On the day that the new season of “Dancing With the Stars” debuts, the former DWTS champ did some fancy footwork of his own in his first day of court. Helio Castroneves and his sister Katiucia Castroneves, together with their lawyer, Alan Miller, faced prosecutors on the first day of a federal tax trial alleging conspiracy and tax evasion charges. If convicted, the three could be sentenced to more than six years in federal prison.
The IRS says that Castroneves, his sister, and lawyer, conspired to hide millions of dollars in licensing fees from Penske Racing to avoid taxation. Castroneves claims, however, that he didn’t have access to the fees from Penske and wasn’t planning to avoid taxation once he controlled the funds. The key is whether the IRS can prove that Castroneves did not have control of the funds.
Under the doctrine of “constructive receipt,” a taxpayer is responsible for reporting income when it’s made available, and not simply when the taxpayer chooses to take the money. The government alleges that Castroneves has been in constructive receipt of $5 million that he has not reported.
When Castroneves negotiated his $6 million licensing deal with Penske Racing, he received $1 million; the $5 million was to be paid to a Panamanian corporation called Seven Promotions. However, Castroneves’ lawyer reportedly asked that Penske hold the funds; Penske’s general counsel confirmed this during the trial today. Penske retained the money until January 2003 when the funds were finally delivered to a firm in the Netherlands.
Assistant US Attorney Matt Axelrod argued that the money was taxable once the funds were available, saying, “The individual’s wishes do not control. A taxpayer may not deliberately turn his back upon income and thereby select the year for which he will report it.”
Castroneves’ attorney, however, claims that the money was part of a “deferred royalty agreement” and only taxable when paid. The money was reportedly to be paid out in 2009.
The trial resumes tomorrow and is expected to last a month.
