Regular visitors to our tax blog may recall that late last year, Minnesota tax defendant Jerome Robert Hennessey, 56, former owner of a grain elevator company, was charged with wire fraud and tax evasion. The charges arose from a scheme in which Hennessey, during the period from 2003 to 2018, defrauded the co-op he managed, Ashby Farmers’ Co-Operative Elevator Company, by exploiting his control over company finances to write himself and other parties numerous checks, which were used to pay for hunting expenses, real estate, and other personal luxuries. In addition, Hennessey substantially underreported his income to the Internal Revenue Service over the period from approximately 2011 to 2017, defrauding the IRS out of roughly $1.2 million (and Minnesota tax authorities, another $400,000). According to a Department of Justice press release, Hennessey, appearing before Chief Judge John R. Tunheim, pleaded guilty on February 14, 2019. Sentencing is currently scheduled for June 13.
Hennessey pleaded guilty to two offenses: tax evasion, in relation to underreported income, and wire fraud, in relation to false information Hennessey provided banks in order to obtain “a line of credit for more than $7 million.” Rather than using the loans to pay for business expenses, like the purchase of grain or equipment, Hennessey instead spent the money on various personal expenses, including “renovations and improvements to his residence and a cabin, the purchase of real estate, the purchase of all-terrain vehicles, outstanding credit card balances, property taxes, expensive hunting trips, and taxidermy services,” according to the press release. In total, Hennessey obtained approximately $7 to $8 million in credit.
In addition to misusing company funds for his own personal benefit, Hennessey failed to report large amounts of income to the IRS, admitting to omitting roughly $3.6 million from his tax returns during the period from 2011 to 2017. The defendant’s failure to report income cost the government approximately $1.6 million in tax revenue, including $1.2 million in unpaid federal taxes and $400,000 in unpaid Minnesota taxes. In particular, prosecutors highlighted 2013, when Hennessey omitted approximately $700,000 from his tax returns, reporting only a fraction of his income at roughly $97,000.
On September 10, 2018, Hennessey, instead of meeting with co-op members, briefly fled to Iowa with assistance from another individual. However, he returned to Minnesota on December 4, one day after charges were filed in federal court. After pleading guilty on February 14, Hennessey is expected to be sentenced on June 13. At sentencing, he faces up to eight years in federal prison, in addition to a slew of devastating fines: $5.3 million in restitution, to be paid to co-op members who were financially harmed by the scheme; another $1.2 million in restitution, to be paid to the IRS; and finally, up to $250,000 in additional criminal fines. Court records indicate that, with regard to the payment of Hennessey’s restitution orders, co-op members should receive priority over the IRS.
Every year, hundreds of taxpayers are prosecuted for tax fraud, which includes the willful failure to file taxes, pay taxes, report true amounts of income, or report all sources of income. For business owners, it is also essential to maintain clear, detailed, and most importantly, accurate books and records. Hennessey, for instance, supplied false information to co-op bookkeepers, which – at least for a time – enabled him to “give the false impression that the funds [he] had taken had been used for legitimate purposes.” A professional business bookkeeping service makes it easier to keep precise track of company finances – and to locate how and where resources are being allocated.
Regardless of whether you own a business, a tax audit or IRS criminal investigation puts you in serious jeopardy. Depending on the age, nature, and severity of a tax error, the consequences might include hefty tax assessments, interest charges, and/or various civil penalties. If the error was the result of a deliberate attempt to defeat the tax code, the consequences could also include criminal fines, jail time, victim restitution, IRS restitution, and supervised release and loss of licensure among other penalties.
If you or your business is facing an IRS audit, Eggshell Audit, California tax audit, or a criminal tax investigation, consult with a knowledgeable tax defense lawyer for legal assistance immediately. At the Tax Law Office of David W. Klasing, our Orange County income tax fraud defense attorneys have more than extensive experience handling exposure to misdemeanor charges, felony charges, and all types of state and federal tax audits. For a confidential, reduced-rate consultation, contact the Tax Law Office of David W. Klasing online, or call our tax firm today at (800) 681-1295.
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