DANIEL H. GEORGE, JR., Petitioner, Appellant,
COMMISSIONER OF INTERNAL REVENUE, Respondent, Appellee.
FROM THE DECISION OF THE UNITED STATES TAX COURT
J.E. Markham, II, with whom Markham & Read was on brief,
Anthony T. Sheehan, Attorney, Tax Division, Department of
Justice, with whom Caroline D. Ciraolo, Acting Assistant
Attorney General, and Teresa E. McLaughlin, Attorney, Tax
Division, were on brief, for appellee.
Torruella, Lynch, and Barron, Circuit Judges.
TORRUELLA, Circuit Judge.
H. George, Jr., appeals a tax court decision affirming a
determination by the Commissioner of the Internal Revenue
Service ("IRS") that he owed $3.790 million in
income taxes and penalties on $5.65 million in bank deposits
he made and interest earned from 1995 to 2002. George argues
that these deposits were not his taxable personal income but
the program income of Biogenesis Foundation, Inc.
("Biogenesis"), a social welfare organization that
had tax-exempt status pursuant to section 501(c)(4) of the
Internal Revenue Code, 26 U.S.C. § 501(c)(4). We agree
with the tax court's determination that an organization
distinct from George did not exist during the applicable tax
years and affirm.
1995 and 2002, George, a self-taught chemist, created his own
health supplements. The proceeds from the sale of these
supplements formed the basis of the bank deposits at issue in
conducted experiments and created mineral, herbal, and
chemical supplements in his home in Rockport, Massachusetts.
George also worked with health supplement companies that
provided him with raw materials, equipment, and feedback. In
turn, these companies purchased George's supplements,
which they incorporated into their own products. The
supplement companies dealt with George directly, viewing him
as a vendor, and paid him either in cash or by check.
addition to his dealings with the supplement companies,
George sold his supplements directly to individuals who came
to his Rockport house. Some of these individuals formed a
"core group, " members of which promoted
George's supplements through word of mouth and at
meetings where they sold George's supplements to other
core group members also assisted George in holding retreats
where he discussed health and spirituality and provided his
supplements to attendees. Between 8 and 24 people
participated in any given retreat and paid $300 to $1000 each
to attend. The core group members provided services, such as
cooking and organizing transportation, in lieu of paying
fees. Part of the fees paid by nongroup attendees went
towards reimbursing core group members for the costs of the
retreats. George also received a portion of the fees as
payment for the supplements he administered.
did not issue receipts or otherwise document the payments he
received from the supplement companies or individuals. The
only record of George's transactions was his deposit of
these funds into fourteen different personal bank accounts he
maintained. George did not spend any of the money he received
from his activities. Rather, George covered his personal
expenses using Social Security disability payments he
2002, the IRS began investigating George. During an interview
with an IRS agent, George admitted he had not paid any taxes
since the 1970s. George explained that he was hoping to
accrue $10 million to set up a foundation and non-profit
research laboratory. George was subsequently charged with and
convicted of tax evasion in violation of 26 U.S.C. §
7201 based on his failure to pay taxes in the tax years 1996,
1997, 1998, and 1999. The United States District Court for
the District of Massachusetts sentenced George to thirty
months' imprisonment. We upheld George's conviction
in United States v. George
("George I"), 448 F.3d 96 (1st Cir. 2006).
2003, six weeks after his tax evasion indictment, George
incorporated Biogenesis. That July, George applied for
tax-exempt status for Biogenesis as a charitable organization
under section 501(c)(3) of the Internal Revenue Code, 26
U.S.C. § 501(c)(3). In the application, George certified
that he was filing for tax-exempt status "within 15
months from the end of the month in which [Biogenesis] was
created or formed." The application also described
Biogenesis's mission, which was, according to George, to
expand upon his research to create supplements for treatments
based on cellular regeneration technology and provide health
products to those in need. George claimed ...