A tax tale gone wild: Is Joe Francis a victim of the rogue IRS and a disgruntled CPA?

Joe Francis, founder of the "Girls Gone Wild" videos, is no stranger to legal trouble. But according to his attorney Robert Bernhoft, the eleven months Francis just spent in jail awaiting trial on felony tax evasion charges had nothing to do with any misbehavior on his part. Instead, the trouble stems from the government persecuting his client because, says Bernhoft: They don't like his videos; they are jealous of his youth and his enormous success; and the IRS runs a "rat-out-your-neighbor" abusive Whistleblower program. As far-fetched as that legal defense may sound, it's not as strange as the event that first put Francis in the IRS spotlight.

Michael Barrett, is a former CPA for Francis's Nevada-based corporation Sands Media Inc., and California company, Mantra Films. Barrett prepared tax returns for Francis in 2002 and 2003. Then in 2005, the accountant approached the IRS, informing them that the tax returns he himself prepared and signed included unlawful deductions of more than $20 million in bogus business expenses. Among the sham deductions were $3.78 million, which Barrett says, was used to build a home in Mexico, $10.4 million in false consulting expenses, and a half million dollar phony insurance claim. In addition to other charges, Francis is accused of transferring $15 million from an offshore bank account to a California brokerage account in the name of a Cayman Islands Company under his control. Even though he himself prepared the returns with bogus information, Barrett requested informant fees totaling a few million dollars from the IRS Whistleblower program.

According to Bernhoft – the attorney who successfully defended Wesley Snipes in his recent tax woes – Barrett prepared, signed, and filed the returns without showing them to Francis, adding that this was the work of a disgruntled accountant who now wants to be paid for his own mistakes, and of course, the reckless behavior of a juggernaut tax agency.

"This ain't 'Girls Gone Wild.' This is the IRS gone wild," Bernhoft told the Los Angeles Times. "The American taxpayers should be outraged that an IRS program is being abused like this."

When the IRS uses information received through the Whistleblower program, the informants may be awarded 15 percent to 30 percent of the amount collected, including interest and penalties. The program relies on solid information, not educated guesses or unsupported speculation. The issues revealed by the informant must be significant and not based on personal problems or unresolved business disputes. Whether or not Barrett will be paid informant fees is yet to be determined, though in a subsequent letter of complaint he sent to the IRS he seemed to be saying he felt his efforts to communicate were being ignored by the government.

What has happened to Joe Francis as a result of this IRS scrutiny? Following an investigation by the Internal Revenue Service, a federal grand jury in Nevada indicted him on multiple counts of bribery and tax evasion. Based on that indictment, he spent eleven months in a Reno jail, awaiting trial. Then in May 2008, he was granted a change of venue that relocated his case to Los Angeles where he was released on $1.5 million bail.

On July 22nd, he appeared in a Los Angeles federal court where he pleaded not guilty to two felony tax evasion charges. His trial has been set for September 16th. If found guilty, he could face up to 10 years in prison and pay fines of up to $500,000. Thom Mrozek, spokesman for the U.S. Attorney's office, says, chances are, lesser penalties will be imposed. Despite charges by Bernhoft that his client is being unfairly persecuted, Mrozek was quoted in the Los Angeles Times as stating that, "This case results from his criminal conduct and not from any other motivation."

Time may reveal whether this is truly a case of a jealous Uncle Sam targeting a youthful and inventive entrepreneur, or an extremely wealthy man seeking to appear much more middle class in the eyes of the tax authority. Either way, this case promises drama.

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