For nearly a decade, from 2006 until 2015, Jeffrey Lee Longtain was Chief Operating Officer (COO) and the president of an affiliate company of Starkey Laboratories. This business is known as Northland Hearing Center and is in Oregon. To outside appearances, Starkey Laboratories and its affiliated companies were upstanding businesses. However, federal investigations into the business seemed to reveal an array of conflicts and self-dealing present at the business.
To date, Longtain is the sixth person to face a tax or other fraud charges due to the fallout from the Starkey investigation. This case shows just how precarious it is to rely on one’s reputation, standing, wealth, or other characteristics to stave off an investigation or deflect suspicion. Remember, IRS and state tax agents and auditors follow tax and financial evidence – not emotions. If a paper transaction is something other than what you purport it to be, agents will pursue the evidence and are likely to file an array of criminal tax charges.
According to court documents, Longtain was involved in a number of questionable transactions that raised questions about potential conflicts of interest. Longtain received payments of $105,600 between 2010 and 2015 from suppliers of Starkey Labs. The payments were made to cover Longtain’s personal golf membership fees. Prosecutors charge that Longtain received these payments but did not report them to the IRS as part of his annual income tax filings.
In addition to the payments for the golf memberships, prosecutors state that Longtain also arranged for a “loan” from Starkey. The loan was for $115,000 and was negotiated to cover the tax impact of a sale of restricted Northland Hearing Center stock. The government determined that the sale was an early and fraudulent termination. The proceeds from the sale included $8.2 million in cash split by Longtain and another executive.
However, according to allegations contained within the information against Longtain, the cash payment was not actually a loan:
As Longtain knew, the $115,000 payment that Nelson caused Starkey to make to Longtain was not a real loan, but rather a disguised payment and should have been reported as income on Longtain’s 2014 tax return. The defendant did not inform his tax preparer about this payment and thereby purposely and knowingly concealed income from his tax preparer that should have been reported on his 2014 return.
The fact that Longtain received a payment from the company was not the problem. The problem here is that Longtain allegedly attempted to conceal the payment by claiming that it was a loan rather than income. In mischaracterizing the nature of the payment and failing to report the golf membership payments, prosecutors allege that Longtain made false statements on his 2014 tax return.
Under Section 7202 of the U.S. Tax Code, “Any person who willfully delivers or discloses to the Secretary any list, return, account, statement, or another document, known by him to be fraudulent or to be false as to any material matter” is subject to punishment. Penalties can include a prison sentence of up one year, a fine of up to $10,000 ($50,000 in the case of a corporation), or both penalties.
In this matter, it is important to note that the charges faced by Longtain may indicate a best-case scenario due to cooperation with the authorities. Here, Longtain was charged under an “information” rather than a criminal indictment. This fact often indicates that the defendant is working with the authorities to provide evidence regarding the actions of co-conspirators and other involved parties. It is essential to recognize that willfully evading taxes over a course of years can and will often result in even harsher tax charges and potential consequences.
This matter shows the danger of relying on one’s achievement, position in a company, or community standing to avoid criminal tax charges. As it happens all too often, taxpayers who rely on social standing to avoid suspicion face difficult circumstances when a tax or other charges damage the reputation they were relying on in the first place. Wise taxpayers who fear or suspect tax mistakes or other tax problems will contact a tax professional before an audit is launched or criminal tax allegations are made. The tax lawyers and CPAs of the Tax Law Offices of David W. Klasing can help you correct tax issues and meet the challenge of an IRS audit or criminal investigation. To schedule a confidential reduced rate consultation at our Los Angeles or Irvine tax law office, please call 800-681-1295 or contact us online today.
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