If you frequent the David W. Klasing Tax Blog, you know that we strive to report on the most pertinent topics pertaining to tax law in order for you to avoid being caught up in a situation that can land you in prison. Our stories come from all around the country, but last week, an Orange County couple was sentenced to time in prison for the tax evasion activities of their business. This is too close to home and the punishment was too severe to be ignored.
An Orange County Superior Court Judge sentenced Richard and Jolene Engel last week for tax evasion. The couple founded and operated Powerplant Maintenance Specialists Inc. from 1998 through 2001. The company’s mission was to provide renovation services to power plants in Southern California and beyond. Jolene and Richard both acted as President of PMSI during its lifetime. Richard additionally acted in the capacity of PMSI’s Chief Financial Officer and had a hand in the negotiation of contracts and other bookkeeping responsibilities.
The Engels’ story of deceit started in late 2000 when PMSI entered into a contract with the AES Corporation (which was formerly Southern California Edison). The contract called for the remodeling of the AES plant in Huntington Beach in exchange for almost $110 million. Payments were to be made in installments prior to the work being completed. There was a hold-up regarding some of the permitting required and as consequence, the PMSI received most of the payment before any work had been started.
It is unclear as to whether the Engels or PMSI ever intended to complete the job, but one thing is certain: Richard and Jolene had tens of millions of dollars at their disposal and disposing is exactly what they did. Over $24 million was spent on luxury items, cars, vacations and even an $8 million divorce settlement between the couple.
In the end, PMSI didn’t have enough money to pay for materials or employees to complete the job. AES had to pony up an additional $35 million to complete the renovation. In the process, representatives from the labor union contacted the investigators with the Orange County District Attorney’s Office. When their White Collar Division, with help from the California Franchise Tax Board looked into the matter, they found that not only had the couple stolen millions of dollars from AES, they had reported either no income or very meager earnings from the PMSI.
Richard and Jolene Engel pleaded guilty to tax evasion in late 2011 and have now been sentenced to seven years in a state prison and three years of probation, respectively. In addition to their incarceration, each was ordered to pay restitution of over $1 million each.
Tax evasion is not just a federal crime. Often times, criminal tax matters are prosecuted by the Department of Justice with assistance from the IRS Criminal Investigations Division. But here, we can see that the State of California and the Orange County District Attorney are not messing around when it comes to tax evasion.
With this case hitting so close to home, it is important to make sure that you are conducting your business affairs in a legal manner. Further, if you happen to get yourself into trouble regarding your taxes or accounting practices, you need to make sure that you know where to turn.
The tax law and business accounting professionals at the Tax Law Offices of David W. Klasing are here to ensure that you are in compliance with federal and state tax laws and to make sure that you stay out of jail if you have made mistakes in the past. Though the Engel’s mistakes seem intentional and blatantly illegal, the District Attorney and Franchise Tax Board often prosecute cases that are far less black and white. Questionable practices can lead to many years in prison. Your business can’t thrive without you; let us help you keep your freedom. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation, or call (800) 681-1295.