Nobody likes to pay taxes. But prosecutors allege that Thomas and Michelle Selgas disliked paying taxes so much that they hid money from the government and conspired with their lawyer to evade taxes.

In 2003, Thomas Selgas co-founded a company called MyMail. A couple of years later, MyMail settled several patent litigation lawsuits, resulting in a payout to Selgas of $1.1 million. The prosecution alleges that Thomas Selgas, along with his wife, Michelle, directed the cash to a metals trading firm to buy gold coins. According to the complaint, the transaction was intended to hide the income from the government.

In April of 2006, the Internal Revenue Service (IRS) assessed taxes against Thomas Selgas for prior years. According to court documents, for 1998 through 2002, the Selgases did not file valid tax returns so the IRS filed substitute returns. The Selgases each appealed those debts in Tax Court – unsuccessfully. 

Thomas Selgas separately appealed his Tax Court decision to the Fifth Circuit, which affirmed in January 2007. The Fifth Circuit wrote: 

Selgas’s arguments are utterly lacking in merit and, as an aside his conduct in this litigation appears to have been inconsistent with that of a litigant endeavoring to aid in the truthful and efficient resolution of contested issues of facts and law. We have no sympathy for Selgas’s behavior or his arguments in defense of what appears to have been a brazen attempt to avoid a few thousand dollars in legitimate tax liability. Selgas v. Commissioner, 475 F.3d 697, 701 (5th Cir. 2007), cert. denied 552 U.S. 824 (2007)

Prosecutors claim that, despite the outstanding tax liabilities, the Selgases did not report the income from the MyMail settlement. Instead, days after they were assessed in 2006, the Selgases allegedly worked to underreport the amount of income paid to the partners by filing false documents. Among other things, the reportedly Selgases submitted to the IRS a “Statement in Lieu of a 1040” that reflected the income reported on a false K-1; the statement significantly devalued the Selgases’ income from over $1,500,000 to $176,640. 

While though the government was asking questions about their tax filings, prosecutors allege that the couple continued to hide their income. In addition to buying and selling assets, including real estate, with gold coins, they are accused of hiding income in lawyer trust accounts. Their lawyer and Thomas Selgas’ long-time business associate, John Green, who is also charged in the case, is alleged to have deposited personal funds from the Selgases into various lawyer trust accounts (sometimes called “IOLTA” accounts). According to prosecutors, Green paid credit card bills and other personal expenses for the Selgases out of his trust account.

Green, who is licensed to practice law in the State of Texas, is also a member of the Idaho state legislature. He won the election despite the allegations.

In 2018, the Department of Justice returned an indictment charging the Selgases and Mr. Green with conspiring to defraud the United States; the Selgases were separately accused of tax evasion. According to court records, the Selgases’ bill is nearly $1 million in unpaid tax, interest, and penalties.

They are scheduled to go to trial next month, and the trial is expected to last five days. If convicted, Thomas and Michelle Selgas face a statutory maximum sentence of five years in prison on the tax evasion charges and five years on the conspiracy charge. John Green faces a maximum sentence of five years on the conspiracy. All of the defendants have pleaded not guilty.

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Author

Kelly Erb is a tax attorney and tax writer.

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