Successful business owners generally enjoy a great deal of public admiration and support. Business owners are often hailed as job creators and held up as a model for others to aspire to. Unfortunately, in some cases, it seems like this praise and adulation can convince the business owner that he or she is beyond suspicion or reproach for dishonest dealings. They may start to believe that their success inoculates them from liability and permits them to engage in less than honest dealings regarding the businesses finances to boost profits.
Unfortunately, in some cases, this view can spread from the owner throughout the company and infect other parties responsible for the company finances and books. This is what prosecutors allege occurred at an Irvine business where the business owner and company bookkeeper engaged in a years-long fraud that shorted payroll tax and workers’ compensation obligations. Unfortunately for the business owner and bookkeeper, reputation alone will not shield them from the hard facts presented by an audit. Investigators and auditors will analyze business’ operations and records to identify fraud and other tax problems.
To outward appearances Venetian Stoneworks, a tile and stone company, was a successful and upstanding Irvine business. Unfortunately, according to allegations by the Orange County DA Bureau of Investigation, EDD, FTB, and prosecutor Deputy District Attorney Debbie Jackson of the Insurance Fraud Unit, the company was actually shortchanging other California businesses and taxpayers through an array of fraudulent activities.
According to the prosecutor and others, Ronald Scott Dee, 63, of Irvine, and Pamela Palmer Quast, 61, of Santa Ana allegedly engaged in a tax evasion and insurance fraud scheme. The scheme allegedly occurred between Jan. 1, 2006, and Jan. 31, 2013. According to prosecutors, the business owner, and the bookkeeper understated the number of employees at the company and under reporting their payroll. This fraud had a number of effects. First, allegedly understating the company payroll enabled the business to fraudulently secure lower workers’ compensation insurance premiums. Second, understating a company payroll would also have the effect of fraudulently reducing a company’s payroll tax obligation. In fact, prosecutors are charging the bookkeeper and owner with failing to provide the Employment Development Division (EDD) with quarterly payroll reports, failure to pay over withholding deductions, and failing to repay over disability insurance withholdings. Prosecutors have also filed charges for filing a fraudulent tax return with the California Franchise Tax Board (FTB).
The defendants are accused of failing to accurately reporting payroll to their insurance provider by nearly $2 million. They are also accused of failing to report employee tax withholdings totaling over $6.5 million to EDD. Prosecutors have accused the business owner of keeping the withheld taxes to pay for personal expenses thus costing the State of California and various insurance companies over $1.5 million in theloss.
Ronald Scott Deeand Pamela Palmer Quasteach face a significant number of felony charges. According to the Orange County District Attorney, Dee and Quast each face 28 counts of failing to file a return with intent to evade tax.They also each face 28 counts a willful failure to pay taxes, 24 accounts of a willful failure to pay withheld disability insurance payments, six felony counts of misrepresenting facts to workers’ compensation insurance company, and additional charges. If convicted on all charges, Dee could face a state prison sentence of 64 years and eight months in state prison. If convicted on all charges, Quast could face a state prison sentence of 63 years and four months.
Consider that these charges were all investigated and prosecuted by county and state enforcement agencies. These charges did not involve the IRS or federal tax charges. However, the state tax enforcement agencies often report tax improprieties they discover to the IRS. Thus, it is not uncommon for federal tax charges to follow state-based charges. Thus, the business owner and bookkeeper may soon face additional federal tax charges brought by the IRS and Department of Justice.
If mistakes have been made in the handling of a company’s finances, a routine audit or investigation can quickly develop into a serious situation where the responsible parties can face significant penalties including a lengthy prison sentence. If you are facing an audit, an experienced and strategic tax attorney can work to set ground rules for the audit and reduce the likelihood that the scope of the audit expands into all aspects of your books and records. David W. Klasing is a dually licensed tax attorney and CPA with more than 20 years of experience. David has worked as a public auditor and can put his understanding of audit strategies and practices to work for your business. To schedule a confidential, reduced-rate tax consultation, call the Irvine or Los Angeles locations of the Tax Law Offices of David W. Klasing today at 800-681-1285 or contact the firm online.