Arthur and Gail Benjamin sold a business in late 2003 and earned a $6,000,000 plus profit.  At the time, they lived in Sandy Utah.  Utah has a flat 5% tax rate.  If they were residents of Utah at the time of the sale, they would have owed more than $300,000 in taxes to Utah.

In order to reduce their tax liability, the Benjamin’s hired an attorney.  Mr. Benjamin asked the attorney if they could avoid paying taxes by moving to Nevada.  The attorney outlined what they needed to do to make it effective but cautioned them that even then it was a 50/50 chance of holding up in court.

Mr. Benjamin did not like the advice.  He criticized the attorney saying his advice was “by the book” and “very uncreative to boot.”  Mr. Benjamin then sought advice from an accountant.  The accountant told him to sell the Utah home, buy a Nevada home, and spend at least 183 days per year in Nevada.  Not liking that advice, Mr. Benjamin then sought advice from an investment adviser.  The investment adviser told him to set up a house in Nevada.

That is exactly what Mr. Benjamin did.  He bought a house in Nevada but continued to live mostly in his Utah home. When he didn’t pay income taxes in Utah, the Utah State Tax Commission ordered him to pay taxes on the income, plus a 10% penalty.

In a decision issued today, the Utah Supreme Court backed up the Utah State Tax Commission.

While I haven’t ever represented anyone involved in this lawsuit, as an attorney I’ve had several experiences similar to this.  One experience is very similar.

I had a young man come into my office looking for advice on investing in real estate.  He had a plan all set up.  I analyzed his plan and told him it was illegal.  He didn’t like that advice.  He told me that he learned the method at a seminar and that I was obviously wrong.  I didn’t know what I was talking about.  He told me he was rejecting my advice and would find another attorney who would agree with him.  He eventually did.

I never saw his name in the paper so I don’t know if he went forward with his plan.  I did hear about other people getting arrested for doing something similar.

My point is that when you go to an attorney or an accountant for advice and you don’t like it.  Don’t go shopping for someone who agrees with you.   That’s a good way to get into trouble.