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Tax Laws Being Used to Bring Down Houston Bookstore Owners

Houston- For all of Al Capone’s sins and transgressions, he did at least one thing of everlasting value to law enforcement: He failed to pay his taxes.

That gave federal authorities the chance to do what their local counterparts could not — keep “Scarface” behind bars — and ever since, creative U.S. attorneys have found income tax laws an invaluable tool when pursuing the lawbreaker apparently above the law.

For much of the past two decades, those targets have included people who distribute sexually explicit material, whose rise to wealth was inevitable when obscenity laws began to fall out of fashion.

Porn may have moved from seedy theaters and plain brown wrappers to a closer-to-mainstream commodity, with revenues ranging between a few billion dollars and $20 billion, depending on who you listen to. But the people behind it still live with a bull’s-eye on their back, even though their product is not illegal unless a jury has judged it so.

Local adult bookstore owner Andrew Inglet discovered as much this month when an indictment charging him with tax evasion was unsealed after his arrest. The three-count indictment alleges that Inglet, the 54-year-old president of East Bay Inc., underreported his income as well as the wages of some of his employees.

For example, in 2002 Inglet reported income of $134,112 when it should have been more than $1.25 million, prosecutors allege. In all, East Bay deprived the government of more than $500,000 in taxes, according to the indictment.

Curiously, the federal complaint left unexplored the relationship of Inglet and East Bay to father-and-son adult bookstore impresarios John K. and John A. Coil, who also were indicted on tax evasion and obscenity charges in 2003. Their network of 27 sexually-oriented businesses in Texas — several were in Houston — and three other southwestern states ultimately was seized by the government and shut down. John K. Coil was sentenced to 63 months in prison on both charges. His son received probation after pleading guilty to making a false statement on a tax return.

John A. Coil’s name appears on East Bay’s public franchise tax report for 2007, which is dated March 16. On that form he, not Inglet, is listed as the company’s president. Other documents show him as one of the directors of the company, which operates eight adult-oriented stores in Houston, Dallas, San Antonio and Austin.

One likely explanation for the connection to Coil is that Inglet was aware of the investigation into his tax filings and was looking for a way to get out of the business. In a written statement explaining her decision to jail Inglet without bail, U.S. Magistrate Judge Frances Stacy said Inglet has long been concerned about information that his ex-wife gave IRS agents just before their divorce, and had either sold or was selling all his property in Texas.

Inglet’s attorney, William Grimsinger, declined to comment on the ownership of East Bay or the charges against him. Coil could not be reached.

Even if federal prosecutors had not been combing his tax records and checking his books, the time may have been right for Inglet to move on to a new line of work. Despite porn’s ever-rising DVD sales, Internet availability and inclusion in cable and satellite TV packages — or perhaps because of it — the legal climate recently has grown frostier for those who sell it.

In 2005, the Bush administration organized an anti-pornography task force, with then-Attorney General Alberto Gonzales vowing to bring obscenity cases back to the nation’s courtrooms to protect citizens from exposure to sexually explicit material. The number of prosecutions has steadily increased.

“I think these investigations are a reflection of an assault on the industry,” said Luke Lirot, a Florida attorney who represents numerous businesses and individuals in the adult industry. “I think this is President Bush paying back some of his political capital from the Christian right.”

Dicier by nature, obscenity charges are easier to justify if prosecutors can pair them with other, heftier allegations such as racketeering or tax evasion that add leverage to the case.

The strategy has shown up in a number of recent cases. In 2005, the U.S. attorney’s office in Dallas obtained an indictment against Edward Wedelstedt of Denver, whose company, Goalie Entertainment, was a major distributor of adult material in 18 states, including Texas.

In March 2006, he was sentenced to 12 months in prison on tax fraud and obscenity charges, followed by a year of supervised release, and had to forfeit some of his properties.

Tax charges were used to bring down the legendary Reuben Sturman, whose California-based empire earned him an estimated net worth of $100 million — and also the attention of the federal prosecutors, who focused on his financial doings when state and local obscenity charges failed to stick.

Sturman was slapped with a 29-year prison sentence and died in federal custody in 1997 at the age of 72.

“I should have paid my taxes,” he told the Los Angeles Times two years before his death. “I paid a million every year. But there was a couple million I didn’t tell them about.”

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