Don’t Mess with the IRS

March 8, 2009

    Authored By: K.K.

    Citation: In re Gary E. Krause, 367 B.R. 740 (Bankr. D. Kan. 2007)

    Employee/Employer Implicated: Chapter 7 Debtor seeking to avoid paying taxes on income from hidden trusts and off-shore accounts.

    e-Lesson Learned: Computer programs that offer to eliminate evidence are a terrible idea. Instead, comply with discovery requests and don’t attempt to wipe your computer with special software.

Background: A Long History with the IRS

The IRS had Gary Krause on their radar for awhile. Mr. Krause and the IRS were at odds with each other since the early 1980s. The above referenced case was brought by the IRS and later joined by the Chapter 7 Trustee when Mr. Krause filed for bankruptcy.

Through the course of discovery, Mr. Krause initially refused to turn over an electronic data. Once compelled to turnover his laptop and desktop computers, the debtor claimed that his computer crashed. In reality, Mr. Krause thought he could outsmart everyone by using “GhostSurf” software to wipe his hard drives. He was wrong.

Lesson #1: Don’t Assume the Court is Stupid & Hire a Good Attorney

Okay, so maybe this is really two lessons. Lawyers like to argue over the definitions of words. The government’s request for production asks for a “document” defined as

“computer print-outs, electronic mail messages…” and “any file, document, data words or information, in draft or final form, on a computer disk or hard drive or in the memory of a computer network or mainframe or on a file server.”

Krause’s attorney refused to turn over electronic information and argued that electronic information or computer data was not included in this definition. The Court’s opinion recognized this “absurd” argument. So would my 13 year old nephews.

Lesson #2: Using a Program to Wipe Your Hard Drive is a Terrible Idea

At the hearing, Mr. Krause explained the lack of deleted data and information was due to his computer crashing a couple months before he was required to turn over his computers. The court’s response: “Well, isn’t that convenient?”

After investigation of his computer, they discovered the installation of “GhostSurf” softwared which is designed to wipe out deleted and temporary computer files from a computer hard drive. Mr. Krause claimed that he used Ghost Surf software to erase potential viruses from his computer. However, Mr. Krause already had Norton Anti-Virus installed on his computer. Ultimately the evidence indicated that the electronic information was purged by GhostSurf Software.

Next the Court asks, when did Mr. Krause begin using GhostSurf Software? Mr. Krause apparently began using GhostSurf as recommended by an employee of his management company, one of the alter-ego companies that allegedly help him “cook the books” relating to his income from alleged alter ego companies.

Lesson #3: Jail Stinks So Don’t Try to Erase Your Hard Drive.

The Court found that Mr. Krause had a duty to preserve evidence once the government filed the action against him. Furthermore, since Krause is a Chapter 7 debtor, the burden to preserve evidence becomes much more onerous.

As a result of his actions, Mr. Krause was ordered to:

  • Turnover to the Trustee all computers that are networked (including his sons computers), I am sure his sons were really happy with that. Thanks, Dad.
  • Produce the back-up or copy of his computer contents that he allegedly made prior to turnover of his computer, on whatever medium it is stored,
  • Turnover all portable storage devices, external hard drives, thumb drives, flash drives, electronic data, etc,
  • Reimburse the Trustee for expenses,
  • Execute waivers to allow Trustee to obtain bank records and other off-short account information

If Krause failed to do the above in ten days, he would be subject to a default judgment in the case and a bench warrant for his arrest and subsequent incarceration.

KK is a third year law student at Seton Hall University School of Law in Newark, New Jersey. Upon graduation and completion of the bar exam, KK will join a litigation firm in Texas.

Article posted on March 8, 2009 at 12:00 PM |  Twitter  LinkedIn  Digg  Facebook  Technorati Favorites  NewsVine  More... 
Tagged as: , , .
View more articles implicating: Miscellaneous
Subscribe to this post's comments through its RSS 2.0 feed.

22 Responses to “Don’t Mess with the IRS”

Newer Comments »
  1. 1
    Don’t Mess with the IRS | e-Lessons Learned says:
    March 8, 2009 at 1:23 PM

    [...] Don’t Mess with the IRS | e-Lessons Learned [...]

  2. 2
    Tax Lawyer says:
    November 22, 2009 at 10:48 PM

    I’ve been included in taxes for longer then I care to admit, both on the individual side (all my employed life history!!) and from a legal point of view since satisfying the bar and pursuing tax law. I’ve furnished a lot of advice and redressed a lot of wrongs, and I must say that what you’ve posted makes utter sense. Please carry on the good work – the more individuals know the better they’ll be armed to deal with the tax man, and that’s what it’s all about.

    [Reply to this comment]

  3. 3
    Replica Watches says:
    July 29, 2010 at 12:37 AM

    I bought a perfect replica submariner watch from Replica Watches Store just cost me $80 with Free Shipping option

    There you can buy all submariner series watch with very low prices, such as Rolex Submariner Replica watches includes Rolex Submariner Date Replicas, Rolex Submariner 16610 Replicas, Rolex Submariner 50th anniversary Replicas, Rolex Submariner Green, Rolex Submariner Blue, Rolex Submariner Full Gold, Rolex Submariner Ceramic Bezel Watches, rolex series includes
    Fake Rolex Replicas,
    Rolex Daytona,
    Rolex oyster perpetual DateJust
    Breitling watches, includes
    Breitling for Bentley,
    Breitling Navitimer

    [Reply to this comment]

  4. 4
    Best Replica Watches says:
    July 29, 2010 at 3:36 AM

    Our shop offers many famous Audemars Piguet Replica Watches. for example: Audemars Piguet Royal Oak Offshore Replica Watches,Audemars Piguet Royal Oak OffShore Ultimate Jalan Bukit Bintang, They are all wrist watches and you can buy one for your father to show your love ,moreover. no one could know it a replica one.

    [Reply to this comment]

  5. 5
  6. 6
  7. 7
  8. 8
    melinzero says:
    August 9, 2010 at 1:52 AM

    These beautiful replica watches pendants come in an array of styles that are a perfect replica watches for Christmas gift at an affordable price. Whether purchasing a replica watch for a loved one or for oneself, owning a magnificent replica watches pendants in pendant making makes a statement. .it was the world’s replica watches thinnest watch. Concord’s replica watch regular product replica bulov introductions, penchant replica clerc for luxurious replica blancpain materials, and

    [Reply to this comment]

  9. 9
  10. 10
  11. 11
    Pandora beads says:
    August 14, 2010 at 2:03 AM

    525健康生活网
    [b][url=http://www.qinqingmen.com]525健康生活网[/url][/b]

    [Reply to this comment]

  12. 12
    Pandora beads says:
    August 14, 2010 at 2:03 AM

    guoweigang There are some guys who cheap pandoracannot imagine wearing men’s cross necklaces. However, what most don’t know is that cross necklaces can be worn by men to exhibit their own style as well as their; and they are no longer limited to women anymore.If you are looking to get jewelry for pandora jewelry a special someone, then there are certain things that you should remember when it comes to picking out the right cross necklace buy Pandora for a male friend or lover. The first thing that you need to think about is the design of the jewelry. Each individual has discount pandora their own preference when it comes to the design. For instance, some men like big chunky jewelry which functions as a “bling” pretty pandora sale much like hip-hop stars wear. Other times, men like understated simple jewelry. Maybe ones that have a small cross pendant or a thin chain.The second thing to remind yourself Pandora Bangles of is the type of metal it will come in.

    [Reply to this comment]

  13. 13
    cheap jordans says:
    August 14, 2010 at 3:16 AM

    UGG boots are popular among the young generation. But it doesn’t popularize in women jordans the students. Uggs company has discovered that there is a great potential market Cheap Nikes among the students. So they inrtroduce various kinds of ugg boots for students. ugg boots These ugg boots are in trendy style and full of vitality. We are Cheap Watches confident that they will be the hot-item in the market. As ugg becomes Cheap Handbags a trend in the fashion field each year. The students are the majority Air Jordan Retro to pursue for the fashion. So they will pay attention to the trend. grey ugg classic tall boots And many students have heard of UGG boots. Now, UGG boots are the UGG shoes new fad for teenagers. At first, these uggs are the hot-sellings for girls. ugg classic tall boots grey And it becomes popular among boys.With the coming of winter, ugg boots are Air Jordan Fusions in great demand because the quality is in no doubt. They provide the Polo Shirts feet with warmth. The sole is made of suede material which is very jordan shoes sturdy and durable. The logo of the company is visible on the upper jordan 2010 which can show your elegance. Our company introduce the series of cheap uggs. nfl jerseys Students are affordable to buy them. This kind of perfect UGG boots is Uggs designed for you. We believe their parents will agree with their children to Coach Handbags buy a pair of uggs in the approaching winter. It’s not only warm coach handbags to them, but a true love to them.Now, UGG boots are available in Ed Hardy many concord colours for students, like sand, grey, black chestnut and so on. UGG Shoes They are affordable in the marketplace. A lot of markets online offer these cheap jordans .

    [Reply to this comment]

  14. 14
    insanity workout says:
    August 24, 2010 at 9:23 PM

    we offer cheap and high quality insanity workout dvd
    ghdpretty
    ghd iv stylerbeautiful
    ghd hair straightenersnice
    px90 workout routinemake you healthier
    insanity workoutLet you have vigor
    vibram fingersdifferent designs
    five fingers runingPersonality
    barefoot runninghigh quality
    ugg saappaat different designs,
    uggs norge high quantity
    uggs nederland nice
    uggs kopen vogue
    ugg deutschland beautiful
    ugg bottes delicate
    welcome to buy!thank you!

    [Reply to this comment]

  15. 15
  16. 16
    kevinsshot says:
    August 27, 2010 at 12:12 AM

    Christian Louboutin children of their parents’ friends, next-door neighbors. Any playmate is better than no playmate Christian Louboutin Boots That’s what Homewood, AL, mom Wendy Price Murch learned when her Christian Louboutin Pumps but you’ve always loved going to the play place Christian Louboutin Sandals Simple Strategies to Help Your Child Make FriendsChristian Louboutin Shoes Sale

     
    Christian Louboutin Christian Louboutin Boots Christian Louboutin Pumps Christian Louboutin Sandals Christian Louboutin Shoes Sale Christian Louboutin sale links of london sale

    [Reply to this comment]

  17. 17
    replicas-relojes says:
    August 27, 2010 at 10:49 AM

    Well.I like it, Its a really nice article I’ve saw :) , now, please allow me introduce a site made by my friend. you can click the link to view his site and find yours favourite
    http://www.replicas-relojes.net
    REPLICAS RELOJES
    REPLICAS DE RELOJES ROLEX
    IMITACIONES DE RELOJES SUIZOS LUJO

    Shop popular stores to find christian louboutin shoes women’s fashions on sale – all in one place. replica handbags wholesale.
    christian louboutin shoes
    christian louboutin
    Tiffany wholesale  What a perfect thing, it attracted all the attention, the miraculous birth of boundless charm. It is worthy of appreciation and ownership.
    We accept Paypal，and free shipping !
     Others, we also supply discount fashion handbags, replica ugg , and high heels .
     
    We supply cheap and high quality replica  watches. fashion watches in here.
    Rolex watches  Rolex Datejusts  wholesale watches replica rolex watches  fake rolex watches  replica breitling  replica tag heuer  replica watches

    Best Quality and Services
    Only the finest high quality replica watches are sold at watcheshappy.com, but we don’t stop just there. Our aim is to provide you with first class services as well as best imitation watches, and make your online shopping experience a wonderful one.

    [Reply to this comment]

  18. 18
    insanity workout says:
    August 27, 2010 at 8:15 PM

    we offer cheap and high quality insanity workout dvd
    ghdpretty
    ghd iv stylerbeautiful
    ghd hair straightenersnice
    px90 workout routinemake you healthier
    insanity workoutLet you have vigor
    skechers shape ups shoeshave to type
    Skechers shoescomfortable
    skecher fitcheap and fine
    vibram fingersdifferent designs
    five fingers runingPersonality
    barefoot runninghigh quality
    ugg saappaatdifferent designs,
    uggs norgehigh quantity
    uggs nederlandnice
    uggs kopenvogue
    ugg deutschlandbeautiful
    ugg bottesdelicate
    welcome to buy!thank you!

    [Reply to this comment]

  19. 19
    Windows 7 Product Key says:
    August 28, 2010 at 12:24 AM

    hhl The web Discount Windows Product Key has cheap Windows Key changed wholesale Office Product KeyAnd DiscountWindows Activation there’s a cheap wholesale Windows Activation Key new way wholesale DiscountOffice Activation Key of Discount thinking cheapWindows Generator about wholesaleWindows Key Generator your DiscountOffice Key Generator applications.cheapWindows Keygen You wholesaleWindows Key can’t DiscountOffice Keygen</ajust write cheapWindows Upgradesome wholesaleOffice UpgradeHTML and DiscountMicrosoft UpgradesCSS cheapWindows 7 Product Keyanymore wholesale and DiscountWindows 7 Keyexpect cheapWindows 7 Ultimate Keyto be wholesaleWindows 7 Home Premium Keythe next DiscountWindows 7 Professional Key Twitter. Hear cheapWindows 7 Product Keyhow to wholesaleMicrosoft Office 2010 Product Keymake your site wholesaleMicrosoft Office 2007 Product Keysocially

    [Reply to this comment]

  20. 20
Newer Comments »

Leave a Reply

Spam protection by WP Captcha-Free