Petrunak was a pyrotechnician who was the sole owner of Abyss Special FX, Inc.,
a pyrotechnic and aerial fireworks company. Because of the nature of its
business, Abyss was regulated by the Bureau of Alcohol, Tobacco, Firearms, and
Explosives. Two ATF inspectors, Jill Krofta and Manuel Vicario, conducted a
mandatory inspection of Abyss and filed a report detailing violations found in
that inspection. At a later hearing, the
administrative law judge found Petrunak in violation of explosives regulations
and revoked his explosives license. Petrunak was therefore unable to work with
fireworks and explosives, and Abyss ceased business.
years later, Petrunak tried to get revenge against Krofta and Vicario. He
mailed both of them an IRS W-9 form requesting identifying information, and
then sent them an IRS Form 1099 (“1099”) alleging that Abyss had paid each of
them $250,000. Krofta and Vicario both provided the forms to their supervisors,
and filed their taxes indicating only the income they actually received and
excluding the fictional $250,000 payment. Because Krofta’s tax return did not
include the $250,000 for which a 1099 had issued, the IRS audited Krofta and
informed her that she owed $101,114 in taxes. Krofta was forced to spend considerable
time and energy to straighten out the situation.
also submitted the sham “payments” as business expenses in submissions to the
IRS. Petrunak filed Abyss’ corporate tax
return claiming a $500,000 deduction based on the falsified 1099 payments.
Because Abyss was an S-corporation, the proceeds flowed through to Petrunak as
the owner and applied to his personal taxes.
IRS began investigating Petrunak. He admitted to filing the various tax forms,
claiming that he did so based on the illegal loss of licensing for his business
as a result of the falsified testimony of Krofta and Vicario at the
asserted that he believed he suffered personal and business income loss because
the inspectors lied at the administrative hearing. He said that he tried to
contact the IRS on multiple occasions and was referred to an IRS Publication,
and that he concluded that he could use the IRS 1099-Miscellaneous income forms
to ascribe his losses to the agents, though he did not intend for the 1099s to
represent that he actually paid each inspector $250,000 in income. To bolster
his contention, he sought to introduce evidence of Abyss’ corporate meeting
was indicted on three counts of making and subscribing false and fraudulent IRS
forms, in violation of 26 U.S.C. § 7206(1). A jury convicted him, and he was
sentenced to 24 months’ imprisonment.
appeal, Petrunak argued that the district court erred in excluding certain
evidence at his trial.and He also challenged his sentence.
maintained that certain corporate meeting minutes should have been admitted
under the business records exception to the hearsay rule. Included in the minutes
were statements such as the following:
- Need to mention that there was a verbal
conversation with an IRS representative. She said that issuing the 1099s and to
write off the losses from the business were acceptable. However she would not
be specific to my situation.
addition, the minutes included statements bemoaning that the IRS was not more
helpful, and declarations that the ATF agents perjured themselves in the case.
appeals court was not buying it. Under the business records exception in Federal
Rule of Evidence (FRE) 803(6), records of regularly conducted activity, made at
or near the time of the transaction, are excluded from the hearsay rule unless “the
source of information or the method of preparation indicate a lack of
trustworthiness.” Such records are presumed reliable because businesses depend
upon them for the operation of their own affairs, and therefore there is little
incentive to falsify such records, and because the regularity of such
record-keeping leads to habits of accuracy.
the district court excluded the records in this case, and its decision was reviewed
for abuse of discretion. The district court noted that the records contained
multiple instances of hearsay, and that it lacked evidence that the business
records exception applied to the minutes. The purported “minutes” were created
by Petrunak, who by his own admission, was the sole attendee at the meeting. He
acknowledged that there was no one else at the purported meeting to even
transcribe minutes. Moreover, the minutes he submitted to the district court were
not even the originals, which he shredded, but instead reproductions apparently
prepared in 2010, at a time when the IRS was already investigating him. None of
the indicia of reliability that render business records reliable were present,
in that there was no indication that the records were relied upon for the
operation of Abyss’ affairs. Further, the destruction of the originals cast
doubt on whether the minutes submitted were actually made at or near the time
of the meeting, or instead were produced or altered in light of the impending
litigation. Accordingly, the evidence was properly excluded.
facts of this case are unusual, but the takeaway is that it is necessary to
provide an adequate foundation to qualify a document as a business record.
The case is United
States v. Petrunak, ___ F. 3d___, 2017 WL 1734441 (7th Cir. 2017)
· Michael R. Lied· Howard & Howard Attorneys PLLC· One Technology Plaza, 211 Fulton Street, Suite 600, Peoria, IL 61602· (309) 999-6311· MLied@howardandhoward.com