DC Circuit Affirms Abdul Karim Khanu's Tax Evasion Conviction
We have a mildly embarrassing love for British tabloids because they publish the world’s best headlines, and they consistently report on the hijinx of William’s and Harry’s nightclub impresario pal, Guy Pelly.
So today we pretend to be The Daily Mail with our coverage of a tax evasion conviction appeal in the D.C. Circuit Court of Appeals from the District’s own “nightclub impresario” Abdul Karim Khanu.
Khanu was convicted in 2009 on 22 tax-evasion-related counts stemming from DC Live and Platinum, two D.C. nightclubs he owned and operated between 2000 until 2003.
In preparation for the establishment of the first nightclub, Khanu leased a property in northwest D.C. from landlord who required lessees to submit personal balance sheets with their applications. Khanu's balance sheet, which would later be used against him, indicated that he had $700,000 cash on hand in bank accounts in 1999.
The nightclub business proved lucrative for Khanu, and, in 2003, the IRS came knocking on Khanu's door armed with a search warrant. The IRS found $1.9 million cash in Khanu's safe, an amount Khanu later claimed was the property of the corporations.
Khanu was convicted on tax evasion charges in 2009. An IRS agent calculated that Khanu spent more than $3 million in cash in 2003 but reported only $778,000, indicating that he failed to report over $2.2 million in earnings, according to Courthouse News. Khanu was sentenced to three years in prison, and began the appeals process. Last week, he lost his most recent challenge in the D.C. Circuit Court of Appeals.
The government's case was based on the use of the cash method of proof, a method that computes the taxpayer's cash on hand and cash expenditures against the total cash from the taxpayer's known sources during the years in question. The net excess of cash expenditures over the cash from all sources is treated as unreported income.
Khanu challenged his conviction, arguing that there was not sufficient evidence against him under the cash method.
His argument rested on the proposition that under the cash method, the government must establish the defendant's cash on hand at the beginning of each of the disputed years with reasonable certainty, while negating all other sources of nontaxable income during the same period. Khanu argued that the government's figure, $698,886.20, was not established with reasonable certainty, nor were all other sources of nontaxable income negated.
Khanu contended that he might have understated his cash on hand for business reasons at the time of the preparation of the balance sheet relied upon by the government's accountant, and that there might have been other sources of nontaxable income that the government did not negate.
The circuit court was not convinced and affirmed Khanu's conviction.
Regardless of the outcome of any subsequent tax evasion conviction appeals, Abdul Karim Khanu's reign as the king of the D.C. nightclub scene is already over; his last club closed in 2009.
- U.S. v. Khanu (FindLaw's CaseLaw)
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