A Las Vegas brother and sister, and their business partner, used gold and silver coins to pay their employees in order to avoid reporting and paying payroll and income taxes. It didn’t work.
The 9th U.S. Circuit Court of Appeals upheld the convictions of Robert and Lori Kahre and Alexander Loglia on charges of conspiracy to evade more than $2 million in taxes and an additional 48 counts against Robert for failure to pay employment taxes.
The IRS testified that between 1999 and 2003, Robert Kahre’s companies paid $22.3 million in wages. In addition, companies using Kahre to administer their payrolls paid another $95 million in wages and Kahre raked in $14 million in fees.
The trio first paid their workers in gold chips with a face amount of one-eighth of the amount of pay each worker earned. The workers then exchanged the coins for cash in the actual amount of their pay.
First the IRS noticed Kahre’s businesses had significant revenues but he hadn’t filed tax returns or employment taxes since the 1990s, and no personal tax return since 1991. Always a bad sign.
Kahre leased employees to various contractors and withdrew cash from the bank for the payroll — $24 million in the first 10 months of 2002, according to the court. One of his businesses was Wright Painting and Drywall, according to the court.
Employees went to a Las Vegas warehouse to collect wages, usually in gold certificates or gold chips, which they immediately exchanged for cash. The IRS smelled a conspiracy. They conducted a search of the warehouse and seized the gold and silver.
Kahre argued he did not defraud the government because the gold and silver coins used to pay the workers should be assessed at face value, rather than market value, for tax purposes.
For example, if a worker received a 10 silver dollar coins with a face value of $1, the tax should be based on that, even though the fair market value of the 10 coins was $50. The IRS assessed Kahre 10 x $50 or $500.
Kahre argued that was unfair because he didn’t know it was improper. The appeals court disagreed. “We have expressly held that coins are taxable as property when their fair market value exceeds their face value,” wrote the panel wrote in an unsigned opinion. As for ignorance of the taxability of coins at face value, the panel basically said, everyone knows you can’t do that.
One employee testified he went to the warehouse and was paid a single gold coin, which he immediately exchanged for an envelope containing his $500 weekly salary in cash.
He never received a W-2 form reporting his wages, he said.
Kahre said he developed his gold payroll standard because the U.S. government “debauched the national currency” and used inflation to confiscate wealth.
He said he relied on the 1985 Gold Bullion Coin Act that allowed gold coins as legal tender. (He may have missed the part that still required payment of taxes.)
The IRS estimated Kahre failed to withhold nearly $52 million in taxes for both his companies and the 35 contracting businesses that used his services.
He was sentenced to 16 years in prison. His sister Lori received six years and Loglia was sentenced to two years in prison.
Judges Procter Hug, Sandra Ikuta and Johnny Rawlinson joined in the decision.
Case: U.S. Kahre, No. 09-10471