Count Four charges Defendant Burks with conspiracy to impede the Internal Revenue Service (IRS) in part by providing affiliates with false Forms 1099 for tax year 2011. Defendant Burks argues that count four should be dismissed because: (1) the doctrine of constructive receipt of income – upon which these Forms 1099 were based – is valid and that (2) Zeek affiliates believed that they had a right to receive the payment of the funds appearing as their earnings, whether they had actually took out those earnings as cash or not. The United States agrees with both of these propositions; however, rather than support Defendant’s argument for dismissal they actually buttress the Government’s position that the Defendant and his co-conspirators engaged in a conspiracy to defraud the IRS.
Defendant Burks and Rex Venture Group issued Forms 1099 reporting miscellaneous income, mostly to affiliates, for the 2011 tax year totaling $96 million. 1 Burks led affiliates to believe this was their actual earnings (whether they had taken them out in cash or not). In truth and in fact, the total revenue of Defendant Burks’s businesses for 2011 was only $37 million. Therefore, it is impossible that the affiliates received, actually or constructively 2, the income reported to the IRS on their Forms 1099. The affiliates certainly did not have control over the receipt of the money not subject to substantial limitations or restrictions as required for constructive receipt of income; their ability to receive the funds was limited and restricted by the facts that the funds did not exist.
This difference goes to the very heart of the case: Defendant Burks told affiliates that they were making substantial income from their participation in ZeekRewards. In order to keep the flow of monies going, and to keep the scheme alive, he encouraged the affiliates to not take out their earnings as cash so that they could allow their theoretical balances to grow and to compound. He represented to the affiliates that they were earning huge amounts of money and that his penny auction business was incredibly successful. The affiliates believed that their account balances represented their actual earnings. However, their account balances were “Monopoly money” (a term used by one of Defendant’s co-conspirators during the conspiracy) not tied to any real value.
The Opposition filed mentions that the Defendant’s own expert and tax attorney Howard Kaplan, reviewed Zeek’s promotional materials so they could provide advice.
“Because these tax experts relied on the Defendant’s advertising pieces, and did not actually conduct any sort of financial audits, they believed that the earnings reflected in each affiliates account, whether taken out in cash or left to grow, represented real income. This is the same lie Defendant Burks wanted the affiliates to believe.
I have uploaded the entire document onto the Files website (Doc 76, 14-cr-208)