The trial of Al Hee, president of Waimana Enterprises and the brother of former State Senator Clayton Hee, started yesterday with jury selection in Honolulu’s Federal District Court. Judge Susan Mollway is presiding.

According to the second superseding indictment filed on March 25, 2015, Hee allegedly pursued a plan to evade taxes by claiming personal expenses as business expenses, and failing to report those payments as income.

Just prior to trial, prosecutors agreed not to pursue charges contained in the indictment relating to transactions with the Board of Water Supply.

According to the indictment, Waimana Enterprises allegedly paid $2,750,033 of Hee’s personal expenses, including college tuition of $33,523, other college tuition and living expenses totaling over $718,000 characterized on the company’s books as “loan to shareholder,” personal massages costing $92,000 shown on the books as “consulting fees,” credit card payments of $121,000, and another $722,550.39 in payments to Hee’s children, who the indictment alleges “did little or no work” for Waimana Enterprises.

According to the government’s trial brief:

While attending college full-time on the mainland, defendant’s three children were put on WEI’s payroll, and paid a salary and fringe benefits, including retirement contributions. Defendant put his wife on WEI’s payroll, so that she too could receive a salary and benefits. In total, WEI paid approximately $722,550.39 in wages to defendant’s children, $590,201 in wages to his wife, and $443,103 for employee benefits for the wife and children. These amounts were deducted as legitimate business expenses, when in fact defendant’s wife and children did little or no work for WEI.

And those credit card charges? The indictment alleges:

(1) a trip to France/Switzerland made by his wife, daughter, and that daughter’s then- boyfriend, which he termed an “inspection” done for CCI; (2) a trip made by defendant’s wife and two daughters to President Barack Obama’s inauguration; (3) a trip to Disneyworld by defendant’s two daughters; (4) a four day trip to the Mauna Lani Bay resort on the Big Island for his family, characterized as a “stockholders meeting,” even though defendant was WEI’s sole shareholder; (5) a trip to Tahiti by defendant’s wife, two daughters, and son that he termed an “investigation” of an underwater cable; and (6) sundry other expenses including restaurant charges with defendant’s family members. These reimbursements were deducted by WEI as if they were legitimate business expenses and supported by directions or memoranda signed by defendant. Defendant failed to report the receipt of this money as income on his personal income tax returns.

There’s more, but you get the idea.

Hee’s lawyers, on the other hand, contend that this is just a routine dispute between a businessman and the IRS that has been unnecessarily escalated to the criminal level by the government.

Here’s a summary from Hee’s trial brief:

As the Supreme Court noted in Cheek v. United States, because of the complexity of our tax laws, criminal tax violations require more than a taxpayer just being wrong as to a particular question of tax law—it requires that the taxpayer be willful and intentionally violate a known legal duty. Accidental, inadvertent, mistaken, negligent, or even grossly negligent conduct does not constitute willful conduct.

We expect that the evidence will show that the accounting staff within Mr. Hee’s companies, as well as the outside accountants, were aware of and accepted the substance of many if not all of the tax reporting positions the government asserts were fraudulent. We expect that the evidence will also establish that Mr. Hee was in good faith at all times regarding his tax obligations. The government will fail to prove that Mr. Hee willfully signed and filed a false return or corruptly obstructed the IRS, because Mr. Hee lacked the specific intent required for these charges.

So it is going to be very interesting to see how this plays out.

The trial is expected to last several weeks.