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A former University of Kentucky basketball star on trial for tax fraud testified that he was misled by his agent about his U.S. tax obligations when he was playing pro basketball in China.
Randolph Morris, a 35-year-old former NBA basketball player, testified for hours in federal court Wednesday after already previously testifying Tuesday. He said his agent Wallace Prather told him one of the benefits to playing overseas was that the team would handle his tax issues. Morris went to China to play basketball after playing four years in the NBA on league-minimum contracts.
“That was one of, really, the main reasons I chose to sign,” Morris said of his understanding that he didn’t have to worry about taxes on his overseas salary.
Morris is accused by the United States of deliberately failing to report about $17.9 million in gross income, and the IRS has estimated he owes at least $1.8 million in taxes on that income.
Morris faces three charges of wire fraud and eight charges of making false statements, according to court records.
But Morris testified repeatedly he tried to do his taxes properly and fully intended to pay all his taxes. Emails show he sought tax help for his Chinese income from his agent, Prather. He asked for help in getting tax documents from the Beijing Ducks, the team he played for in China.
But he said he didn’t have any luck getting documents back from the team or the government to show how much money he had paid in taxes in China.
When Morris asked Prather about taxes on his Chinese income, Prather responded “Dudes don’t even report that s**t in America,” according to an email from Prather filed in federal court.
“Or they report less,” Prather wrote in the email. “But if you have an issue, then the team will be asked for a (form) to show your tax people.”
Morris said he trusted Prather because Prather went to Cornell University and was a licensed NBA agent. He also had other clients who played basketball overseas, so Morris said he thought Prather would know best about tax issues with overseas income.
After Prather suggested that Morris not report his Chinese income on his taxes, Morris responded “hope they don’t audit the s**t outta my a**,” according to emails from 2010 filed in federal court.
Emails filed into federal court indicated that Morris and his agents tried multiple times to get more tax documents from the Beijing Ducks. They had no success, Morris said.
After Morris’ agent told him the team was handling all his taxes, he thought that included U.S. federal and state taxes. But the Beijing Ducks were only paying Morris’ taxes to the Chinese government. Chinese government records obtained by the United States indicated the Ducks paid about $6.6 million in taxes on Morris’ behalf to the Chinese government.
The team did not pay any taxes on Morris’ behalf to the United States.
Tax records show Morris still reported other income on his taxes despite leaving off his Chinese income. He reported large sums of money from NBA licensing checks which he was still receiving.
“It was my understanding that the Chinese team was taking care of the rest,” Morris said in testimony.
Morris, the former All-SEC player testifying in his own trial Wednesday, was asked by his attorney: “Do you have a different understanding now?”
“Oh yeah,” Morris replied.
Morris admitted he didn’t report the income from China. He also admitted that he signed tax forms without the income on them under potential penalty of perjury.
Morris owed about $4.1 million in taxes on the money he made in China, according to IRS agents who testified Tuesday. But his taxes owed would be reduced to $1.8 million if given the benefit of the Foreign Tax Credit. The tax credit helps prevent U.S. citizens from being double-taxed if they pay taxes in other countries.
Morris’ attorneys have disputed whether or not Morris had criminal intent, which they say would be necessary for him to be convicted. They’ve argued that Morris only failed to report his income because he misunderstood his contract and was misled by others.
In addition to reassurances made by his agent, Morris also had a contract with the Ducks which stated the Ducks were responsible for paying taxes on his behalf to the Chinese government. The money Morris received from the Ducks was “net of tax,” according to the contract. The contract didn’t say anything about U.S. taxes.
Jeff Laber, an IRS special agent who investigated Morris’ case, admitted Tuesday in court that the contract wasn’t “crystal clear” when it came to tax explanations.
But prosecutors have stated repeatedly that Morris was required to list his overseas income on his taxes regardless of the circumstances, and they believe he deliberately avoided doing so. Prosecutors said Morris moved to different tax preparers regularly and kept them “in the dark” about his income from China.
Morris testified that he moved to different tax preparers because of convenience. He said he also started doing his taxes on his own online for convenience.
Morris’ attorney, Patrick Mullin, questioned how Morris could still owe more taxes after $6.6 million was paid, especially if the Foreign Tax Credit was considered.
Rodney Peters, an IRS technical specialist, responded that the money owed after accounting for the Foreign Tax Credit is calculated on a year-by-year basis rather than a “sum of the whole” valuation. Individuals can elect to have their foreign taxes calculated by an accrual over multiple years, but they have to opt-in to that option. Morris didn’t.
IRS agent ‘downplayed’ criminal investigation, player’s wife says
With the Beijing Ducks paying Morris’ taxes in China, Morris’ wife testified in court Tuesday that the family had no idea they did anything wrong. She said they didn’t find out until IRS agents showed up at the Morris’ home in 2018 to try to interview Morris about suspicious wire transfers he received in his bank account.
Andrea Morris testified Tuesday that after some initial hiccups, Special Agent Jeff Laber and a colleague were able to interview Randolph Morris in China from the couple’s Lexington home.
Andrea Morris said the agents didn’t tell the couple they were being interviewed as part of a criminal investigation until after Randolph Morris had hung up the phone. The agents asked seemingly simple questions about the wire transfers and Morris’ taxes.
“He downplayed it totally,” Andrea Morris said of Laber’s comments and demeanor prior to the interview. “We didn’t think it was anything.”
Laber testified Tuesday that he didn’t have any plan to arrest Morris at his home that day. He didn’t have a warrant and said he just wanted answers to questions that hadn’t been resolved after reviewing financial records.
Randolph Morris explained to the agents that the wire transfers were legal payments he received for playing basketball in China, according to the testimony of IRS agents and Andrea Morris.
IRS: Morris said he knew he had to report his income on his taxes
Morris allegedly made conflicting statements about his taxes, according to Laber. Laber said that Morris initially said he understood he needed to report his overseas earnings on his taxes. He also allegedly told Laber that it was common knowledge among overseas basketball players that they had to report their income on their taxes.
But after Laber confronted Morris about reviewing tax returns and finding no income from China, Morris allegedly changed his story. Morris then said he didn’t know he had to report his income, Laber testifed.
Andrea Morris testified Tuesday that her husband asked Laber something along the lines of “So you’re telling me that the team wasn’t paying my taxes?”
She said the agents ultimately told her she and Randolph owed the U.S. government over $6 million in taxes and they needed to hire a criminal tax attorney.
Morris’ trial is expected to be handed to the jury for deliberations after further testimony and closing arguments Wednesday, Federal Judge Danny C. Reeves said in court Tuesday.