Gold Coast

by Nelson DeMille

  “Yes, sir.”

  I stood, walked to the window, and looked down on Wall Street. Money. Power. Prestige. Corporate grandeur and layers of insulation against the world. But Mr. Stephen Novac, of the IRS, had done in fifteen seconds what some people couldn’t do in fifteen days or weeks; he had breached all the fortifications and would be sitting in my office on the very same morning he’d called. Incredible.

  Of course I knew by the tone of the man’s voice and by his arrogance that this must be a criminal matter. (If it turned out to be a civil case, I’d throw him out the window.) So the question remained, which criminal was Mr. Novac coming to see me about? Bellarosa? One of my clients? But Novac would not be that arrogant if he were looking for my cooperation. Therefore, he was not looking for my cooperation. Therefore . . .

  • • •

  At eleven-fifteen, Mr. Stephen Novac was shown into my office. He was one of those people whose telephone voice exactly matched his looks.

  After the mandatory limp handshake, Mr. Novac showed me his credentials, which identified him as a special agent, not a revenue agent as he’d said. A special agent, in case you haven’t had the opportunity to meet one of these people, is actually with the IRS Criminal Investigation Division. I said to him, “You misrepresented yourself over the telephone.”

  “How so?”

  I told him how so and added, “You’re speaking to an attorney, Mr. Novac, and you’ve gotten yourself off on the wrong foot.’’ Of course, the man was royally pissed off and would now take every opportunity to stick it to me. But I had the feeling he was going to do that anyway. “Sit,’’ I commanded.

  He sat. I remained standing and looked down at him. That’s my little power play. Mr. Novac was about forty, and anyone still in the IRS after all those years was definitely a career officer, a pro. Sometimes they send kids over, spanking new CPAs or attorneys with the ink still wet on their diplomas, and I chew them up and spit them out before they even open their briefcases. But Stephen Novac looked cool, slightly smug, the way any cop is when he knows he has the full weight of the law in his badge case. He seemed not at all impressed with his surroundings, not intimidated by all the accoutrements of rooted, generational jurisprudence. This was not going to be pleasant. “What can I do for you, Mr. Novac?”

  He crossed his legs and took a small notebook out of his pocket. He perused it without replying.

  I had the urge to throw him out the window, but they’d just send another one. I regarded Novac a moment. He had on an awful gray poplin cotton suit, the sort of thing that prisons issue when they set you free. He wore shoes that actually had gum soles, and the uppers were made of a miracle synthetic that could be safely cleaned with Brillo. His shirt, his tie, socks, watch, even his haircut, were all bargain basement, and I found myself irrationally offended by the man because of the air of sensible frugality about him. Actually, I hate a man who won’t splurge on a good suit.

  What I really didn’t like about Novac, of course, was that he was in my office to ruin my life. At least he could have come better dressed.

  “Mr. Novac,’’ I said, “can I help you find something in that book?”

  He looked up at me. “Mr. Sutter, you bought a house in East Hampton in 1971 for $55,000. Correct?”

  Innocuous as that question may seem to you, it was not the question I wanted to hear. I replied, “I bought a house in East Hampton in the early 1970s for about that price.”

  “All right. You sold it in 1979 for $365,000. Correct?”

  “That sounds about right.’’ Best investment I ever made.

  “There was, then, a net long-term capital gain on the transaction of $310,000. Correct?”

  “No. There was a gross gain of $310,000. There’s a difference between net and gross, Mr. Novac. I’m sure they taught you that in school, even if the IRS doesn’t know the difference.’’ Easy, Sutter.

  He looked at me. “What, then, was your net capital gain?”

  “You subtract capital improvements and other costs from the gross, and that’s what we call the net in the world of private enterprise.”

  “And how much was that, Mr. Sutter?”

  “I have no idea at this moment.”

  “Neither do we, Mr. Sutter, since you never reported a dollar of it.”

  Touché, Mr. Novac. I replied aggressively, “Why should I report it as income? I bought another house in East Hampton for over $400,000. Therefore, the capital gain, whatever it is, was deferred. Would you like me to show you the pertinent section of the tax code?”

  “Mr. Sutter, you had eighteen months according to the law at that time to roll over the gain—to purchase a house with the proceeds of the house you sold in order to defer the capital gain. You waited twenty-three months before you bought the house on Berry Lane in East Hampton, in January of 1981. Therefore, a tax event took place, and you should have computed and paid taxes on your capital gain.’’ He added, “You failed to report a significant amount of income.”

  The man was right, of course, which was why he was still sitting there and not being tossed bodily out into the hall. But lest you think I am a crook, there is an explanation. I said to Mr. Novac, “My intention was to build a house. The law, you may have heard, allows twenty-four months to roll over the capital gain if you build instead of buy.”

  Mr. Novac replied, “But the house you bought and still own on Berry Lane was not built by you. It was an existing house, according to my research.”

  “Yes. I had a binder on a piece of land on which I was going to build my house, but the seller reneged at the last moment. I began an action against him, but we settled. There are court records to substantiate that. So, as you can see, Mr. Novac, my intention to build a new house was aborted. The clock was ticking, and I knew I could not find land and begin construction to satisfy the government’s inane tax rules, which I think are an intrusion into my rights as a free citizen to make economic decisions based on my needs and not the government’s. Therefore, Mr. Novac, being thwarted in my intention to build, I quickly bought an existing house—the one on Berry Lane, which is quite nice, and if you’re ever in East Hampton, drive by.’’ I added, “To avoid taxes is legal, to evade taxes is illegal. I avoided. Thank you for stopping by on government time. I like to see how my tax money is spent.’’ I walked to the door and opened it, adding, “I’ll send you the pertinent records and court papers regarding the land deal that fell through, so you don’t have to dig them up out in East Hampton. Please leave your card with my secretary.”

  But Mr. Novac was not on his way out the open door. He remained seated and said, “Mr. Sutter, you did not fulfill the requirements to buy a house within eighteen months. Therefore, a tax event took place at that point in time. There is nothing you can do or say retroactively to change that tax event.’’ He added, “You have broken the law.”

  Now, you have to understand how these people think. Mr. Novac was certain that I had committed not only a crime under the ever-changing tax code, but that I had sealed my fate for eternity when a tax event took place without my notifying the government of it. Truly the angels in heaven were weeping for me all these years. Confess, said Mr. Novac, repent and you will be absolved of this sin before we burn you at the stake. No, thanks. I closed the door so as not to upset Louise and moved toward Mr. Novac, who stood his ground, or more precisely remained on his ass. “Mr. Novac,’’ I began at low volume, “in this great nation of ours, a citizen is innocent until proven guilty.’’ Turning up the volume now: “This is the central principle of our system of justice, a pillar of our civil liberties. Yet the Internal Revenue Service demands of American citizens that they supply proof of their innocence. Wrong, Mr. Novac. Wrong.’’ Full volume. “If you have proof of my guilt, I demand to see it. Now!”

  He kept his cool, refusing to be baited or drawn into a shouting match, which was what I wanted for the record. He was a pro. “Mr. Sutter,’’ he said, “like it or not, in matters of civil tax delinquency, the b
urden of proof is on you.”

  “All right,’’ I said coolly, “then listen carefully. It was my intention, which I can demonstrate in tax court, to build a house. Interestingly, the new tax law allows twenty-four months to build or buy a house in order to avoid a capital gains tax. So you see, Mr. Novac, nothing is carved in stone, least of all the tax code, which is rewritten by little elves every night. So there you have my position in this case, Mr. Novac. I have nothing further to say, but if you want to fill the remainder of the hour I have allotted to you, you can sit there and read the United States Tax Code while I work.”

  Mr. Novac got the message and stood. “Mr. Sutter, by your own admission, and based on my research, you are liable for capital gains taxes, plus interest and penalties.’’ Mr. Novac took a piece of paper from his pocket, scanned it, and said, “By my calculations, if you cannot show receipts and canceled checks for capital improvement deductions, then the capital gain in the year you sold your house was $310,000. Taking into account the tax structure at that time, plus the interest and penalties—negligence penalties, failure-to-file penalties, and a civil fraud penalty—you owe the United States $314,513.”

  Now I wished I was sitting. I took a deep but discreet breath. This was the moment Mr. Novac had been waiting for—perhaps for months—and I was not going to give him anything to savor about it. I said, “And I still come up with zero.”

  He handed the paper to me, but I refused to take it, so he left it on my desk. Mr. Novac said, “Your intention to legally avoid the tax is irrelevant.”

  “Wrong,’’ I replied. “In a civil tax case, my intent is very relevant. Where did you go to school?’’ Mr. Novac only smiled, which made me uneasy. I continued, “And don’t expect me to agree to a negotiated settlement. My position is that I owe no taxes.’’ I added, “And if you try to seize any of my assets, I will block you and sue you.’’ This threat, unfortunately, was so hollow that Mr. Novac openly smirked. The IRS has nearly total power to take things from you, and you have to go to court to get them back. I added, “I’m calling my congressman as well.”

  Mr. Novac seemed not impressed. He informed me, “Normally, Mr. Sutter, I would accept your explanation for the error if you would accept my figures. But as you are an educated man, a tax attorney at that, then the IRS is taking the position that this was not an error or oversight, but a case of premeditated tax evasion. Fraud. I must advise you at this time that, in addition to the civil penalties, criminal charges are being contemplated.”

  I could smell that coming, and when a cop says “criminal charges,’’ I don’t care who you are, how much money you have, or how many law degrees are hanging on your wall, your heart does a thump. I actually know a few men with more power and money than I have who were sent away for a while, as they say. I know two who have come back and they are not the same men. I looked Mr. Novac in the eye. “Grown men do not wear cotton suits.”

  For the first time, Mr. Novac showed some emotion; he turned red, but not, I’m afraid, with embarrassment over his poor attire. No, he was really pissed off now. He got his color under control and said, “Please prepare for a full audit of all your tax returns from 1979 to the present, including this year’s return, which you have not yet filed. Have all your documentation and records available for an auditor, who will contact you this afternoon. If you do not voluntarily turn over these records, we will subpoena them.”

  My tax records were in Locust Valley, but I’d worry about that this afternoon. Now I know what it feels like to be mugged. I walked to my door and opened it. “And no one in the Free World wears synthetic leather shoes, Mr. Novac. You must be a spy.”

  “I am a vegetarian,’’ he explained, “and will not wear leather.”

  “Then for God’s sake, man, have the decency to wear canvas tennis shoes or rubber galoshes, but not plastic. Good day.”

  He left without another word, and as I was closing the door behind him, a word popped into my mind and I called out, “Schmuck!’’ Louise almost dropped her dentures. I slammed the door shut.

  Despite my cool, patrician exterior, I was somewhat disturbed over the prospect of coughing up about a third of a million dollars plus spending time in a federal prison. I poured a glass of ice water from a carafe, went to the window, and opened it, letting in some of the last breathable air that still exists at this altitude in Manhattan.

  So, there it was; the Great Upper-Middle-Class Nightmare—a tax slip-up in six figures.

  Now listen to me feel sorry for myself. I work my butt off, I raised two children, I contribute to society and to the nation, I pay my taxes . . . well, apparently not all of them, but most of them . . . and I served my country in time of war when others found ways to avoid their national duty. This is not fair.

  Now listen to me build up rage. The nation is overrun with drug dealers and Mafia dons who live like kings. Criminals own the streets, murderers walk free, billions are spent on welfare, but there’s no money to build jails, congressmen and senators do things that would put me behind bars, and big corporations get away with tax scams of such magnitude that the government would rather compromise than fight. And they call me a criminal? What the hell is wrong here?

  I got myself under control and looked down into the street. Wall Street, the financial hub of the nation from which radiated the spokes of power and money that held up the rim of the world. And yet there was this perception out in the hinterlands that Wall Street was un-American, and the movers and shakers who inhabited it were parasites. Thus, Mr. Novac entered Wall Street with a generally bad attitude, and I suppose I didn’t do much to change his mind. Maybe I shouldn’t have remarked on his plastic shoes. But how could I have possibly resisted? I mean, I learned something at Yale. I smiled. I was feeling a little better.

  Now listen to me think rationally. The criminal charge would be difficult to prove, but not impossible. A jury of my peers, drawn from my friends at The Creek, would surely find me not guilty. But a federal jury, constituted in New York City, might not be so sympathetic. But even if I could avoid or beat the criminal charges and fines, I was probably on the hook for . . . I looked at the paper on my desk . . . $314,513, which was actually more than the entire so-called profit on the sale of the house. That is a lot of money, even for a successful Wall Street lawyer. Especially an honest one.

  Also, Susan theoretically was on the hook for half of that. Though we file separate tax returns because of her complicated trust fund income, and because that is what our marriage contract stipulates we do, half the East Hampton house is hers, and she should have picked up half the supposed capital gain. But of course, even in this age of women’s equality, Novac was talking jail to me, not Susan. Typical.

  Anyway, thinking rationally, I knew I should call the Stanhopes’ law firm and advise them of this problem. They’d probably go to the IRS and offer to help screw me in exchange for immunity for their little heiress client. You think marrying into a super-rich family is all fun and profit? Try it. Anyway, the next thing I had to do was have one of the partners here handle my tax case—you can’t be objective when it’s your own money—and then I should think about actually retaining a criminal attorney for myself.

  This last thought led me into a word association, like this: Criminal = Bellarosa.

  I thought about my buddy, Frank, for a moment. Mr. Bellarosa went to jail once in his larcenous life, and that was for tax evasion. But obviously Bellarosa is still committing tax fraud, since he’s certainly not declaring his income from drugs, prostitution, gambling, hijacking, or whatever else he does on the side.

  So I stood there looking down on Wall Street, feeling sorry for myself, feeling angry at the injustices of life, and really pissed off at the thought of all the criminals who were not hassled today by the government.

  It was just then, I suppose, that a strange thing began to happen to me: I started to lose faith in the system. Me, a champion of the system, a cheerleader for law and order, a patriot and a Republican
for God’s sake—suddenly I felt alienated from my country. I suppose this is a common reaction for an honest man and a good citizen who is thrown into the same category as Al Capone and Frank Bellarosa. I suppose, too, to be honest, that this had been brewing for some time.

  I recalled Frank Bellarosa’s words: You a Boy Scout or something? You salute the flag every morning?

  Well, I did. But then I realized that all my years of good citizenship would only count toward a favorable presentencing report to the judge.

  My logic—no, my survival instincts—told me I needed to stop being a good citizen if I wanted to be a free citizen. So, voluntary compliance or come and get me, pigs? Come and get me, pigs.

  I knew, of course, the one man who could really help me, and I wished I had his telephone number right then.

  Nineteen

  “Give unto Caesar that which is Caesar’s,’’ quoteth Frank Bellarosa. “But,’’ he added, “never more than fifteen percent of your net.”

  I give my clients similar advice, but I recommend seventeen percent of the adjusted gross, and I charge for my time. So, I suppose, does Frank Bellarosa, in a manner of speaking.

  It was Friday evening, and I was at my usual table in the cocktail lounge of The Creek. It was crowded, and everything was as I described it on an earlier Friday evening, except that sitting across from me was the Bishop.

  Without even looking around, I could feel eyeballs bouncing between me and my friend Frank. Lester Remsen was at the next table, and with him were Randall Potter and Allen DePauw, who you may recall was providing the government with a forward observation post across the road from Alhambra.

  The Reverend Mr. Hunnings was also there, sitting with three other men at the corner table near the big picture window, a sports jacket thrown over his golfing clothes and a glass of red wine in his hand. Episcopalian and Catholic clergy, I’ve noticed, drink mostly red wine in public, which I suppose is okay for the image, because red wine is served at the altar, unlike cold beer.