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| | Franchise Tax Board Testifies In Matrix/AIG Case Against WCSC and Rene Montes By Lonce LaMon - January 11, 2010After Cara Cruz-Thompson and her attorney, Brian Gurwitz, waived Cara’s right to a Preliminary Hearing and both left Court Room C-53 in Santa Ana, California, on January 5th, Tuesday morning, William Shae, Senior Special Agent from the California Franchise Tax Board, took the stand.
Shae was first asked by the DA, Tom Schultz, what his title was, how many years he had been with the FTB, and who asked him to do the investigation, along with numerous more questions concerning his role and experience. Most salient amongst Shae’s answers was that he was asked by the DA’s office and the Department of Insurance to investigate the State of California Tax Returns of Rene Montes and to examine the bank accounts of Rene Montes doing business as WCSC, WC Surgery Center, and WCSC & Associates from Norton Community Credit Union Bank in Riverside, California.
Shae testified that in 2004, 2005, and 2006 Rene Montes and his business entities filed no Tax Returns. The witness examined exhibits of documents which consisted of a 2005 letter demand from FTB to Montes for a 2004 Tax Return along with other demands for Tax Returns. He also examined an exhibit of a Notice of Proposed Assessment referencing a prior demand letter.
Based upon his analysis of Montes’ bank records, Shae determined that Montes had in gross income $197,924 in 2004, $907,334 in 2005, and $384,000 in 2006. This made a total of $1,490,261 in income for the three years combined. Shae had broken down the year 2005 into $112,634.00 from Matrix and $794,700 from AIG.
Shae acknowledged that he gave deductions for Rene’s Mortgage Interest, and that the deduction phased out as income rose. Thus, he came up with figures as Adjusted Gross Income of: $184,396 for 2004, $900,826 for 2005, and $378,183 for 2006. These were the taxable income amounts and he allowed exemption credits using Schedule Y, which is the Married Filing Status form.
Thus, Shae came up with Net Tax Liability of $12,232 for 2004, $79,715 for 2005, and $30,671 for 2006. There had been a previously assessed tax payment of $3,563.00 for 2004, thus the 2004 amount owed was changed to $8,669.00 as not paid.
So, here are the amounts that Shae, in his testimony, asserted that Rene Montes and WCSC, WC Surgery Centers, WCSC & Associates still owed:
2004: $8,669.00 2005: $78,688.00 2006: $30,671.00
But after the DA, Tom Schultz, was done with his questioning of this witness, Rene Montes’ defense attorney, Fred McBride, rose to the occasion.
Fred McBride: So, there was no fraudulent return?
William Shae: There was no information.
McBride then emphasized the fact that no returns were filed so there were no fraudulent returns filed. Thus, there was no incident of a fraudulent Tax Return filed.
Upon further questioning by Fred McBride and also by Judge Elaine Streger, William Shae elaborated further.
William Shae: There was a violation for each of the years 2004, 2005, 2006 of the Revenue & Taxation Code #19706. No return was filed. He violated Code #19706 by not filing Tax Returns for 2004, 2005, and 2006.
Fred McBride, Rene’s defense attorney, then questioned the witness as to why he broke down the numbers for 2005 into two parts: $112,634 from Matrix and $794,700 from AIG. William Shae answered that the Department of Insurance had asked him to differentiate between the income from Matrix and AIG. Thus, McBride asserted that Shae was working for the "Fraud People" and not for the FTB assessing tax liability.
McBride went on to question the witness and point out that Shae had never looked for or deducted any payments to lien holders. Shae answered that that was correct. So McBride inferred that Shae’s alleged tax liabilities were meaningless because he had only acknowledged Mortgage Interest as a deduction and Rene’s Married Status as an Exemption, and without the business deductions such as the payments to lien holders, how could the tax liabilities even be close to being correct?
To be continued…
Readers may write to writer Lonce LaMon at lonce@adjustercom.com
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