DATE: Friday, November 14, 1997             TAG: 9711140614

SECTION: LOCAL                   PAGE: B6   EDITION: FINAL 

SOURCE: BY LYNN WALTZ, STAFF WRITER 

                                            LENGTH:   50 lines

EASTERN SHORE WATERMAN ADMITS GUILT IN FEDERAL TAX EVASION CASE

Vaughn C. Pruitt fished the waters off the Eastern Shore with his boat, the Vonda Kay, nearly year-round in the early 1990s, selling his fish and crabs to local vendors, often for cash.

There was one catch: He only filed tax returns on about $95,000 of the roughly $165,000 he made each year.

Pruitt, of Camp Lane in Davis Wharf, pleaded guilty to tax evasion Wednesday in federal court, the first waterman to be convicted after a five-year Internal Revenue Service study of cash transactions in the Eastern Shore seafood industry.

In 1992, watermen attracted the agency's attention because they conduct much of their business in cash. Evidence presented Wednesday showed that Pruitt sold much of his catch for cash, or asked vendors to write checks to the name of his boat and to employees, so that he wouldn't have to declare the income. In 1992, the agency asked more than 350 Virginia seafood dealers and processors for records of purchases they had made from watermen. A preliminary release of the study in 1992 suggested that nearly half of Virginia watermen didn't file returns or didn't fully report income.

Pruitt pleaded guilty to tax evasion on 1991 and 1992 tax returns.

IRS officials would not comment Wednesday on why no other watermen have been charged or whether others will be. Pruitt was charged because his behavior showed a clear intent to defraud the IRS, an investigation of his case showed.

Prosecutors said Pruitt reported $95,000 in income in 1991, hiding an added income of $80,214. In 1992, he reported $96,000 and hid $62,450 more. And now, prosecutors said, Pruitt owes $43,000 in unpaid taxes.

While Pruitt pleaded guilty Wednesday, he did not admit to the exact amount charged by prosecutors, and said that issue was a matter to be decided at his Feb. 25 sentencing. Pruitt faces up to three years on each charge but could receive as little as probation because of his cooperation in the case.

Davis Wharf is on Occahannock Creek, due west of Exmore on the Chesapeake Bay.

The compliance study was not an attempt by the IRS to seek criminal charges but instead was intended to aid watermen in filing their taxes. For several years, IRS officials and tax lawyers helped watermen who had neglected to file tax returns or who had underreported income. Delinquent filers who stepped forward voluntarily were not prosecuted. But if the IRS found evidence of illegal income or evidence that the watermen intentionally tried to hide income, the information was turned over to investigators.

A similar statewide program in 1993 estimated that 250,000 Virginia residents had failed to file federal tax returns. KEYWORDS: TAX EVASION

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