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Criminal trial ahead for Santa Barbara CPA

By   /   Friday, October 19th, 2012  /   Comments Off on Criminal trial ahead for Santa Barbara CPA

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In a criminal case headed for trial this month, the U.S. Justice Department alleges that Steve Pybrum, a Santa Barbara CPA who appeared on national media networks in the late 1990s, illegally routed revenue through a nonprofit and then falsified his personal income tax returns.

Pybrum is set to go on trial Oct. 23 in federal court in Los Angeles on four counts of falsifying his Form 1040s. The government alleges that he both under-reported his income and mischaracterized wages from the Foundation for Harmony and Happiness, a nonprofit Pybrum founded, as royalty income.

Pybrum’s defense attorney, on the other hand, says his client used money from preparing tax returns to support his broader nonprofit mission of preventing couples from divorcing over finances. In that sense, Pybrum’s lawyer said his client is no guiltier than Girl Scouts who sell cookies to raise funds for other charitable activities.

“They would never think of indicting the Girl Scouts,” said Mark Werksman, Pybrum’s defense attorney.

The U.S. Attorney’s office in Los Angeles, which is prosecuting the case, said that it doesn’t comment on cases that are in pre-trial status. The IRS, which investigated Pybrum and referred the case to the Justice Department, does not comment on investigations.

In the late 1990s, Pybrum wrote “Money and Marriage: Making It Work Together” and later “Money and Marriage for Engaged Couples.” He appeared on ABC, NBC, CBS, Fox, CNN and CNBC to promote the books, according to documents filed by his defense.

Pybrum founded the Foundation for Harmony and Happiness to help prevent couples from splitting up over financial differences, the defense argues. On its IRS Form 990, a required form for all tax-exempt entities, the group described its activities in 2001 as “conflict resolution with an emphasis on marital resolution due to finances and men/women differences with regard to finances.”

The foundation made some eyebrow-raising moves, according to its Form 990s. In 2001, for example, it listed revenues of $299,443 and expenses of $299,835. A small amount of those expenses — $25,425 — were listed as compensation to Pybrum, with a similar amount to another officer. Where the rest of the money went is far less clear.

For example, $85,100 was listed as being spent on “supplies.” Another $86,225 went toward an itemized list of “other expenses.” The itemized list is a handwritten attachment that lists $50,000 as going to Downwind LLC.

It turned out that Downwind LLC was actually a corporation with the same address as the foundation and that the money went toward the purchase of a personal aircraft, a Beechcraft B-60 headquartered in Santa Barbara. Pybrum’s defense argues that the plane was used only for foundation travel — Pybrum participated in hundreds of television and radio interviews — and that it’s normal to hold aircraft in a separate LLC for liability reasons. “[T]here is nothing unlawful about the purchase of an aircraft, especially for less than the price of many new automobiles,” Werksman wrote in court papers. When an IRS agent pressed Pybrum for documentation about the plane trips, Pybrum said “take my word for it,” according to notes from the IRS agent filed in court.

Each year, the Foundation for Harmony and Happiness seemed to spend roughly the same amount on expenses as it took in, with a small amount of compensation for Pybrum showing up. The IRS prepared a list of some of the checking and ATM transactions for the nonprofit’s accounts. They include a $700 payment with a payee listed as “bike shop” and a $400 withdrawal in Reno, Nev. with the memo “casino cash.”

Werksman, Pybrum’s defense attorney, said that the foundation paid some of Pybrum’s personal expenses but that all of those expenses were listed as compensation on the nonprofit’s Form 990 and then listed as income on Pybrum’s personal Form 1040.

“The government has not been deprived one penny of taxation,” Werksman said.

But exactly how the foundation’s money was raised and spent remains a mystery, shrouded in the opaqueness of the foundation’s practices and Form 990s. Notes from an IRS agent’s interview of Pybrum allege that the foundation keeps no minutes, does not keep a journal of cash receipts and doesn’t generate written bills for its clients: “At the end of the session, they are verbally told how much they owe,” according to the agent’s notes.

Expenditures were equally unclear. In its 2004 Form 990, the foundation listed $421,900 in revenue. Nearly every penny of that went back out the door, a small amount as compensation but most as allowable expenses. An amount of $159,151 is listed as “office expense” and $23,310 is listed for “consultants.”

Werksman said that all of those expenditures were allowable expenses and points out that his client has never faced a civil audit from the IRS in which Pybrum would have to justify those expenses.

“The IRS has been in a grudge match against Steve Pybrum for 21 years. He’s been continuously under audit or investigation for 21 years,” Werksman said. “I think this is the only way they think they can get him. They don’t like the way he’s declaring his tax preparation income.”

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