Paul Burks, chief architect in the Zeek Rewards scam, has filed a Motion asking the Court to dismiss Count 4 of the Indictment “on the grounds that the interpretation of the laws governing taxability of commissions paid to Zeek affiliates is vague and/or highly debatable such that it is a legal impossibility for any individual to “willfully” violate the law in this circumstance.”
Count 4 of the indictment alleges that Burks and others conspired to impede the lawful functions of the IRS by falsely attributing income to Zeek affiliates.
Specifically, Count Four alleges that Mr. Burks and his alleged co-conspirators “unlawfully, voluntarily, intentionally and knowingly” caused to be filed false IRS Forms 1099 in the names of ZeekRewards affiliates which reported fictional income. [Doc. 1 ¶ 50] The income was fictional, the indictment alleges, because the Forms 1099 issued that year reflected a total of $108 million paid to affiliates, while the actual amount paid out was allegedly less than $13 million. [Doc. 1 ¶ 37]
It goes on to say:
The explanation for the apparent discrepancy is that, as the indictment also acknowledges, the Forms 1099 issued to ZeekRewards’ affiliates were based on “all constructive income received.” [Doc. 1 ¶ 28] Under this doctrine, affiliates were subject to tax for all income they were entitled to claim, whether or not they actually claimed and received it. See 26 C.F.R. § 1.451–2 (income not actually reduced to a taxpayer’s possession is constructively received by him in the taxable year during which it is credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time). Further, affiliates were also subject to tax for the value of bids they chose to repurchase in lieu of a cash payment. See Treas. Reg. § 1.61-1(a) (“gross income means all income from whatever source derived”); Treas. Reg. § 1.61-1(d) (gross income includes income realized in any form, whether in money, property or services, and that income can be realized “in the form of property, as well as in cash”).
The Memorandum of Law in support of this motion proffer this:
As the authorities cited below make clear, the legal premise underlying Count Four—that constructive receipt should be equated to or treate as synonymous with tax fraud—is highly debatable or simply wrong. Where the law is vague or highly debatable, a defendant actually or imputedly lacks the requisite intent to violate it as a matter of law. See United States v. Mallas, 762 F.2d 361 (4th Cir. 1985). Accordingly, Mr. Burks moves to dismiss Count Four on the grounds that it is a legal impossibility to willfully violate the law in this area.
This Memorandum also has 2 Exhibits, one from a W. Curtis Elliott, Jr, of the law firm of Culp, Elliott and Carpenter wherein he states his “Expert Report Regarding Constructive Receipt of RPP Awards Used for Bid Repurchase”. His report states: