The early 2000s, William Foster

In the early 2000s William Foster, a military defense engineer by trade, was the sole owner and director of
“Tanks for Nothin’” (Tanks), a company that produced caterpillar tracks for US Army tanks. Foster operated a
large factory in Arlington, VA where the tracks were assembled from parts shipped in from various other parts
of the country. Foster’s only client was the US Army and he had a $150 million contract with them and an
exclusivity agreement that Tanks would provide the caterpillar tracks for all of the US Army Tanks. The contract
had one additional provision that Foster was only permitted to use parts manufactured in the United States in
order to make the tracks.
Foster had many suppliers, his largest of which was “Don’t Tread On Me, Inc.” (Tread) located in Spokane,
WA. Tread was owned and operated by Martin Prendergast. Prendergast, a retired Marine Colonel, had
worked with Foster for years, primarily because he was one of the few manufacturers of tank tread parts that
steadfastly refused to use foreign steel. In fact, Prendergast seemed to be so “True Blue USA” that the topic of
the “USA only” clause in Foster’s contract was never mentioned to him.
Beginning in 2005, however, US Steel had taken a major hit and prices had risen to record highs. In light of
this, Prendergast was forced, albeit reluctantly, to utilize steel purchased in Japan. The Japanese steel
accounted for about 25% of the steel he used to make the tank tread parts for Foster. Foster figured that about
one out of 4 of his tank treads contained the Japanese steel so he took the “Made in the USA” tag off of 25% of
the parts he shipped to Foster. The contract Tread had with Tanks in 2005 was worth $950k.
Meanwhile, Foster had begun to get overwhelmed with the volume and pace of his business. When he
originally established Tanks, he would do his books and taxes himself, sort of as a hobby. Now, though, things
had gotten complicated and he wanted to be sure he was getting the maximum amount of tax breaks and
refunds possible. To that end, he interviewed accountants and his interview questions were designed to find
the most aggressive accountant he could find in order to prepare his taxes.
Foster eventually hired Beth Trevino, a products manager from Annapolis. Though not a Certified Public
Accountant, Beth had extensive accounting experience and had been working and handling the books for a
company that worked exclusively with the US Navy for almost 20 years. Beth impressed Foster that she would
be able to “squeeze every nickel out of the government.” Foster, therefore, handed over all of Tanks’ book to
Beth and allowed her to get to work while he turned his attention back to the factory, relieved to not have to
bother with the tax situation any longer.
Back at the factory, the latest shipment of steel parts had arrived from Prendergast. This was the first shipment
that contained the Japanese steel parts. Foster’s general practice was to hand inspect shipments that came in
so as to verify their quality. However, he had been working with Treads for so long and trusted and respected
Prendergast so much, that he went to each crate and only looked at the topmost part in the crate. When he did
so, he saw that each part was pristine and each of the parts he saw bore the “Made in the USA” stamp. These
parts were then used to construct the caterpillar treads which were then sent off to the Army as usual.
Meanwhile, Beth Trevino began preparing a tax return for both Foster and Tanks. Beth, a self-taught
accountant, had learned her craft by attending seminars held by accountants and others. She had attended
nearly a dozen such conferences, paid for with her own money. The most recent one she had attended was
run by Sandra Torres titled: “Accounting for Government Contractors.” Part of what Torres professed at the
conference and in the reference materials she provided was that companies working exclusively for the US
Government did not have to pay income taxes because the amount of tax that would normally be charged was
folded into the contractual agreement for the sale and purchase of goods.
Beth put this principle to work while preparing the books for Tanks. In the end, she calculated that Tanks owed
zero tax, and had zero taxable income for 2005 given that all of Tanks’ sales were pursuant to a contract with
the US Army. Beth gave the tax return to Foster for him to review and sign. Foster could not believe it when he
saw the return. He had been doing his own books for years and considered himself a fairly intelligent person,
so he found it difficult to
believe that he could have missed such an obvious (and profound) loophole. Still, it was saving him a lot of
money. So, in the end, he signed the return despite his reservations and sent it off to the IRS.
When the IRS received the return, they were immediately suspicious at such a drastic drop in income by a
successful company. They investigated and discovered that Tanks had not reported the $150 million income
they had from the Army contract. Looking further, they discovered also that the caterpillar tracks sent to the
Army in 2005 contained Japanese steel, in clear violation of the contract.
The IRS discussed the matter with the ‘brass’ at the US Army and they both felt that criminal charges would be
warranted here. While sitting at your desk at the Department of Justice Prosecutor’s Office in Falls Church, VA,
you receive a telephone call from Lt. General Charles Pede. The LTG explains that, since this is a military as
well as an IRS matter, he wants to be absolutely certain that it is handled properly. He is interested to hear your
opinions about what criminal charges, if any, could be filed in this case. In an abundance of caution, he would
also like you to explore any possible defenses that these individuals may have and how likely those defenses
would be to succeed. 
4/25/2021 Order 343359078 3/4
He thanks you kindly for your assistance and assures you have Uncle Sam’s gratitude.
200 on the a analysis of this article pertaining to the bribery portion of public official. Below is the weeks lesson
showing you the connection

Sample Solution