndyCar season got underway yesterday, April 5th, all eyes at Penske Racing are still trained on the Helio Castroneves trial. Last January, Roger Penske announced that, pending the outcome of the trial, he was temporarily replacing Castroneves on his driving team with Australian driver, Will Power. Even so, officials at Penske made it known that if Castroneves was available by opening day of the season, he would be the driver of the #3 car. Now that April 5th has come and gone, Penske is still saying that he wants to see Castroneves back behind the wheel once he is cleared of the charges.

"If he doesn't have any issue coming out of this, he'll be in a car in Long Beach," Penske told reporters in St. Petersburg on Saturday. The second IndyCar race of the season, the Long Beach Grand Prix begins next Sunday. "If he'd have been done (with the trial) Thursday of this week, we'd have put him in a car here on Friday. We've never backed off a minute. In fact, it's a tough situation because he doesn't have a bad bone in his body and this is a complex offshore tax, U.S. government ... all of the above involved.

"We certainly understand the concerns everybody has for him. We're hoping the jury sees he's not a culprit in this situation."

If Castroneves is cleared of charges and free to drive, Penske plans to have Will Power – who qualified among the top six for the season-opener – drive another car.

"Next week will be D-Day for him to determine where we're going to be," Penske told the press. He and Castroneves have been in constant contact since the trial began.

Back in the courtroom, Castroneves's father told the jury on Friday that his son didn't own the Panamanian company where the racing fees in question were supposed to be deposited. That's the key issue of the trial, the answer to which determines whether or not the racer should have paid taxes on the money or not.

The senior Castroneves said that he created Seven Promotions with the help of a Brazilian attorney. The purpose of the company was to promote his son's career, he said, as well as to provide funds to repay him (the father) for the work he did. In spite of the fact that the prosecution has presented documents showing that the racecar driver owned the company, the senior Castroneves told jurors his son had no ownership or control. Prosecutors say the ownership amounts to an "illegal shell game," designed to evade taxes.

Castroneves Sr. told the jury that he had spent more than $1.5 million on his son's racing career, and therefore he kept part of the racing fees earned as repayment. "It was to pay part of the investment that I had put on him since he was young. I was working for Helio and he was starting to pay me back."

Castroneves's mother also took the witness stand to tell jurors that her son had also planned to pay back his parents for their investment in him.

According to U.S. District Judge Donald Green, testimony should conclude on Monday, after which the jury phase will begin.


 

Friday, April 3, 2009

Helio Castroneves no doubt held out hope that, this Sunday, he'd be behind the wheel of the Penske Racing #3 car when the IndyCar season gets underway. His tax evasion trial is in its fifth week, with the defense still presenting its case before the the jury begins deliberations. In January Tim Cindric of Penske Racing announced that if Castroneves was convicted or was still wrapped up in the trial, he would be replaced on April 5th by Will Power. Cindric showed enormous support for Castroneves by telling the press that if the Brazilian driver was available when the season started, he would be in the #3 car. Now just two days before the racing season begins with the Streets of St. Petersburg race, and with the tax trial still in process, it looks like Will Power will be the driver.

 

Tuesday, March 31, 2009

After four weeks of preliminaries and the prosecution's case against Helio Castroneves, the defense team took over today. The lead witness was NASCAR champion Jimmie Johnson –a three-time Sprint cup winner. Johnson was there on behalf of codefendant, attorney Alan Miller. He told jurors Miller has represented him for about 12 years, and has an excellent reputation among those in the motorsports world. Miller represents many NASCAR and Indy-Racing League clients, including Johnson and Castroneves.

"Alan's reputation is about honesty. His character is second to none," Johnson told reporters. "He's given me great advice."

If Miller is found guilty of conspiring with Castroneves and the racecar driver's sister Katiucia to evade taxes, all three face more than six years in prison.

Katiucia Castroneves's attorney, Howard Srebnick, told jurors that what the IRS calls improper tax deductions were payments by Helio Castroneves to their father for the years of work he did in Brazil to promote his son's career.

"There was an understanding and a moral obligation on the part of Helio to pay his father," Srebnick told reporters, adding again that the racecar driver did what his advisers told him to do.

"If the best-known lawyer in the racing community gives you that advice, you follow that advice. That's what Helio did."

The defense case is expected to take about a week. Unfortunately for Castroneves, the next Indycar season begins in less than a week on Sunday April 5th. Tim Cindric, president of Penske Racing has named Will Power as the substitute driver for preseason testing. If Castroneves is unavailable once the season begins, Power will continue to drive. But Cindric is standing behind Castroneves, ready to let him step back in if he is acquitted. "We'll sort those things out. If Helio's ready to go at St. Pete and he's in a situation where he's ready to go for the rest of the year, the 3 car is here. If he's ready to go, then he's still our guy."


 

Monday, March 30, 2009

As the prosecution wound up its case on Friday, IRS agent Joann Levitt told the jury that Helio Castroneves owes the government more than $2.3 million. That, she said, "is everything that should have been on the tax returns but wasn't," for tax years 1999-2004, if he had properly reported his income. In addition, she testified that the racecar driver improperly deducted thousands of dollars in business deductions and failed to declare as income items he received including airline tickets and Hugo Boss designer clothing.

According to the Associated Press, defense attorney David Garvin tried to make the point that the IRS had not considered alternative ways of looking at the case. He asked Levitt, "You made certain assumptions but you disregarded other evidence, isn't that right?"

She answered, "I have rendered an opinion based on all of the evidence. This was reportable by Helio Castroneves because it was his income."

Then she went over the details of how the case hinges on who actually owned Seven Promotions, the shell corporation where the income in question was originally supposed to be deposited. She told the jury that if Castroneves did control Seven Promotions, taxes were due and should have been paid. If he did not control the company, she acknowledged, he would not have owed taxes. "Helio Castroneves was the ultimate beneficiary of the accounts of Seven," Levitt added.

In the early days of the trial - which is now in its fifth week - the courtyard was full of paparazzi and reporters. A list of well-known witnesses, like NASCAR champion Jimmie Johnson and owner of Penske Racing, Roger Penske, created a stir. But once the tedium of the financial evidence and testimony by accountants, bookkeepers, and IRS investigators began, the sizzle faded away. As some reporters put it... the trial lost its "sexiness," leaving the courtyard mostly empty.

Today, March 30th, the defense begins to present its case, in what is expected to be the final week of the trial.

Castroneves's attorney, David Garvin, continues to assert to the press that the fed has no case. "The government never dotted the I's here. They made a mistake and ended up indicting the guy. And instead of admitting the blunder, they are now trying to jam it down everybody's throat."


 

Thursday, March 26, 2009

The Castroneves trial got back underway Wednesday after a four-day break, and by Friday, the prosecution hopes to rest its case. Testimony included one accountant who did the racecar driver’s tax returns but was never told anything about the millions he earned from Penske Racing or for endorsements.

Though Castroneves has not seen the $5.5 million in fees, the IRS contends that parking it in a Dutch deferred royalty account did not free him from the necessity to pay taxes. The tax agency contends that what Castroneves did was similar to getting paid by check and then carrying the check around in your wallet and claiming you hadn't been paid because you had not chased the check. He had constructive receipt of the money, says the IRS, and with the help of advisors, crafted an elaborate scheme to make it appear he had received nothing. Then, say prosecutors, he pretended ignorance of the tax law and total reliance on professionals.

Whether or not the investment deal that parked the money was legitimate or contrived will be determined by the jury.


 

Monday, March 23, 2009

If you've noticed there hasn't been much coverage of the Helio Castroneves trial in recent days, it's because there hasn't been much drama involved. In fact, the courtroom has mostly been laden with detailed tax law, with an argument here and there.

New York tax attorney, Fred Feingold provided fodder for both sides to lob shots at each other. The prosecution lays out the paper trail that they believe proves that Castroneves owned Seven Promotions. That is the Panamanian company where his $5 million fee from Penske Racing plus fees from another source were originally supposed to be parked. The prosecution says that Seven Promotions was created as a hidey-hole for the money, away from the prying eyes of the IRS.

For hours, attorneys volleyed back and forth, slicing and dicing the details of Castroneves's personal finances for the jury. The defense continued its claim that the racecar driver focused on his driving and, in blissful innocence, left the finances to the professional advisors. Feingold testified that the suitability of Seven Promotions to meet Castroneves's needs was a topic of frequent discussion among the attorneys. Feingold and Miller both felt that the company didn't have the stability it should. "He (Castroneves) made it clear to us that he did not own the company or shares of the company in any sense," Feingold told the jury. He added that while these talks were going on, he began researching the possibility of forming a new partnership with Fintage Licensing, the Dutch company where Castroneves's money eventually ended up being deposited by Penske. Feingold had a prior relationship with Fintage, he says, based on representation of another driver. "Helio made it very clear that he wanted this done correctly," says Feingold, but he stayed out of the details. In the summer of 2002, Feingold says the money was transferred to Fintage.

In cross examination, the prosecutor David Garvin asked, "None of this was explained to Helio? Is this correct"

"That is correct."

During the proceedings, both sides used the same piece of evidence to try to prove opposite conclusions. The defense showed a highly detailed spreadsheet crafted by Feingold to show the taxes that would be owed over a 15 year period, and the difference between being taxed as a resident and as a non-resident. The care put into understanding the various tax implications of the multi-million dollar fees proved that Castroneves's team wanted to get it right, according to Feingold.

The prosecution, on the other hand, used the spreadsheet to show the defendants made a carefully calculated attempt to skirt the tax law.

With jurors falling asleep during the lengthy discussion of financial material, Miller's defense attorney Bob Bennett – former attorney for Bill Clinton in the Monica Lewinsky trial – turned up the volume to ask Feingold this question:

"Did he [Castroneves] ever say, 'Don't worry about it, I control this company?'"

"No, quite the contrary," answered Feingold.

At the end of the day, the court was adjourned for a four day break and will resume on Monday, March 23rd.

As people filed out of the courtroom, Castroneves, who appeared to be taking copious notes during the trial, held up his notepad and told onlookers, "It's mostly just scribbles. I have to do something to keep my hands and mind occupied. Otherwise I'll go crazy."


 

Monday, March 16, 2009

Friday's courtroom proceedings included testimony about the business of racing. The Associated Press reported that prosecutor Matt Axelrod asked Lawrence Bluth, general counsel for Penske Racing, how a guilty verdict for Castroneves would impact the sport.

"It would be a terrible thing to lose one of the great drivers in the world, and probably our most popular driver."
Axelrod continued, "Would it be bad for business if Mr. Castroneves were to be convicted?"

Bluth's answer: "It would not be a good thing."

The trial continues to center around the issue of control of the account where the money was parked, and the account where the money would have been parked according to the original plan. Bluth told the jury that he had no doubt that Castroneves himself owned Seven Promotions - the Panamanian company where the money was supposed to be deposited - because Castroneves's attorney (and co-defendant) Alan Miller told him that was the case.

Even though the money was diverted away from Panama and sent instead to Fintage Licensing in the Netherlands (where it was deposited into a deferred royalty account), the IRS still contends that Castroneves owes taxes on the $5 million, because he owned Seven Promotions and had instructed Penske to send the money there.

Further evidence was introduced that suggests that Castroneves did own Seven Promotions, in spite of the fact that he claims his father was the owner. Guido Chipy, a Miami banker who was involved in Castroneves's 2001 mortgage loan, testified that documents provided to the bank at the time the mortgage was initiated show that Castroneves was the sole owner of Seven Promotions. Chipy added that most of the information for the mortgage application was given to him by Castroneves's attorney, Alan Miller, and that Castroneves only signed the application. That supports the defense assertion that Castroneves was detached from his own financial matters and left the details to his attorneys.

 

Thursday, March 12, 2009

Wednesday's courtroom drama included testimony by Castroneves's former accountant, Kevin Savoree, who told jurors that he didn't believe the defendant had the intent to evade taxes.

Savoree handled the Castroneves's accounting in 1999 and 2000, the first two years of the five-year period in question. Savoree painted Castroneves as a man who understood very little about U.S. income tax and became very frustrated by the details. He wanted a plan, said Savoree, by which his income would be deferred and taxes would not come due until he actually received the money.

He testified that at the signing of the contract with Penske Racing, the money was supposed to be sent to Seven Promotions, a Panamanian shell corporation, which the defense claims was started by Castroneves's father.

"I wasn't comfortable with Panama," said Savoree. Panama is a tax haven, which meant that Penske Racing would have to withhold 30 percent of the total fees for taxes, before depositing the money. Instead, Penske was asked in 1999 to hold onto the money until a decision could be made. In 2003, Penske was directed to send the money to a deferred royalty account at Fintage Licensing in the Netherlands. Defense attorneys say Fintage was formed by Castroneves's father, and they claim there should have been no tax due on the deposited funds.

According to an Associated Press reporter who was present in the courtroom, Savoree was at one point questioned by defense attorney, David Garvin. "Helio Castroneves never suggested that you do something improper, right?" To which Savoree answered, "Absolutely not."

Savoree said that originally the defendant was planning to relocate from Florida to Monaco, and if he had, that plan would've legitimately avoided U.S. tax. Savoree also acknowledged that Castroneves hoped to "maintain a residence in a tax haven, such as Monaco." Savoree helped drafted a memo outlining that goal. Castroneves is still a citizen of Brazil, living in Coral Gables, Florida and remaining in the U.S. on a work visa.

Savoree told prosecutor Jared Dwyer that if Castroneves had made the move to Monaco, the tax he would owe would be "perhaps zero."

The prosecution still maintains that Castroneves had control over the Dutch account where the $5 million in fees were parked, therefore, he had constructive receipt of the funds on which he should have paid taxes.

 

Tuesday, March 10, 2009

How much does celebrity play into the Helio Castroneves case? It depends on who you ask. Some members of the pool of potential jurors gushed over his fame, saying they voted for him multiple times when he appeared on Dancing with the Stars. Those candidates got voted off the jury.

A high-profile New York defense attorney who represented Martha Stewart says celebrity helps the prosecution. "People have higher expectations for the way celebrities should be conducting themselves than they do for normal John Smiths," Robert Morvillo told reporters.

But New York jury consultant Julie Blackman said the opposite, citing the O.J. Simpson acquittal. "Popular people, especially heroes to particular groups of people, have a defense advantage,"

As for the legal teams directly involved in the case, Castroneves's attorney, Roy Black, claimed that his client "became a target because of who he is, because of the fame he had." And Assistant U.S. Attorney Matthew Axelrod countered by telling jurors that, "He [Castroneves] didn't believe that the rules applied equally to everyone when it came to paying taxes."

As testimony resumes in the case today, the heart of the matter seems to center on whether or not Castroneves had control over $5 million he was paid by Penske Racing for driving and for the use of his name in endorsements. In 1999 when fellow racer Greg Moore was killed in a crash, Castroneves was signed to a contract which was to pay him $1 million directly, and $5 million that would be paid to his Panamanian shell corporation, Seven Promotions.

In December of 1999, Penske was ready to send the $5 million to Seven Promotions as requested, when Castroneves's attorney, Alan Miller (who is also on trial), directed them instead to send the money to Fintage Licensing, a company in the Netherlands. The money was then placed in a "deferred royalty agreement." According to Castroneves, he has not been able to touch a penny of that money and will not gain access to it until May 2009. His attorneys claim that this is a proper legal arrangement, common for young athletes who have a short window of earning opportunity, and that when the money is received by their client, he will pay all taxes owed.

The IRS claims that the arrangement with Fintage Licensing amounts to a tax dodge, which was conceived when Miller learned that, if the money was sent to the Panamanian company as originally planned, Penske would have to withhold 30 percent for taxes.

The IRS states that under the doctrine of "constructive receipt," when the money was sent to the Dutch company Castroneves had the right to receive it and had covert control over the account in which his money was parked – though he tried to create the appearance of having no control. Therefore tax was due when the money was paid.

"The individual's wishes do not control," said Assistant U.S. Attorney Matt Axelrod. "A taxpayer may not deliberately turn his back upon income and thereby select the year for which he will report it."

The defense reiterates its claim that the money was not under the control of Castroneves, but was in a legal deferred royalty account until May of 2009, at which time the racer intended to pay the taxes due.

As testimony resumes today, it will be interesting to see how the issue of celebrity is used by both sides to make their cases.


 

Thursday, March 5, 2009

As recently as last month, Helio Castroneves and his legal team were back in court, trying unsuccessfully to get the case against him dropped so that the two-time Indy winner would be allowed to drive the #3 Penske car for Penske Racing when the IndyCar season begins again on April 5th. But with his trial just getting underway this week and experts suggesting it will take four to six weeks to complete, the prospect looks grim. In the meantime Tim Cindric, the president of Penske Racing, has named Aussie driver Will Power to replace Castroneves during preseason testing. Cindric added that he still backs Castroneves and if he is available when the season begins, he will be their driver. He told reporters, "We'll sort those things out. If Helio's ready to go at St. Pete and he's in a situation where he's ready to go for the rest of the year, the 3 car is here. If he's ready to go in St. Pete, then he's still our guy."

In spite of the charges against Castroneves last year, a judge allowed him to race both inside and outside the country.

Tuesday, March 3, 2009 - The battle of the attorneys
As the trial of Helio Castroneves got underway yesterday, attorneys on both sides presented mostly the same facts in their opening arguments, but with different conclusions.

The Defense

Defense attorney Roy Black said that Castroneves knows nothing about U.S. tax law and therefore relied on advice from experts. Black also said that the shell corporation at the center of the prosecution's case – known as Seven Promotions - was formed by the racer's father for the purpose of promoting his son's career, and that Castroneves had no control over the company. When Castroneves signed a $5 million contract with Penske Racing, most of the money was supposed to be sent to Seven Promotions. But, says Black, experts advised the racer to set up a deferred royalty plan with a Dutch company known as Fintage Licensing. According to Black, this transaction was legal. He added that when Castroneves receives payment from Penske in May, he will pay his taxes.

The Prosecution

Prosecutor Matt Axelrod sees it differently, explaining to the jury that Seven Promotions was set up to appear that Castroneves had no control, though in reality he did. Penske was originally asked to deliver most of the racing and endorsement fees to Seven Promotions. But when attorney Miller discovered that Penske would have to withhold 30 percent for federal taxes, he instead directed Penske to send the money to the Dutch company.

Ultimately, said Alexrod, Castroneves planned to leave the U.S. and escape his tax liability and the reach of the IRS. Diverting the money to Fintage was "... the only way they could achieve their goal of having Helio Castroneves illegally get his money tax-free."

To further support the claim that the goal of the defendants was tax evasion, prosecutors pointed out that in addition to the money diverted to the Dutch company, Castroneves failed to pay U.S. taxes on income from a sponsorship deal with the Brazilian company Coimex, and that he received thousands of dollars in clothing and plane tickets from other sources, which he did not declare as income.

The trial continues today, with authorities suggesting now that it could take up to six weeks to conclude.

 

Monday, March 2, 2009

The days of seemingly endless hearings are finally over for racecar driver Helio Castroneves as jury selection in his federal tax evasion case began on March 2nd. But don't look for speedy justice, since the trial is expected to last at least four weeks and to be a major attraction for paparazzi. Among those expected to testify are Roger Penske, Jimmie Johnson, and ex-House member Jack Kemp.

Castroneves, aged 33, and his sister Katiucia are accused of carrying out various schemes designed to evade the taxes on $5,550,000 in fees he earned for racing and for the use of his name in endorsements in 1999-2002. His attorney Alan Miller is accused of participating in and facilitating the schemes. According to the prosecutors, the racecar driver was paid $6 million by Penske Racing, but paid taxes on only $450,000. Prosecutors say Miller directed Penske to divert the money from a Panamanian shell company, ostensibly controlled by Castroneves, to a Dutch company in order to avoid the associated taxes. He is also accused of improperly deducting $687,000 as business expenses to reduce his taxable income. The Department of Justice press release explains the charges.

If convicted on all charges, Castroneves and his sister could each be facing up to 30 years in prison, while Miller could face a sentence of 20 years.

At the heart of the prosecution's case is the Panamanian entity called Seven Promotions, which Castroneves says was actually controlled by his father. The money which was supposed to be transferred to Seven Promotions should not have generated a tax liability for himself, says Castroneves, since the income was to repay his father who financed and promoted his son's career.

The trio of defendants all deny willfully acting to evade taxes. Castroneves and his sister are being represented by Miami attorneys Howard Srebnick and Roy Black (who once defended Rush Limbaugh), and Miller is being represented by Robert Bennett, who defended President Bill Clinton during a sexual harassment case.

The racecar driver told reporters that he sought the advice of experts in handling his finances and that he trusts them. "I'm very, very confident. We've been working extremely hard ... Today is the beginning of our victory."

Critics of the prosecution's case say they may use Castroneves's celebrity to try to cause outrage in jurors suggesting that he saw himself as above the law. When the charges were announced last year, Nathan J. Hochman, Assistant Attorney General of the Justice Department's Tax Division, was quoted as saying that those who hide income in offshore accounts will face severe consequences, regardless of who they are, "small and large, famous and not famous."

Castroneves lives in Coral Gables, Florida, and was the two time winner of the Indy 500 in 2001 and 2002, as well as the winner of Dancing with the Stars in 2007. He hopes to be available to participate in the Indy Racing League season that begins April 5 in St. Petersburg, FL. With the trial just beginning and expected to last a month, Team Penske has temporarily replaced Castroneves with Australian driver Will Power. Penske has made it clear that if Castroneves is acquitted, he is welcome back in the driver's seat.
 


Already a member? log in here.

Editor's Choice