When Amber Baptiste last week sued venture capitalist Mike Goguen, a former partner at Sequoia Capital, all of the media attention focused on her allegations of prolonged sexual abuse (even though the complaint itself was for breach of contract). And when Goguen filed a cross-complaint this past Monday, we reporters detailed his claims of being extorted by a jealous ex-mistress.
But there is another possible issue raised by Baptiste's complaint, which could be problematic for both the plaintiff and defendant: Tax fraud.
Baptiste claims that she and Goguen first met in 2001. Ten years later, Goguen allegedly agreed to begin paying Baptiste to cover living expenses in her Los Angeles condominium. But rather than just writing her a check, he allegedly asked her to create two shell companies:
Every Girl Counts was structured as a tax-exempt public charity, using a code that is "for organizations that clearly provide education services where the major purpose is unclear cannot be accurately assigned." It was registered with both the IRS and California Secretary of State, but apparently was not required to file itemized federal tax returns because each year it claimed less than $50,000 in gross receipts (at least for 2012-2014 tax years, as that it all that is publicly available). Baptiste's name is listed on registration documents in California, but Goguen's is not.
There is no record of Every Girl Counts ever engaging in charitable or education activities, nor does Baptiste claim in her complaint that it did (note: a separate nonprofit called Every Girl Counts has publicly distanced itself from Baptiste and Goguen).
It is unclear if the creation of a fake non-profit is in itself illegal, given that there isn't any indication that Every Girl Counts solicited donations. So what would matter, therefore, is what's in the personal tax filings of Baptiste and Goguen.
If she accepted his "donations" without reporting them as income tied to Every Girl Counts, then that likely would be tax avoidance. Likewise, Goguen would have IRS troubles if he wrote off his "donations" as charitable giving.
An attorney for Baptiste declined to discuss taxes or Every Girl Counts, while an attorney for Goguen did not return messages left by Fortune.
Update: A spokesman for Michael Goguen on March 30 emailed over the following statement: "Mr. Goguen never perpetrated a tax fraud. He never took a charitable deduction for monies if any paid to Every Girl Counts or any payment to Ms. Baptiste or any of her companies."