Regardless of the business entity’s structure or general accounting principles, some small business owners or CEOs of major corporations may still see their business as an extension of their own personal finances. Others may run into personal financial trouble and see their company’s assets and resources as a convenient “loan” or other means to pay down their personal debts. Still other business owners may simply see their lavish spending habits as a way to reduce the company’s tax liability at the end of the year.

Unfortunately, each of these motivations behind mischaracterizing personal expenditures as business expenses will not satisfy the IRS or Department of Justice. In fact, the apparent presence of willfulness in each of these actions can open up the business owner to lengthy audits and criminal investigations that can culminate in harsh criminal tax penalties.

Tax Forms, Spread Sheet With Pen And Calculator.

Improperly Converting Personal Luxuries to Business Expenses Is a White Collar Crime

To illustrate to potential devastating penalties a taxpayer can face if he or she mischaracterize personal expenses, consider the recent tax fraud conviction  of Albert Hee, CEO of Waimana Enterprises, Inc. Waimana is a well-established telecommunications company with a number of wholly-owned subsidiaries including Sandwich Islands communications, Inc. In fact, Sandwich Islands Communications is chiefly known as the company that, in the past, received roughly 100 times the national average for its services of building-out and operating rural telecommunications networks.

From these companies is where Mr. Hee’s sourced  funds for the lavish trips, purchases, and expenses he covered for himself and family members. To avoid detection, he made false statements to company accountant regarding the purpose or nature of these expenditures. Some of the more notable mischaracterizations by Mr. Hee include:

  • The purchase of a $1.3 million dollar Santa Clara, California home that was ostensibly for company and employee retreats. In reality the home and property was used as a boarding home for Mr. Hee’s children and their college associates. Mr. Hee’s children collected rent on the property and kept the money.
  • Full-time salary and benefits were conferred upon Mr. Hee’s wife and children despite them having little or nothing to do with the operation of the company.
  • Company accountants believed that the $96,000 Mr. Hee spent on twice-weekly massages was actually for medical services.
  • Company funds were used to pay for lavish family trips to Europe and Disney World. The purported purpose of at least one of these trips was a “stockholder’s meeting.”
  • Company funds were used to cover Hee family credit card expenses.
  • The company paid for Mr. Hee’s children’s college tuition.

In the words of U.S. Assistant Attorney Lawrence Tong, Mr. Hee used these companies, “ as if it was his own checkbook.” At trial a jury found Mr. Hee guilty on six counts of providing false information to the IRS and a single count of obstructing in the administration of the U.S. Tax Code.

IRS Investigates Taxes

What are the Penalties for These Tax Crimes?

Mr. Hee’s sentencing hearing is not expected for several months. Nevertheless, he was convicted under serious charges that places his continued freedom in severe jeopardy. To begin with, 26 U.S.C § 7212 defines the crime and sets forth penalties for individuals who interfere in the administration of the U.S. Tax Code. Depending on the acts taken by the taxpayer and whether he or she attempted to corruptly or otherwise interfere, a prison sentence of up to three years and monetary fines can be imposed.

As for the six counts of making false or fraudulent statements to an agent about a tax return or other financial document, the crime and penalties are set forth in 26 U.S.C §7206(1). Under this provision of the tax code, individuals who willfully provide or submit a false tax or financial document while under the penalty of perjury can face serious consequences. Individuals can be fined up to $100,000 for each count. That fine is increased to $500,000 in the case of a corporation. Additionally a prison sentence of up to three years can be imposed for each of the six counts Mr. Hee was convicted.

Potential Tax Problems Due to Aggressive Tax Positions? Contact an Atlantic City Criminal Lawyer Today

Business owners and CEOs typically only want to do what is best for their company and family. However, without the proper guidance, one can find themselves facing severe civil or criminal tax penalties. If you are facing serious tax fraud charges, the experienced Atlantic City criminal defense attorneys of the Law Offices of John J. Zarych can fight to protect your freedom and reputation. To schedule a private, free tax consultation, call our firm at (609) 616-4956 or contact us online.