Some business owners seem to believe that when times are tough, neglecting one’s income, sales tax, and payroll tax duties is a way to approach the financial situation. Other business owners may come to resent the amounts paid in taxes and believe that they can fail to pay to boost the profitability of the business. In many cases, the fraud often starts small with the business owner seeking to make ends meet, boost profits, or otherwise engaging in what he or she believes will be temporary measures. However, over time, the fraud is reinforced due to the lack of action against the individual and frequently grows to levels where it is no longer concealable or manageable.
Unfortunately, it appears that the former owner of the Hollywood Boulevard and Hollywood Palms may have fallen victim to this line of thinking. An indictment against the former owner of these facilities charges that the failed to pay taxes on an array of income realized by the businesses. While the individual originally claimed that he never committed fraud, he recently entered a plea deal in the matter that could result in more than two decades in prison and other drastic financial consequences.
Ted E.C. Bulthaup III is the former owner of both the Hollywood Boulevard and Hollywood Palms theaters. Bulthaup pleaded guilty to tax evasion and financial fraud charges due to mistakes and untenable positions he had taken with the business. At the outset, Bulthaup faced more than 100 indictments charging that he engaged in activities including mail fraud, wire fraud, and sales tax fraud. The plea deal resulted in the dismissal of most of these charges.
During 2010, 2011 and 2012, Bulthaup “caused partnership income tax returns for Naperville Theater LLC, doing business as Hollywood Palms, to be created.” During this period of time, Bulthaup allegedly engaged in an array of fraudulent conduct. Prosecutors charge that Bulthaup both overstated and understated his income. As far as overstating his income, Bulthaup inflated sales and gross receipts on fraudulent tax documents to secure business loans. Regarding the understatements of income, prosecutors claimed that Bulthaup failed to report and pay taxes on more than $18 million in revenue generated between 2009 and 2013.
Originally, Bulthaup faced more than 100 criminal charges. The plea agreement he agreed to dismissed these other charges and resulted in Bulthaup facing only two criminal charges. First, Bulthaup faced a single count of sales tax evasion. Sales tax evasion charges are appropriate when an individual or business endeavors to defeat the assessment of sales taxes or endeavors to defeat the payment of the sales taxes after a valid assessment has occurred. Under the Illinois state law that Bulthaup pleaded guilty to violating, he could face between four to fifteen years in prison for the sales tax fraud.
Bulthaup also faces charges related to his fraudulent loan activities. Due to intentionally presenting fraudulent tax returns and financial information to secure a loan, Bulthaup also pleaded guilty to a single count of financial institution fraud. In this case, financial institution fraud can be punished by a prison sentence of between three and seven years.
However, the situation could have been significantly worse for Bulthaup. While he could end up serving a maximum of 22 years under the plea deal, the hundreds of charges he originally faced would have almost assuredly resulted in more prison time. Business owners who consider engaging in sales tax or payroll tax fraud should understand that they can face significant and life-altering consequences due to behavior of this type.
Bulthaup will be sentenced Oct. 26, 2016, by Judge Daniel Guerin.
Auditors from the IRS and state tax agencies aggressively pursue businesses and business owners that commit tax fraud. Whether the fraud involves understated sales, payroll tax obligations, or other types of tax fraud serious penalties can apply.
Working with a dually licensed tax lawyer and CPA, such as David W. Klasing, can help you prepare for the audit and meet the challenges presented by the auditor. As a former public auditor with more than 20 years of experience, David understands audit techniques and can work to mitigate the situation you face. To schedule a reduced-rate tax consultation at our Los Angeles or Irvine offices call the Tax Law Offices of David W. Klasing at 800-681-1295 or online.