According to a Department of Justice press release, Catinia Farrington, of Cypress, Texas, was sentenced to serve five years in a federal prison for submitting false claims to Medicaid and tax evasion. The criminal activity was alleged to have happened between 2011 and 2015 while Farrington was the owner of Durham County Mental Health and Behavioral Health Services LLC in Durham, North Carolina. According to federal prosecutors, Farrington processed claims for patients that were not even seen at her facility.
Court documents indicated that Haydn Thomas, an acquaintance of Farrington, worked on the administrative staff for a local oral surgeon. As part of Thomas’ work duties, he had access to sensitive medical information of the patients that visited the surgeon, including their Medicaid identification numbers. Prosecutors asserted that Thomas provided the numbers to Farrington and she filed thousands of false claims seeking Medicaid reimbursements.
The government estimates that Farrington earned more than $1.1 million relating to the fraudulent claims and used business bank accounts to pay for personal expenses to avoid paying federal income tax on the income. Farrington pleaded guilty to the charges levied against her last fall, as did her co-defendant Haydn Thomas. In addition to serving five years in prison, Farrington was ordered to serve a three-year term of supervised releases and pay nearly $4 million to the North Carolina Fund for Medical Assistance and nearly $400,000 to the IRS.
There are a great many taxpayers who use business bank accounts to pay for their own personal expenses, like Catinia did in the story outlined above. This can be true of those aren’t engaged in illegal activity, otherwise. The IRS takes issue with the payment of personal expenses with business bank accounts because it likely will result in (1) the business taking more tax deductions for expenses that do not actually relate to the business and (2) the individual benefiting from the use of the business bank account reporting less income or compensation from the business than they actually received.
If you are a business owner and have commingled your business and personal funds, you may be at risk if either your personal or business tax return is examined by the IRS. The best course of action is to consult with an experienced tax defense attorney to establish a strategy to rectify the situation. The IRS is ramping up their collection efforts in an attempt to pay for the new tax expenditures in the recent Tax Cuts and Jobs Act, which means that they will taking a close look at issues such as these during routine examinations.
Ms. Farrington’s case is also an example of federal agencies working together once a person is suspected of committing a federal crime. Ms. Farrington was likely first investigated for the fraudulent Medicaid claims and her tax crimes were discovered as a result. This is extremely common. That being said, taxpayers should not adopt the notion that their tax noncompliance will only be discovered if they are committing other crimes.
The tax and accounting professionals at the Tax Law Offices of David W. Klasing have extensive experience representing taxpayers from varying walks of life. Whether you are a small business owner under audit, an individual with undeclared foreign bank accounts, or anything in between, our zealous advocates are ready to assist you develop a strategy with your physical and financial freedom as its top priority. Do not let the IRS, state taxing authorities, or the threat of tax-related incarceration keep you up at night. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.
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