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Son learns to look gift horse in mouth

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When William H. Callahan accidentally discovered his father's illegal activities, his dad threatened to kill him if he didn't keep quiet. He didn't keep quiet.

His maternal grandfather, Charles Rao, founded Arc Electrical Construction Co. in New York City, which now employs 500 people. Officers and board members were predominantly relatives of Rao.

Callahan started work for Arc at age 18 and advanced rapidly. At 24 he was promoted to project manager and supervised 50 employees on a major Wall Street job.

Over the years his father, company executive vice president and treasurer, gave him money and various items.

One day, while waiting alone in his father's office, Callahan discovered evidence that his father had improperly charged the gifts to the company and embezzled money from Arc.

Meanwhile, a New York grand jury and the Internal Revenue Service began investigations. The grand jury, checking corruption in the electrical contracting industry, targeted several Arc officers, including young Callahan.

He wasn't charged with any crime, nor was his father, who by then had been mysteriously killed.

As a result of its audit, the IRS increased Junior's taxable income by $104,000, saying this was embezzlement income. It also added a fraud penalty. He appealed.

After considering the evidence on both sides, the court said the IRS didn't prove Callahan intentionally evaded taxes.

Just because corruption was all around him didn't mean he was corrupt, the court said.

The court reversed the IRS fraud penalty. It also ruled he owed no taxes.

The moral: Sometimes you should look a gift horse in the mouth.