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Kidnapping Prostitutes Is Not a Good Way to Claim Dependents for Tax Purposes

Some people might say that a Florida CPA imprisoned three prostitutes and used them as sex slaves, but others could say he increased his number of dependents using an innovative strategy that complies with both the U.S. Tax Code and the AICPA Code of Professional Conduct. I'm sticking with the former – false imprisonment and human trafficking – but it's pretty scary when you realize that a case could actually be made for the latter.

A Florida accountant kept three hookers prisoner in his upper middle class home for months. … Timothy Deegan, 53, of Gainesville, traded sex for drugs, monitored the women using hidden cameras and GPS devices, and forced them to keep his house clean. … He began pimping them out himself, renting hotel rooms for sex romps and then taking their money in exchange for coke.

It’s really weird but true; according to IRC Section 152, if you imprison prostitutes as sex slaves, you can claim them as dependents. The two main types of dependents are qualifying children and qualifying relatives. The Code includes in its definition of qualifying relative, "any individual … who, for the taxable year of the taxpayer, has the same principal place of abode as the taxpayer and is a member of the taxpayer’s household." So as long as Deegan imprisoned the prostitutes in his primary residence, he didn't just get sex slaves; he got relatives. According to the tax code, false imprisonment is like Olive Garden: when you're here, you're family.

Obviously, Deegan would have to meet other requirements to legally claim Cinnamon, Porsche, and Karen as dependents. For instance, he would have to provide over half of their living expenses. Now, I’m pretty sure that’s implied within the greater concept of “imprisonment,” so long as Deegan resists his accountantly urges to mail them an itemized invoice for food, rent, and toiletries.

He needs to be careful, though, because an imprisoned prostitute can't be considered a dependent if the imprisoned prostitute’s gross income is $3,900 or more (assuming the imprisonment occurred in 2013). This may be the most difficult dependency requirement to substantiate. However, since Deegan was acting as their pimp, in theory he would have had the ability to limit the total amount of revenue they earned in a given tax year (assuming they had minimal earnings during any portion of the tax year in which they were not imprisoned). He could also increase his pimp admin fees (which I believe are both normal and customary and, therefore, deductible) to a level that would reduce their gross income below the threshold amount for dependency.

Additionally, to be dependents, the hookers can't file joint returns, can't claim any dependents of their own, and must be citizens of the United States. Therefore, best practices would dictate that a proper background check should be performed prior to the imprisonment of any prospective sex slaves.

It's also enlightening to realize that, according to the AICPA Code of Professional Conduct, the imprisonment of prostitutes as sex slaves is not considered an ethical violation.

Independence is a central theme of the Code of Professional Conduct, and clearly someone's independence is impaired, but it's not necessarily Deegan's. His independence would be impaired if he performed an audit or review of any of his sex slaves' financial statements, so for the fiscal years in question, I'm sure he recused himself of anything beyond a compilation.

According to the Code of Professional Conduct, CPAs can lose their license for committing an act discreditable to the profession (ET 501). But fortunately for Deegan, imprisoning prostitutes as sex slaves is not mentioned in the AICPA's interpretation of acts discreditable. Acts discreditable do include failing to file your personal tax returns and using misleading marketing for your professional services. Punching babies and human trafficking, however, are strangely overlooked in the Code of Conduct.

Mr. Deegan, as a result of his heinous behavior, may be able to successfully lower his tax burden, and he may be able to keep his license as a CPA. I believe karma will ultimately catch up with him, however, when he finds himself in Federal prison being used for sex.