John J. Feola told the judge he didn't include the $4 million as income on the couple's joint tax return because he forgot it, or he thought his wife had borrowed it.

 

Sometime people try to pull the wool over the tax court's eyes and end up in baa-ad trouble. Feola's wife had embezzled the money from her employer by forging checks. Though stolen money is just as taxable as a person's paycheck, the couple didn't report it on their return. She pled guilty to bank fraud and filing a fraudulent return and received a prison sentence.

 

Feola figured he didn't do anything wrong, he just signed the return and spent some of the money. During his trial, the court said his argument that the $4 million was a loan or that he didn't even know about it was “almost inconceivable.” He was sentenced to 24 months in prison.

 

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Was Victor J. Lota a modern day Robin Hood when he used his job as a bank loan officer to help his friends? He had become angry at the Hibernia National Bank for reducing his authority and salary increases. To get even, he avoided its safeguard rules on large loans, which required committee approval, by authorizing numerous small loans using fictitious names.

 

Over a ten-year period, he approved more than $ 4 million in loans to friends – who paid him kickbacks – and to girlfriends.

 

The New Orleans banker loaned one of his girlfriends, whose income varied between $5,000 and $27,000 a year, more than $1 million. She bought furs, three Cadillacs, two Mercedes and $81,000 in jewelry. She invested in real estate and loaned money to one sister to buy a condominium and to another to buy a home.

 

After working for Hibernia for 23 years, Lota was fired. He was in a Lota other trouble too. In fact, he pled guilty to bank fraud and was sentenced to prison. Now the IRS wanted taxes on $4.2 million: the money that went to his friends.

 

In Tax Court Lota argued that these were loans from the bank because he was the bank's agent. The judge disagreed, saying this was taxable to Lota. He was not acting in the bank's interest, but as a kind of Robin Hood -- taking from the bank and giving to friends.

 

THE MORAL: Free money to a friend can mean jail time in the end.