As we unfortunately discuss all too often on this blog, many successful business owners come to believe that their wealth, success, and business dealings somehow provide immunization from suspicion of tax fraud and the meticulous examination of an IRS auditor. They come to believe that their tax scheme will be the one that the IRS hasn’t seen before and will be unable to figure out. Unfortunately, for these company founders, presidents, and CEOs both of these assumptions are incorrect. The suspicions of IRS agents are not deterred by your occupation or social standing. In fact, they may be on the lookout for even more sophisticated schemes based on your resources. Furthermore, IRS fraud examiners and auditors are extremely experienced and skilled in their day-to-day practice. While the business owner may know coding or network security and architecture like the back of their hand, the IRS agents bring the same level of knowledge to tax matters.
Robert P. Bonefant Jr. is the owner and manager of AVC Technology. AVC Technology was run out of Bonefant‘s Massachusetts home. He is also a partial owner in a Hong Kong-based technology firm and a Florida-based sales and marketing business. The tax troubles for Bonefant began nearly a decade earlier when, in 2008, the IRS assessed nearly $200,000 in back taxes related to Bonefant’s 2004 and 2005 filings.
Apparently, Bonefant had a number of sources of income that he then attempted to conceal from the IRS to reduce his income tax payment. For instance, Bonefant apparently worked as a consultant for Monster Cables in his personal capacity. However, Bonefant had Monster issue payments to his AVC firm so that he could declare zero income for the tax year. Prosecutors also alleged that Bonefant was funneling other income through his domestic and international firms.
Bonefant also engaged in other measures to conceal his income. He apparently deposited roughly $1 million in income and business reimbursements to his father’s bank account. Furthermore, he did not file any income tax return for 2010 when prosecutors believe he earned more than a quarter of a million dollars. Bonefant apparently went all-in on his scheme in 2012, when he filed for bankruptcy seeking not only to discharge the 2004 and 2005 tax assessment, but also other debts. Furthermore, he continued to conceal assets and income and made false statements regarding the same during his bankruptcy proceedings.
In September 2015, Bonefant pleaded guilty to two counts of tax evasion, three counts of filing a false tax return, and three counts of bankruptcy fraud. For these crimes, Bonefant will serve more than a year in federal prison followed by a year of supervised release. However, the most painful aspect of the penalty for Bonefant is probably the fact that he must cooperate with the IRS in repaying the $400,000 in taxes he evaded. In light of the penalties and interest that have and will continue to accrue, the amount of restitution will be significantly more than the $400,000 Bonefant originally owed.
While Bonefant probably considered his method of concealment sophisticated, the simple fact is that he triggered a number of red flags. First, when Bonefant filed, he likely indicated that he had a home office for his AVC business. The home office deduction is one that is frequently scrutinized by auditors. Furthermore, to show zero income, he probably declared business losses year-after-year, which is another red flag to an auditor. Additionally, Bonefant was connected to and a beneficiary of a foreign entity. In today’s world of FATCA, FBAR, and international tax evasion concerns, this is another sure-fire wire to draw scrutiny. Finally, Bonefant also apparently filed zero income returns for certain tax years. 2014 tax year statistics show that, taxpayers indicating no gross adjusted income had a higher chance of audit than all other income groups except for individuals claiming $1 million or more in income.
If you fear that an IRS auditor or representative from it Criminal Investigations Division will locate tax fraud in his or her examination, going it alone or using your original preparer is almost certainly destined to turn out poorly. The taxpayer simply doesn’t have the background and experience to go against a professional. Your tax preparer is subject to government subpoena has a clear conflict of interest since he or she is likely to engage in attempts to preserve his or her reputation. IRS auditors and investigators handle these types of schemes every day. Results potentially include a prison sentence, a large back tax bill, or both.
David W. Klasing is a dually certified tax attorney and CPA with more than 20 years of experience. As a former public auditor, he understands auditing techniques and can use this knowledge to prepare a strategic audit defense. Furthermore, only the attorney-client privilege and work-product doctrine ensure confidentiality in your disclosures. If you already face tax charges or fear you will soon be charged, call the Tax Law Offices of David W. Klasing at 800-681-1295 today to schedule a reduced-rate consultation. Also, be sure to subscribe to our YouTube channel for insightful videos about a multitude of different tax issues and the services that we provide.