It turns out that May was a pretty good month for Helio Castroneves.
On last Friday, the last remaining criminal charge against Castroneves – for conspiracy – was dropped. The month before, Castroneves was acquitted of six counts of tax evasion; the jury did not reach a verdict on the conspiracy charge. The feds initially indicated that they might pursue the remaining charge but in the end, decided against it.
Two days later, Castroneves won the Indianapolis 500 for the third time in his career. His winning speed? 150.318 mph. He remained near the top of the leaderboard for most of the race.
“Once I got in the front, it was, ‘Never look back,’” Castroneves said.
Now, with a historic win #4 looming before him – and his tax woes behind him – Castroneves has reason to keep looking ahead.
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 on avoid avoiding 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 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.
After a federal judge initially barred Helio Castroneves from leaving the country as part of the race car driver’s bail conditions, it seems he has changed his mind. Despite arguments by the prosecutors that Castroneves had both motive and assets to flee the country, U.S. Magistrate Judge William Turnoff said that he believed “the dumbest thing Mr. Castroneves could do” would be to jump his bail while he awaited trial on tax evasion and conspiracy charges.
Judge Turnoff remarked to Castroneves, “You have much to lose by not complying with conditions of release.” Castroneves reportedly nodded vigorously in agreement. The judge also took a jab at Castroneves’ appearance on Dancing With the Stars, adding that he would “tango with the U.S. marshals” if he was a no show in court.
While Castroneves is a native of Brazil, he left the country in 1996. His attorney, David Garvin, argued that there was no chance that Castroneves would flee, given that the majority of his racing contracts, appearances and promotional opportunities was tied to the United States. Castroneves is currently ranked second on the Indy circuit, just a few points behind New Zealand’s Scott Dixon.
Garvin also indicated that Castroneves would Garvin pay the Internal Revenue Service about $5 million in federal taxes after his “deferred royalty contract” expires at the end of the year; prosecutors allege that Castroneves has always had access to that account.
Prosecutors also argued that Castroneves has millions of additional dollars around the world in addition to the “deferred royalty” account, including assets in Brazil. Those assets, as well as a potential jail sentence, were sufficient reasons for Castroneves to be considered a flight risk, according to the prosecution. The judge did not buy that argument. He has allowed prosecutors the right to appeal the bail modifications but so far, no appeal is planned.
In response to the allegations, Castroneves’ racing team posted the following message on his email in Portugese:
Helio gostaria de agradecer a todos que têm ligado e escrito com seu apoio. Esse carinho e apoio significa muito pra ele.
Desde os seus 12 anos de idade ele é um piloto de corridas, e vai enfrentar esse caso como se fosse mais uma difícil corrida.
Helio não entende das leis de impostos deos EUA, por isso tem ao seu lado advogados e contadores experientes.
Ele tem fé que vencerá esse caso, pois sabe que não é culpado.
Obrigado,
Castroneves Racing RP
And in English:
Helio wants to thank everyone for their support. The phone calls and emails mean a lot to him.
Since he was 12 years old he has been a race car driver and he will face this case as a difficult race.
Helio doesn’t know much about the tax laws in the United States. For that reason, he has experienced lawyers and accountants at his side.
He has faith that he will win this case, since he knows he is not guilty.
Thank you,
Castroneves Racing PR
There are many comments at Castroneves’ site, expressing dismay over the arrest and his subsequent treatment at trial (specifically referencing the leg shackles). Do you think he was treated fairly? Do you think he’ll flee? Was his bail fair?
If it were up to my Mom, he’d be released on the strength of his samba alone…
