Brown failed to pay taxes on half-million dollars in bonuses, trustee says

Brown failed to pay taxes on half-million dollars in bonuses, trustee says

February 20th, 2013 by Ellis Smith in Business Around the Region

Soddy-Daisy tax preparer Jack E. Brown

Photo by John Rawlston/Times Free Press.

Jason Brown

Photo by Contributed Photo/Times Free Press.

The country book-cooking enterprise some now call a family Ponzi scheme continued to bleed victims dry until it closed its doors in November 2012, according to a new lawsuit filed on Tuesday in U.S. Bankruptcy Court in Chattanooga.

In a 14-page complaint, bankruptcy trustee Jerry Farinash asked Judge John Cook for $11 million in punitive damages, and to confiscate all cash and property acquired through the scheme.

In the wide-ranging complaint, Farinash charged that family members of ex-tax preparer Jack E. Brown received hundreds of thousands of dollars in "bonuses," "salaries" and "housing allowances" through October 2012. Brown's Tax Service closed down the following month, leaving victims with nothing.

The Brown family ended up with several houses, a fleet of vehicles and many expensive toys. Money from the failed tax business was even used to stage an elaborate wedding in 2010, but the full extent of how much was spent remains unclear because the family has yet to turn over many records.

Jason Brown, son of Jack E. Brown, received more than $542,000 in "bonuses" in the last three years -- none of which he reported to the Internal Revenue Service, according to Farinash. Jason Brown also received a $52,000 yearly salary and a $26,400 yearly housing allowance for "preparing $40 tax returns and doing some light bookkeeping," Farinash wrote in the complaint.

"The salary, housing allowance and alleged bonuses were all a part of the scheme to defraud creditors, which was the Brown Ponzi Scheme," Farinash said.

Jason Brown's failure to report the staggering earnings to the IRS or pay the appropriate taxes are clear evidence that Brown's son knew the dirty money came from his dad's Soddy-Daisy shuffle, Farinash charged. Jason Brown also signed his name to several promissory notes, which were given in exchange for "investments" in the Ponzi scheme.

While the family's victims -- many of whom are widows and retirees -- are still trying rebuild their lives, none of Brown's family have been charged with a crime, and the Browns continue to live on their lavish Sale Creek compound. Federal authorities won't comment on the existence of an investigation, and it isn't clear when, if ever, U.S. Attorney Bill Killian intends to press charges in the case, which has been in bankruptcy court since November 2012.

The Brown family's only sanction thus far has stemmed from Farinash's dogged pursuit of their worldly possessions, which he contends were bought with misappropriated funds that should be returned to the estate's bankruptcy creditors. Tuesday's lawsuit against Jason Brown was a continuation of Farinash's attempts to seize the Brown's assets, and stop the family from liquidating their possessions to pay for lawyers and other expenses.

"Jason Brown has no formal education in accounting and is not a licensed accountant of any nature," Farinash wrote. "His work at Brown's Tax Service did not require him to have a residence and there was no reason for him to receive a "housing allowance" other than to further enrich him from the proceeds of the Brown Ponzi Scheme."

Unlike Janet Brown, business partner and wife of Jack E. Brown, there is currently no evidence that Jason Brown's wife, Kimberly Brown, was a knowing participant in the Ponzi scheme, Farinash said. Farinash has sued Janet Brown separately to stop her from dissipating the family's assets, nearly all of which all owed to victims, lenders and creditors.

But while Kimberly Brown may not have participated directly in the scheme, she "knew or should have known that the funds she and the defendant Jason Brown were receiving from the Debtor could not be from legitimate business operations," Farinash wrote. Kimberly Brown received more than $379,300 from the scheme, Farinash charged, both before and after she married Jason Brown.

Though the case has now dragged on for three months, "the precise nature, extent and whereabouts of all of the assets of the debtor is not yet fully known," Farinash wrote.